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Unless modernisation happens, the company will be ill equipped to deal with its challenges. It will be faced either with increasing prices, thereby worsening
11 Feb 2009 : Column 1453
e-substitution, or a decline in the quality of service, possibly with the same result, and threatening the universal service obligation, which we are trying to protect. Of course, it would be nice if we could make the issue go away, but that would not present a solution to Royal Mail’s problems. There has been a pattern in the past of settling rather than resolving difficult issues. That is why it is important to have a coherent package for the problems that Royal Mail faces, and that is what we have set out.

We will not fall for the less-than-canny motion from the Opposition, which is silent about many of the company’s challenges. Instead, we have set out a plan, which says no to the privatisation of Royal Mail; yes to keeping it as a publicly owned company; yes to pension security; and yes to a new system of regulation with the USO at its heart. Any legislation to implement those proposals will be fully and properly debated by the House. On that basis, I ask my colleagues to reject the Opposition motion and support the Government amendment.

5.18 pm

John Thurso (Caithness, Sutherland and Easter Ross) (LD): I am grateful for the opportunity to discuss the Hooper report. When the statement was made, I said that it was important to debate the matter fully. Indeed, if ever an issue deserved a pre-legislative scrutiny process, surely this is it.

Richard Hooper and his team have done an excellent job with the report, which is thoughtful and thorough. Whatever one’s views of some of the individual points, the general thrust and conclusions cannot be ignored. Let me begin, therefore, by looking at the principal points, which are helpfully set out in the “Headlines” section of the report. Let me deal first with the universal service obligation. It is fairly hard to conceive of a report saying that the USO should be disposed of, but there were options for diluting it. I am extremely glad that Hooper rejected all those options. Not only does the Hooper report recommend the maintenance of a six-day-a-week USO to all addresses in the United Kingdom—I would qualify “all addresses” as “the vast majority of addresses”; a Mr. John Ridgeway on the Ardmore peninsula is still waiting for the resumption of his deliveries—but it points out that the USO is very much part of the economic and social glue of our country. The USO must remain a six-day obligation, its coverage must be as near as possible to 100 per cent. and, as has been pointed out, it needs to be affordable. The report draws the clear conclusion that to maintain that kind of USO is not possible under the Royal Mail’s current arrangements and in the face of competition from other media, particularly text messaging and e-mail.

The second point is the need to deal with the pensions deficit, which continues to balloon, having been around £3.4 billion in March 2006. Hooper reckoned that it was around £5.9 billion, and given the movements of the markets, it has probably increased substantially since then. Both the deficit and the deficit payment are a serious drag on the company. Of the 13.5 per cent. gap that Hooper identified between Royal Mail’s operating profit and the operating profit of the continental companies that he believed to be most efficient, 4.3 per cent. was made up by the catch-up deficit payment.

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Thirdly, the report emphasises the difference between postal services—that is, Royal Mail—and post offices, and recommends that post offices should remain wholly in public ownership. That is a point with which I agree entirely. Hooper does not go any further on post offices, as that was not in his remit, but the report must be an opportunity to put the post offices on a sound footing. I shall return to that point in a moment.

The fourth point that Hooper made relates to regulation. It is absolutely right that regulation should be dealt with, and I think that Ofcom is the proper body for that. Fifthly, the report makes it perfectly clear—virtually everyone agrees with this—that the status quo is not an option. Royal Mail needs to change and modernise, and it needs to face external competition from outwith mail services. It needs, in Hooper’s words, to transform and diversify. The conclusion reached is that achieving that requires introduction of expertise through a partnership management agreement with one of the private companies, which will bring commercial confidence, instil better practices and create the ability to acquire and access private capital. In that regard, the Government have indicated that they favour a sale of a minority stake in Royal Mail to a private partner. That raises some questions that need clear consideration.

I shall come to those questions in a moment, but let me first touch on the motion before us, which the right hon. and learned Member for Rushcliffe (Mr. Clarke) moved. Broadly speaking, his motion says: “We agree—bring it on,” to which I say: how wonderfully retro. What a thorough cast back to Thatcherism—indeed, it is Thatcherism that even Mrs. Thatcher would not have agreed to. It is privatisation of the “Chuck ’em all out into the cold hard world, the cold waters of competition and commercial reality and the job’s done” kind.

Of course, it helps the right hon. and learned Gentleman that the Conservative party is broadly a policy-free zone on Royal Mail. I could certainly find nothing published on the Conservative website, although admittedly there may be something else, apart from the helpful admission made by his predecessor, the hon. Member for Rutland and Melton (Alan Duncan), that the Conservatives will continue to close post offices, as they did under the previous Administration. It is a shame that the right hon. and learned Gentleman chose to paint such an uninspiring and rather passé picture. It is certainly not one that I would ask my colleagues to follow.

Mr. Kenneth Clarke: I was waiting to hear the hon. Gentleman say whether he was in favour of partial privatisation, which I think we all agree is a perfectly accurate description of the Government’s proposals. Are the Liberals still thinking about this complicated issue?

