Examination of Witnesses (Question Numbers
160-179)
RT HON
LORD MANDELSON
AND RT
HON PAT
MCFADDEN
MP
7 JULY 2009
Q160 Mr Hoyle: Let us be clear. Part-privatisation
is not off the agenda; it is on the agenda if somebody can turn
up with a cheque.
Lord Mandelson: The Hooper review's
proposals included the introduction of a strategic minority partner—I
do not characterise that as part-privatisation—and the Government
remains committed to that proposal.
Q161 Mr Hoyle: So whether we agree
on whether it is part-privatisation or whether it is investment—
Lord Mandelson: Not least because,
of course, without that transformation of the Royal Mail, its
business and its finances, which implementation of Hooper will
bring about, it will not be possible for us to implement his proposals
on the pension fund either.
Q162 Mr Hoyle: The pension fund is
important but, just so that we are clear—
Lord Mandelson: Very important
to those who depend on it, yes.
Q163 Mr Hoyle: Very much so, and
it is something that has got to be resolved. We know that, and
nobody is shying away from that. Our report has been quite clear
on that. Before we get sidelined or filibustered somewhere else,
let us just clear up and make sure we know where we are at. What
you are saying to me is part-privatisation, or a partner, whichever
way you want to decide, is available if they have the cheque—that
is full steam ahead again?
Lord Mandelson: They have to be
the right partners, making the right offer, who in our judgment
would bring about the transformation of Royal Mail's business
in a way that I think everyone is agreed is desirable, offering
the right degree of value for money to the taxpayer. At the moment,
the conditions for achieving that do not exist.
Q164 Mr Hoyle: Have you any timescale
when you think it might exist? I know you do not like weather
forecasts, but I was just wondering if you could—
Lord Mandelson: I could not predict,
I am afraid. Probably if I were able to predict more precisely
how the markets will change, I would be in a different job.
Q165 Mr Hoyle: Except you said—and
you are pretty good at predictions—that you were not on
the bowling green but you were not in the long grass—
Lord Mandelson: That is a description
of where we are now, not the future.
Q166 Mr Hoyle: So when do you get
the mower out and trim the grass?
Lord Mandelson: I hope that we
will be able to get out of the rough towards the velvet lawns
of the bowling green as soon as possible.
Q167 Mr Hoyle: When do you think
you are going to get the mower out then?
Lord Mandelson: I could not predict,
I am afraid.
Q168 Mr Hoyle: Do you get the feeling
that there is no will or support for it in the Commons?
Lord Mandelson: I think there
is support and will in the Commons for sustaining the universal
service obligation, the very important letters delivery service
that people in this country and businesses rely on. Do not rely
on to the same extent that they used to and in declining numbers
and volumes, I am afraid, which goes to the heart of the problem.
If we are going to sustain the letters delivery service, however,
there is a crying need for modernisation of this business. Both
management and unions have said they are up for this. Everyone
says they want change; they are up for change; the status quo
is not acceptable. I just wish that they would get on and do it.
I wish they would find the agreement to implement this change
rather than dragging the Royal Mail and the changes needed into
a frustrating and never-ending, tedious process of endless negotiation,
from which insufficient change follows at too slow a pace.
Q169 Mr Hoyle: If there is the will
and you talk about competition—but what we are saying is
that there is no competition in final delivery; that is just left
with Royal Mail, because nobody wants to do that part of it and
so there is no real competition—but let us go back. If there
is full modernisation—as you say, everybody wishes to see
modernisation, wants to see the Royal Mail progress—if there
are alternatives, would you support them rather than bringing
in another partner?
Mr McFadden: It is quite a big
"if", is it not? This is an important point. Because
the Bill is not proceeding at the moment, that does not make the
need for modernisation any less urgent. Many of the issues are
still there. Mail volumes are still declining. I think what we
are saying is that we want to see in the months ahead is some
more action behind the commitments to modernisation that we have
heard from both management and union, and that will be really
important for Royal Mail, regardless of what happens with the
Bill.
