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Finance (No.2) Bill


Business without Debate

Delegated Legislation

Motion made, and Question put forthwith (Standing Order No. 118(6)),

constitutional law

Question agreed to.

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Postal Services (Scotland)

Motion made, and Question proposed, That this House do now adjourn. -(Bill Wiggin.)

9.55 pm

Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): Royal Mail- [Interruption.]

Mr Speaker: I am grateful to the hon. Gentleman for his forbearance. If Members leaving the Chamber can please do so quickly and quietly, we can proceed to an orderly Adjournment debate. I, for one, certainly wish to hear Mr Gregg McClymont.

Gregg McClymont: Thank you, Mr Speaker.

Royal Mail is a vital public service in Scotland. With 1,400 branches, the Post Office is Scotland's largest retail chain. According to Consumer Focus Scotland, its services are used by 95% of the population. Scottish business, too, depends on the service. The Federation of Small Businesses estimates that one in six small to medium-sized enterprises relies exclusively on Royal Mail.

The Minister will be aware of the serious risks involved in privatising a Government-owned industry that provides a popular public service. Get it wrong and the Government of the day preside over a carve-up: executive pay hikes, job losses and the curtailment of services to the detriment of consumers. That is why I am seeking clarification of the Government's plans tonight. I am keen to hear about how the Minister intends to protect the existing level of service provided by Royal Mail and the Post Office in Scotland.

The Government propose to split postal delivery and the management of the post offices-Royal Mail doing the former, and Post Office Ltd the latter. Both functions currently reside in Royal Mail Group, which has an obligation to provide a certain level of service to the public. That is the universal service obligation. These obligations are contained in the licence granted to Royal Mail Group. The licence requires that Royal Mail provide a certain number of deliveries at a certain time to homes and businesses and that Post Office Ltd retains post offices in all Scottish communities.

Royal Mail is also currently obliged to take the provision of all post office services from Post Office Ltd. That is called the inter-business agreement. That agreement, alongside a taxpayer subsidy of approximately £150 million per year, enables Post Office Ltd to fund its entire network of 1,400 post offices in Scotland. If neither of those conditions existed-the inter-business agreement or the public subsidy-the number of post offices would fall sharply, especially in rural parts of Scotland. The danger is real, for the Business Secretary has said that the Government do not wish to retain a stake in Royal Mail. That means full privatisation, with Royal Mail managers incentivised to seek maximum profitability. In these circumstances, the importance of postal services as a public service to the nation cannot be their priority. I say to the Minister that there is a strong memory throughout this country of former public service managers making unmerited fortunes at the expense of the public following previous privatisations in energy and in rail. Indeed, this tension between managerial freedom and the preservation of public services always emerges when utilities are privatised.

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10 pm

Motion lapsed (Standing Order No. 9(3)).

Motion made, and Question proposed, That this House do now adjourn.- (Stephen Crabb.)

Gregg McClymont: The response of policymakers is the universal service obligation, which specifies the services that the privatised entity is legally obliged to provide.

Gemma Doyle (West Dunbartonshire) (Lab/Co-op): I congratulate my hon. Friend on securing this debate. As he may know, last month reports surfaced of a leaked letter from the Business Secretary to the Chancellor hinting that flexibility may be built into the Royal Mail Bill to scale back the universal service obligation from six days a week to a five-days-a-week service. Such a move would set a very dangerous and worrying precedent. Will my hon. Friend join me in calling on the Minister to give a categorical assurance that under no circumstance will the Government allow delivery services to be scaled back in West Dunbartonshire and, indeed, across Scotland?

Gregg McClymont: My hon. Friend raises a very good point, and I am sure that the Minister will wish to address it.

An under-specified universal service obligation and an inadequate subsidy, where that is necessary, mean that there will not be a good postal service. That is currently the situation in telecoms in respect of the provision of fibre-optic broadband to rural areas. A universal service obligation is contained in the Royal Mail Group licence. The number of letter and parcel deliveries is laid down in statute and in the Royal Mail Group licence. However-this is crucial-the rules regarding the number of post offices are much less tightly drawn. There is very little in statute and a limited number of criteria in the licence that Royal Mail is obliged to fulfil.

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): Does my hon. Friend agree that far from considering cutting the number of post offices, we should be looking to ensure that every community has access to the post office service? Can he, or the Minister, say what plans there are to ensure that every community has that access, particularly communities where new housing developments and so on are being generated?

Gregg McClymont: My hon. Friend raises a very good point.

