The work of the Department for Business, Innovation & Skills in the current crisis - Business, Innovation and Skills Committee Contents


Examination of Witnesses (Question Numbers 140-159)

RT HON LORD MANDELSON AND RT HON PAT MCFADDEN MP

7 JULY 2009

  Q140  Chairman: We will hold you to that, and the next time we have you we will test it out. Let us move to the Royal Mail Group. First of all, briefly, our report on post offices which came out this morning. It is the report that you effectively asked for as a Department. We were happy to do that. Sadly, because it contains so little criticism of the Government, it has had little notice from the media this morning.

  Lord Mandelson: I am sorry about that.

  Q141  Chairman: Unlike our previous report, which rather upset you, Secretary of State, for which I apologise—or, no, I do not at all actually!

  Lord Mandelson: It takes more than that to upset me. You call that "upset"? You should see what I am like when I am upset!

  Q142  Chairman: I am very glad that I have not seen it! One technical question, because I think that some of my colleagues want to ask some more political questions. The Postal Services Bill, which apparently now lies in limbo—I am not entirely sure of its exact status or what the intentions are—contains some very important regulatory changes, bringing Postcomm within the remit of Ofcom, which this Committee supported. It is a very important change. It sounds a bit technical to the outside world, but we now have a regulatory vacuum created where neither organisation knows where it is going. It is really important that the regulatory changes are brought forward. They are not part of the financial package in the same sense as I can see that the pension deficit, capital, and part-privatisation were. I can understand your wanting to link those. Regulatory change stands apart and separate and is crucial for the health of the system now; so what is going to happen to the regulatory environment?

  Lord Mandelson: Could I first of all say that I welcome the Committee's report that you have issued today. Thank you for undertaking this work. We asked you to do it and you have done it very thoroughly, and we will consider your recommendations in detail. I certainly agree with the Committee that identifying new opportunities and ways of doing business are key to ensuring a long-term positive future for the Post Office. I lead a cross-Whitehall group to ensure that the Government is fully joined up in securing these changes and making sure that as much business as possible is put through the post offices. You are absolutely right to keep up the pressure. We have chalked up some early successes with the Department for Transport and the issuing of photographic driving licences. The Home Office want to ensure that people can apply for new biometric passports and ID cards at local Post Office branches. All this is very encouraging and we will continue to pursue—

  Q143  Chairman: I should make a public apology to HMRC. They sent rather a late letter to us with some quite constructive ideas. They did not respond in time for our report but they also came up with some ideas.

  Lord Mandelson: Do you want to add anything before I turn to regulation, Pat?

  Mr McFadden: Not really, other than to stress the point that it is not as though nothing has happened in the period since the Committee began work on the report, which I think was about January or February. The announcement from the Department for Transport is important, not just in terms of its own size, if you like, but as a potential platform for other things. We have spoken about this before, and one of the enormous potential areas for the Post Office network in the future is this notion of identity management. That goes through driving licences, passports and ID cards. The Post Office could secure a large part of this work potentially and it could be very important to them. I think it is important to stress that, because it is very easy for everybody to say, "The Government should give more work to the Post Office" and, through the Post Office card account contract for pensions and benefits and the Department for Transport contract, we have shown that we will do that. However, it would be wrong to think that, if we just gave the Post Office the type of work it has always done in the past, that would be enough; because, with the best will in the world, even having secured the POCA contract, probably the numbers picking up their pension at the Post Office will go down over the years.

  Q144  Chairman: I do not really want to spend too long on the Post Office.

  Mr McFadden: It is just to stress—

  Q145  Chairman: We agree with you.

  Mr McFadden: It is your own report that I am talking about and that you were raising. The important thing is yes to the idea of having more government work, but that will have to go with the grain of how people live their lives and want to do things as well. While government work is important, it is probably one of three main areas which are critical to the Post Office's future, the other two being mail work and banking and financial services.

  Q146  Chairman: We agree. The only real criticism in our report was the pressure, in Digital Britain actually, to force people online. Not to go with the grain of people's wishes but to force them into a model the Government imposes on them. It is a debate we will have on another occasion. Let us get back now to the regulatory issues on Postcomm—

  Mr McFadden: Just a moment on that. I think that we have to be careful there. When we allow people the potential to do things in either way—either do it at the post office or online—we do see interesting trends. These may be uncomfortable sometimes; but, for example, car tax online started off with half a million people a month, now over a million, half of them doing it outside normal office hours.

  Q147  Chairman: We know this. Can we move on to a larger group—

  Mr McFadden: It is important. You have to give choice to people as to how they access public services.