Q170 Mr Wright: I think the modernisation
is a key to all this. We talk about profitability, and we know
that in recent months and years the profitability has turned around.
Quite clearly the hunger is not there within Parliament for us
to go down this road of semi-privatisation or a partnership approach.
Lord Mandelson: There is not a
consensus in Parliament, I think it is true to say.
Q171 Mr Wright: I just do not think
that the hunger is there for that. That is certainly indicated
quite strongly in terms of EDMs and people that we talk to on
the back benches, and even some ministers. I think that the most
important thing is the modernisation. The Government made available
£1.2 billion for modernisation, of which earlier this year
I think there was £600 million spent. How much more have
they drawn down? Have they stalled on this amount of money? That,
to me, is key to the future, which may well be the future in terms
of—
Lord Mandelson: You just have
to look at the pay and modernisation agreement that was made in
2007. That is just two years ago. On automation, which was a key
part of that agreement, Royal Mail believes that agreement has
already been given to the use of new technology, as part of that
2007 deal; but the CWU wish to renegotiate specific agreements
on each new piece of agreement. Again, a negotiators' agreement
has been reached twice on the arrangements for the deployment
of new machines in Royal Mail, but on both occasions the wording
of those negotiators' agreements has been rejected by the union's
postal executive committee. Some local branches indeed are now
claiming that the 2007 agreement was only for one year, and wish
to go back to the old practices that predated the agreement itself
in 2007—one which, I remind you, the TUC stood guarantor
over. For several months now, the CWU has instructed its representatives
to refuse to agree anything through the industrial relations framework.
This is why we have seen this spate of strikes, most notably called
in London. Essentially this means that they are boycotting the
agreed process for making change in the Royal Mail. I realise
that is a very serious charge to make, but I just look at the
facts and look at the behaviour, and I am afraid that any other
conclusion is impossible to arrive at.
Q172 Mr Wright: Surely, in terms
of the industrial relations side of things between Royal Mail
and the CWU, the Government has a role to play in this in terms
of trying to bring the sides together? We have made £1.2
billion available. Surely it is not beyond the realm of possibility
that people can come to an agreement on this basis, to secure—
Lord Mandelson: We have been a
very generous banker to the Royal Mail. When I say "we",
I mean the taxpayer has been a very generous banker.
Q173 Mr Wright: I think it is fair
to say that in the 1980s to the 1990s we drew £2 billion
from the Royal Mail, which was the start. In other words, this
is payback as far as I am concerned, because I believe that Royal
Mail was robbed of £2 billion, which has put us in this particular
difficulty.
Lord Mandelson: The taxpayer needs
payback for all the money that has been invested in the Royal
Mail—all the loans, the loan guarantees, all the sums of
money that have been put aside to shore up the pension fund. The
taxpayer needs paying back now. Paying back in the form of a properly
modernised, transformed business that will provide them with a
service on which they can rely. I am afraid that I do not accept
that it is for the Government to intervene. It is for the Royal
Mail's management, its workforce and their union representatives
to sort out their own future, in the way that any other business
has to do in the real world. Royal Mail's response throughout
has been to instruct its managers to continue to consult, absolutely
in line with their agreements; to encourage input from the CWU
reps and its people, and to respond to it, in order to make the
changes in a measured way. I believe that has to be matched by
the workforce and their union if we are going to see any progress
being made.
Q174 Mr Clapham: Are you there saying
that if the workforce can sort out the industrial relations problem,
then you do not need a partner?
Lord Mandelson: It is not industrial
relations that is the core; it is an attitude to change. Until
the CWU's attitude to change changes, there will not be change
in the Royal Mail. That is the bottom line of it, I am afraid.
Q175 Mr Clapham: So an attitude change
would mean that you would not bring in a partner?