John Thurso: I am extremely grateful to the right hon. and learned Gentleman for that intervention. I draw his attention to the amendment that I tabled, which is a fairly accurate reflection of the policy that we adopted at our conference three years ago, which I believe is widely available. I shall come to that point in some detail in a moment.

I want to look at the opportunities that flow from the report. The first is the real chance to help the post office network. I again want to make the distinction between the Post Office and the Royal Mail. Many of our
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constituents think that they are one and the same thing, but there is a real difference. Hooper recommends that the post office network remain in the public sector, with which I wholeheartedly agree, but I believe that we should go beyond that. We should take it out of Royal Mail Group and make it a separate entity, with a separate board dealt with by the shareholder executive, so that it is clearly and distinctly separate from Royal Mail and from whatever might happen to it. I would also like that board to have some stakeholder representation, particularly by sub-postmasters, as that would help to inform its future. A key point would be for the post office network to be a separately owned and managed entity that was not bound up in whatever future Royal Mail might have.

Mr. McFadden: I appreciate that the hon. Gentleman is setting out his party’s policy on the company structure, but does he accept that about 30 per cent. of post offices’ income comes from their contract with Royal Mail? Has he considered that when setting out his proposed structure?

John Thurso: Absolutely, and I would ask the Minister to ensure that there was a clear, transparent contract between the two entities. I am trying to draw his attention to the fact that it seems extremely difficult for an organisation that has taken in private equity to own part of another organisation that is said to be wholly in the public sector. I do not believe that an organisation can be wholly in the public sector if it is part of a group that has a minority stake from somewhere else.

Mr. McFadden: The Post Office already has a partnership with the Bank of Ireland, which I think the hon. Gentleman will find is a private sector organisation.

Rob Marris: This week.

John Thurso: Perhaps the Minister might like to observe that, with friends like that, who needs enemies?

The Post Office needs capital and, as part of what goes on, it is important that some of the capital raised should go to the Post Office. The Minister alluded to the fact that capital is needed to transform the future of the Post Office, to help it to become viable. I see two ways in which that could be done. The first involves the creation of what has been termed a post bank. The second would be for post offices to become the first point of contact between the citizen and the state. As so many local offices and benefits centres have closed, so the ability for people to interface with a human being to deal with simple questions has disappeared. That is a job that could be done by post offices for a modest fee, and it would save the Government a great deal of administrative money at a later stage.

Albert Owen: The hon. Gentleman is making an interesting point. Does he agree that it is important to set up a model whereby local authorities can be the driver of local services in the local community?

John Thurso: I have indeed discussed the potential for putting contracts into post offices with my own local authority, the Highland council. It pointed out that it had very good service centres, but that some areas were not covered by them. There is certainly room to look further into that, so the hon. Gentleman has raised a good point.

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Let me deal now with Royal Mail. It seems to me that allowing an entity somewhere simply to take a minority stake to become a business partner combines pretty much the worst elements of all worlds. If it is simply a matter of gaining access to capital and nothing else, there is a range of alternative mechanisms for accessing private capital—non-voting equity, bonds, preference stock, which the Government love at the moment, loan stock and so forth. There is also the possibility of creating a 50:50 joint venture—in other words, doing nothing about Royal Mail itself, but creating a 50:50 joint venture with both sides placing into it what they want.

There are many ways of dealing with the problem, but one of my worries about taking a minority stake is how it can be valued, particularly at this time in today’s markets. How do we decide how much it is worth? How much equity is sold for what price? If the stake is to be 10, 25, 35 or 49 per cent.—there is quite a difference between those numbers—we should bear in mind that a single minority shareholder will not go sticking his money into a company unless he has what is known as a shareholder’s agreement, which sets out the terms that apply, making it clear whether and when the public side—the Government—can or cannot do certain things. With all those points unresolved and undiscussed, the claim that the Government’s proposals offer secure public ownership seems to me to be ever so slightly disingenuous.

Peter Luff: If I understand the hon. Gentleman correctly, what he is citing as a problem is actually one of the strengths of the proposal, as it will actually commit the Treasury to behaving in a responsible way towards Royal Mail Group, which, frankly, it has not done for 20 years.

John Thurso: I bow to the hon. Gentleman’s superior knowledge in this field.

Mr. Jonathan Djanogly (Huntingdon) (Con): Does the hon. Gentleman agree with the Minister’s point that, by having an outside third-party investor, the trade unions will, in effect, be better behaved than they have been in the past?

John Thurso: That is precisely the point I am coming on to. I wonder whether the hon. Gentleman will allow me to develop it in my own words and intervene again later if he wants to.