  Q148  Chairman: We have to give them choice. Let us back that as an agreement and move back to the regulatory issues on Postcomm and Ofcom. What is going to happen to Postcomm?

  Lord Mandelson: Let me say first of all that I am disappointed that market conditions in the postal sector have made it impossible to conclude the process of identifying a would-be partner, a strategic minority partner, for the Royal Mail that we could be confident would give value for money to the taxpayer. There has been a general worsening of conditions, as you know, in the postal sector worldwide but certainly in Europe, where profit expectations have fallen for major European operators. However, this does not mean to say either that the need for change and modernisation of Royal Mail has gone away; it most certainly has not—indeed, with every week that passes we see the need for transformation of its business growing—nor does it mean that the Government has had second thoughts about the relevance and importance of the Hooper review's proposals to bring about that much-needed transformation. We remain entirely committed to those proposals and we would like to see them implemented when market conditions allow. Of course, the three parts of the legislation mean that, with the Bill not being proceeded with at this stage, the third part concerning regulation is stalled, as are the first two parts of the Bill. I will be discussing the Government's future regulatory approach with the board of Postcomm. I will be asking them for their views, as well as sharing the Government's views with them, given the need, as we see it, to introduce a wider communications perspective to regulation of the Royal Mail. Postcomm will continue to regulate the postal market for the time being; they will not do so in a vacuum. They have powers to carry out their function and they also have a framework of policy, of guidance, offered by the Government, and that will be—

  Q149  Chairman: I am not going to labour the point but I think that it is a very unsatisfactory situation for the individuals involved in Postcomm and for the whole mail market, both Royal Mail Group itself and its competitors; because Postcomm is deemed to have failed. That is one of the reasons that the merger is going to take place, and this Committee supports it. So now you have a failing organisation that is continuing to function in a very important market, facing huge commercial and technological challenges, and it is not linked to the other, broader political questions. I think that this is therefore a very serious matter for the Department to address.

  Lord Mandelson: Postcomm itself, of course, has acknowledged that it would like to draw on Ofcom's knowledge and experience of wider communications markets, to help it develop its own regulatory strategy. I welcome that open-mindedness on Postcomm's part and I will be writing to Postcomm to give clear guidance on how I believe they should tackle regulation of the market going forward; so they will not be operating in a vacuum.

  Chairman: We will agree to differ on that.

  Q150  Mr Hoyle: Do we need Postcomm? If you are going to instruct them on what they need to do, why not just do it yourself then? That might be a quick way, Secretary of State, and save some money.

  Lord Mandelson: They are an independent regulator, set up by statute.

  Q151  Mr Hoyle: Of course, but the question is do we need them?

  Lord Mandelson: That is a matter for Parliament to judge.

  Chairman: It has not been given the opportunity, because you have withdrawn the legislation.

  Q152  Mr Hoyle: Absolutely, and I am glad that Parliament is important again.

  Lord Mandelson: Would you like us to go full steam ahead with the legislation, Mr Hoyle?

  Q153  Mr Hoyle: We do know that the cost of paying the Chair of Ofcom is £200,000. I think that even you would find that excessive.

  Lord Mandelson: I am not quite sure what the relevance of that point is to the Government's policy—

  Q154  Mr Hoyle: It is relevant to the cost of operating quangos.

  Lord Mandelson: ... on regulation of Royal Mail, but if you are inviting me or urging me to proceed with the legislation, then obviously I will take into account what you are saying.

  Q155  Mr Hoyle: The less quangos the better.

  Lord Mandelson: You do not want it regulated at all?

  Q156  Mr Hoyle: I did not say that.

  Lord Mandelson: You just want competition to operate freely?

  Q157  Mr Hoyle: Let us be honest. If you want competition, let us have competition that is equal competition that also has a universal delivery service involved for everybody who competes. You will not give us that, so the point is that you are not going to have competition. Now then, shall we move on to the next question?

  Lord Mandelson: I am absolutely open to any question you wish to ask me.

  Q158  Mr Hoyle: You have a view of 30% as a figure for a sell-off. We have seen the part-privatisation. Using your own analogy here, is that long grass or is it on a well-manicured bowling green at the moment?

  Lord Mandelson: I do not think it is on either, actually—either the manicured or the long.

  Q159  Mr Hoyle: A bit of rough, is it?

  Lord Mandelson: We are in the hands of the markets here and, as markets cheer up, profits improve, and the bidding process becomes possible then, as the Government has said, we will be prepared to take this forward.



 
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