There is very little in statute and a limited number of criteria in the licence that Royal Mail is obliged to fulfil in terms of post office outlet numbers. That did not matter in the past because outside the formal rules the Government, as owner, could and did order Post Office Ltd to maintain the current number of post offices. However, it will matter in future. The statutory or licence conditions, if any, imposed on Royal Mail will determine the future of up to 4,000 of the existing 11,500 post offices.

Margaret Curran (Glasgow East) (Lab): I, too, congratulate my hon. Friend on securing this debate. As has been evident so far, post offices are highly valued by the British public. Does he agree that instead of post offices facing a cuts strategy it would be much better if
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they were facing a growth strategy? Surely as part of that, the Government could, for example, insist that Royal Bank of Scotland, a state-owned bank, signed up to the post office universal banking counter service. In fact, in these days, we do have opportunities to grow post offices. What is his view on that?

Gregg McClymont: My hon. Friend makes a good point. I am sure that the Under-Secretary will want to address a future strategy for growing the Post Office, and not letting it fall into decline.

I said that 4,000 post offices in the UK are at risk. Individuals with industry experience suggest that between 2,500 and 4,000 post offices would be at risk if the existing licence criteria remain unchanged. Scotland is likely to be at greater risk given its disproportionately large number of rural post offices. That is why I say that maintaining the current level of public service means not only retaining existing conditions for Royal Mail's licence, but adding new criteria. I would be grateful if the Under-Secretary clarified which obligations will be maintained, and to which body they will apply, if Royal Mail is to be privatised.

I also hope that the Under-Secretary will agree that the scope of the universal service obligation must be a decision for Parliament, and not delegated to the regulator or to an individual Minister, even one as capable as the Under-Secretary. I say that as a matter of both pragmatism and principle: pragmatism because a Minister or the regulator would be subject to enormous pressure from the privatised entity to reduce the required service; principle because, if there is a will to amend the universal service obligation, it must be done transparently and publicly by Parliament. My constituents and those of my hon. Friends care deeply about the service that Royal Mail and the Post Office provide. They demand no less.

Moving from the universal service obligation to the future of the inter-business agreement, what happens if the current exclusive agreement between Royal Mail and Post Office Ltd is ended? There is a danger that the Post Office will be undercut unfairly by competitors. For example, a supermarket chain could say to Royal Mail, "We can provide post offices more cheaply than Post Office Ltd. We will include no loss-making outlets." To avoid such an outcome, there needs to be a level playing field. Fair competition would depend on a strictly written set of licence criteria. Any business that wished to compete for supplying post offices to Royal Mail must fulfil exactly the same objective licence criteria on a national basis as Post Office Ltd currently does. The contract for providing post offices must be set on just such an aggregated basis, otherwise bidders will cherry-pick the profitable post office locations.

The Government have given a welcome guarantee that Post Office Ltd will remain in public ownership when Royal Mail Group is broken up, but, without a guaranteed revenue stream from Royal Mail, many branches will be at risk from public spending cuts. I fear that some of the Under-Secretary's colleagues perceive privatisation simply as a way to generate a commercial incentive for reducing the demand for post offices, to which the Government will then acquiesce. Can the Under-Secretary confirm whether the public subsidy to Post Office Ltd will be maintained? I am sure that we would all like an answer to that question.

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I urge the Under-Secretary to adopt measures that protect current postal services to the public. For deliveries, that means maintaining the current number. For post offices, the Government have two choices. They could adopt an exclusive supply arrangement between a privatised Royal Mail and a publicly owned Post Office, or they could set the universal service obligation criteria at a level that provides for maintaining the current number of post offices. Long-term protection of Scotland's postal services means giving Parliament the power to agree the level of service and any subsequent changes to it.

10.9 pm

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey): I thank the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) for giving me this opportunity to begin a debate that we will have over the next few weeks and months about Royal Mail and the Post Office. If I am not able to answer all his questions tonight, he will understand why, and I am sure that he knows that all his questions will be answered over the weeks and months to come. I hope that he will like many of the answers that he hears.

Let me start by saying that I am absolutely committed to the universal postal service. As Minister for both postal services and consumer affairs, nobody is more keenly aware than I am of the critical importance of postal services to our communities, small businesses and the country at large. That is why I will introduce a postal services Bill in this Session to ensure that the universal postal service remains one that we can rely on for the future and that will safeguard those two separate but highly valued businesses, Royal Mail and the Post Office.

The hon. Gentleman raised concerns about the post office network in Scotland. The Government fully recognise the important social and economic role played by post offices in communities throughout the UK and particularly in rural and deprived urban areas, whether in Scotland or elsewhere. More than 99% of the population live within 3 miles of a post office and 93% within 1 mile, and it serves 20 million customers per week. It is a fantastic network.