Hooper makes it clear that the commercial partnership is far more important—or at least equally as important—as the capital. His key point is the need for engagement between the unions, particularly the Communication Workers Union, and the modernisation process. That is something that requires trust, so I want to put a suggestion to the Minister about how that might be achieved. Simply banging in and issuing a slug of shares for money will not necessarily accomplish that task. My suggestion to him has been part of our policy for three years, so I hope he looks very carefully at it. It is to give the work force a substantial holding in Royal Mail as part of the overall package. It is not quite, as some have said it is, the John Lewis model, because that obviously requires 100 per cent. ownership, but I submit that providing a real equity stake in the company could go quite a long way towards aiming all the partners and
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stakeholders broadly in the same direction and might help to deliver some of the trust that Hooper says is so greatly lacking.

Mr. Gummer: Does the hon. Gentleman agree that even if the Government took the route that he is suggesting, and certainly if they took what appears to be their own preferred route, it could not be said that the Post Office would become a publicly owned company in the sense that it is now? Surely it is to misuse words to suggest to Labour Back Benchers that they are not telling the truth when they say that this is a partial privatisation or a partial mutualisation.

John Thurso: I am not terribly hung up over whether it is a partial privatisation or a wholly public non-privatisation. What concerns me, as I said earlier, is the creation of a modernised Royal Mail that is fit for purpose and delivers on a universal service obligation, and a post office network that is clearly and obviously in the public sector.

Simon Hughes: May I reinforce what my hon. Friend is saying? I have talked to people who work for Royal Mail in a big sorting office just over the bridge near my constituency. When I have put to them the alternatives—another private sector company coming in with a minority shareholder, or the workers having shares and ownership—it is blindingly obvious which of those alternatives has the better chance of securing a good working relationship, and it is not the first.

John Thurso: I am grateful to my hon. Friend.

Miss Julie Kirkbride (Bromsgrove) (Con): I find the idea of greater employee participation and ownership very attractive, but it raises an obvious problem: where would the money for investment come from? Would the employees be expected to pay for their shares, rather than being given them? If not, where are we to find the money with which to modernise Royal Mail?

John Thurso: Let me make clear that I am in favour of an injection of finance, and in favour of a partnership. What I am saying is that as part of that overall deal, proper consideration could be given to the employees through the granting of shares so that they would have a real stake.

Mr. Weir: Will the hon. Gentleman give way?

John Thurso: Yes, for the last time.

Mr. Weir: Will the employees be able to trade the shares? Is the hon. Gentleman suggesting a combination of private enterprise, perhaps involving a private company, and employee and state ownership? Given such an arrangement, how would the profit be divided?

John Thurso: If the hon. Gentleman will forgive me, I will not give him a lecture at this stage on how these things work. I hope he will accept that I have visited a number of companies in which shares are traded, but are traded within the trust that owns the shares for the individual employees.

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I cannot, in all fairness, ask my hon. Friends to support the Government amendment, which, as has already been pointed out, seems to add to the confusion by using phrases such as “secure in public ownership” when Royal Mail clearly is not in that position. I have to say that I cannot ask them to support the Conservatives’ motion either. I will say to the Minister, however, that if he is prepared to examine the case that I have presented for the Post Office and employee involvement, I am sure I shall be able to engage with him constructively.

The British people deserve and expect both the protection of their post offices and a competitive USO-based postal service. The status quo is not tenable. We must look to a future that is well structured and based on commercial competition, but also, critically, on trust between the stakeholders.

Several hon. Members rose

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I remind the House that Mr. Speaker has placed a limit of eight minutes on Back-Bench speeches. It is fairly obvious that, given the time available, that will restrict the number of Members whom I am able to call, so I propose to try to ease the situation by reducing the limit to six minutes for all Members called after 6 pm.

5.39 pm

Ms Patricia Hewitt (Leicester, West) (Lab): I am grateful for the opportunity to speak, and for the opportunity to follow the speeches that we have just heard. I must, of course, declare an interest. As noted in the Register of Members’ Interests, the Communication Workers Union has been a generous donor to my constituency campaign funds in the last two general elections. However, its members know that, on this issue, I do not agree with them.

I must also say that I have considerable sympathy with my right hon. Friend the Minister. I believe I am right in saying that I was the longest serving Secretary of State for Trade and Industry since the 1950s, and in that capacity I had the great pleasure of being the owner, on behalf of the public, of Royal Mail. In that period, we made substantial changes to Royal Mail’s leadership, financing and structure. We brought in a completely new board led by Allan Leighton, to whom all of us owe considerable thanks. We put in additional funding. We changed the balance sheet. We introduced real support, with the help of the TUC, to try to create the social partnership that was so obviously needed between management and trade unions.

We did all that, and some change came. Costs were reduced—Mr. Hooper says by about £0.5 billion, while Royal Mail says by more than £1 billion. Customer service was improved, at least for some years. Losses, which in those days were £1 million a day and threatening to rise, have been turned into a fragile, to use Royal Mail’s own word, profit just last year. However, the reality—to which my right hon. Friend the Minister clearly pointed—is that the changes that have taken place in Royal Mail in the last eight years have not gone far enough or anything like fast enough.

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