Lord Mandelson: Attitude to seeing
that this is a business operating against competition, in a market,
with technological changes which are creating a serious trend
against maintaining the volumes of their business. They cannot
stand still. That is a recipe simply for falling backwards further
and further. Until they accept the need for change, they are not
going to be able to address the problems that Royal Mail has or
the need for modernisation, introduction of new technologies,
machinery, different working and operating procedures, in order
to turn round this business as they need to do. Until they face
up to that need, we are not going to be able to get out of the
problems that the business has.
Mr McFadden: Mr Chairman, can
I add a word on this question about money invested that Mr Wright
raised? You asked about the £1.2 billion that the Government
had loaned the company a couple of years ago. In the Royal Mail
accounts, the Chief Executive said, "We have already invested
£800 million since 2006-07 and we will fully utilise government
financing as we invest a further £2 billion in modernising
the business". Those same accounts, as we know because we
have been written to as MPs about this, said—and again I
am quoting the Chief Executive—"Our people have delivered
strong financial results. All four Group businesses are in full-year
profit for the first time in two decades". So the management
are saying that the company is in a healthier financial position
than for some time. If that is the case, it is also down to strong
backing from the Government to Royal Mail during the years that
we have been in office. If that is the case, it is also all the
more reason why both management and workforce must urgently proceed
now with the modernisation that is required; because those lifestyle
changes, about the volume of letters, are not changing. The bottom
line here, above all else, is the maintenance of the universal
service obligation. The overriding conclusion of the Hooper report
that gave rise to the Bill was that, without modernisation, the
USO itself should be under threat. If the company is saying it
is in a healthy financial position and if the workforce are saying
that they are up for change, then let us see some modernisation
take place.
Q176 Mr Wright: It still begs the
question that if the management have turned round the fortunes
of the Post Office in difficult times—
Lord Mandelson: No.
Q177 Mr Wright: ... why then do we
go down this route of continuing with trying to bring in a partner,
presumably other companies that have made losses—whether
we are talking about Germany or other countries that have made
significant losses—
Lord Mandelson: Mr Wright, I am
sorry, I have to respond.
Q178 Chairman: I know what Lembit
wants to ask you. It is the same sort of question.
Lord Mandelson: I must just directly
answer that. Only £58 million came from the letters business
in the Royal Mail on a turnover of £6.7 billion. That is
less than a 1% profit margin. The idea that the finances and fortunes
of this company have been transformed I am afraid is completely
illusory. What Pat has been talking about is a cushion that has
been put in place by the Government, and we are not proposing
to remove the cushion; but it is nonetheless change that we need
in this company, not simply further cushioning.
Q179 Lembit Opik: There is
a lot more to be said about it, but I have one simple question.
Are you saying that in principle you and the Government feel that
there needs to be a private partner, or is it a judgment call?
For example, one could say that it is not in principle necessary;
on judgment, you could bring private business practice into a
100% publicly owned Royal Mail. So is it in principle that you
feel it is necessary or is it a conclusion you have drawn on empirical
evidence?
Lord Mandelson: I have looked
at the analysis, evidence and argument presented by Richard Hooper.
The Government has found this entirely persuasive. We introduced
the legislation on that basis. We remain of that view. We will
take up the Bill where it was stalled because of the unfavourable
market conditions. Throughout this entire parliamentary process
we have not received a single alternative idea or model that makes
better sense than what Mr Hooper originally proposed.
Chairman: We could spend the rest of
our time on this. I would want to disagree with you quite strongly
on the last statement you made, but we do have some other areas
of questioning.
Mr Hoyle: Mr Chairman, in fairness, I
think it would be quite wrong if there was not a little bit of
come-back, because I think that both the Secretary of State and
the Minister ought to be a little more honest. We all know that
Hooper had very tight guidelines in which he was allowed to look.
He could not go broader, and that was the biggest problem. The
fact is that 50,000 people have lost their jobs; the fact is it
is making £1 million a day profit; the fact is we subsidise
the competitors by £2 million per week. The other thing is
that one of the companies that you talk about—you are quite
right about losing volumes—has gone into the red. Where
are these great people coming from? There are a lot of things
that we could say.
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