We remain wholly committed to maintaining this nationwide network of post offices. Let me be clear about what that means: we will not repeat the mass closure programmes of the previous Government, which saw around 5,000 post offices close across the UK, including 600 in Scotland and six in the hon. Gentleman's constituency. Labour's closure programmes tore the heart out of rural communities up and down the UK: I opposed them in opposition and I have no intention of repeating them in government. Instead, we have protected £180 million of Government funding for the Post Office in 2011-12-before the spending review has been announced-to maintain the network at around its current size, with further funding for future years to be finalised within the spending review and announced shortly.

The hon. Gentleman raised a point about the future relationship between Royal Mail and the Post Office. Our starting point must be to recognise that the Post Office and Royal Mail are different businesses facing
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different challenges. This Government are committed to safeguarding both, but our approach must reflect those differences. It is a commercial reality. I have already made it clear that the Post Office will not be for sale-as the hon. Gentleman recognised-so the two businesses will need to have a different relationship in the future. This should be seen as a real opportunity for the Post Office: separation will give its management greater freedom to focus on growing its revenue and getting the most out of its branch network.

There should be no doubt that Post Office Ltd and Royal Mail will continue to work closely together in the future. Post offices carried out more than 3 billion mail transactions for Royal Mail last year, and the two are closely entwined in the public mind. These companies need each other, and that will continue to be the case after separation.

Our reforms will not end there. We want to see a sustainable network offering a wider range of financial and Government services to boost revenues for local sub-postmasters and the network. We are working intensively across government to examine the scope for the Post Office to act as a "front office" for the Government, where local post offices are the natural place for citizens to access face-to-face Government services, and where the Post Office has an important role in supporting e-government, for example helping people to access online Government services through their local branches.

We are also considering the case for a Post Office bank. We must remember that the Post Office already offers a wide range of financial services and is increasingly taking on many features of a bank, but I want to go further and to see a situation in which 100% of current accounts are accessible at post offices and 100% of people know about that. Of course, those are ultimately commercial decisions for the banks involved. However, as a Government, we have a role to play in encouraging that process and explaining to the banks how important we think it is. Hon. Members can rest assured that we are doing that.

There are interesting opportunities, too, in the growing trend of community groups, charities and local people getting involved in the running of their local post offices. That is what the big society is all about: Government getting out of the way and letting the people who know best have a real say in running their services. We are fully behind this trend and are open to all ideas that can contribute to a vibrant and sustainable post office network on which communities can rely.

The hon. Gentleman also raised concerns about how the universal postal service must not be downgraded as a result of any Government action. Let me start by explaining why the Government are taking action. In 2008, the hon. Gentleman's own party commissioned Richard Hooper to lead an independent review of the postal services sector, seeking recommendations to sustain the universal postal service, so that many of our small businesses and communities could continue to rely on them. However, those recommendations were never implemented, for reasons that I will not go into because I wish to spare the hon. Gentleman the embarrassment. However, for the past two years Royal Mail has continued to suffer under the perfect storm of a declining market in letters, a volatile and crippling pension deficit, and
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frankly outdated working practices, which continue to cause problems despite the welcome modernisation agreement.

In June this year, my right hon. Friend the Business Secretary asked Richard Hooper to update his report. His latest diagnosis, published in September, is stark, and I recommend that hon. and right hon. Members read the report. Royal Mail's financial position is worse now than it was in 2008. The decline in the letters market has been faster and deeper than predicted. In the UK, we now send 13 million fewer items a day than we did just five years ago. The trend is set to continue, with worldwide volumes predicted to fall by 25% to 40% over the next five years alone. They dropped by 7% in the UK last year, and by over 12% in the United States. This is a serious issue that we have to tackle.

Fortunately, it is not all bad news. The online revolution has opened up a series of opportunities-we all know about parcels and packets-but as Richard Hooper has made clear, they do not offset the decline. If we are to seize those opportunities and make the best of them, Royal Mail urgently needs more modernisation and investment, yet modernisation takes capital and commercial disciplines that I am afraid Royal Mail simply does not have at the moment. Let us remember that the taxpayer has made £1.2 billion available to Royal Mail since 2007 to support the current modernisation programme.

Frankly, if we are serious about dealing with the problems, we will have to modernise and invest much more. So where will the money come from? I am afraid that economic times have changed. There is enormous pressure, as every Member must realise, on the public purse. We simply cannot expect taxpayers to continue to provide the ongoing investment that Royal Mail needs when it could be supplied by the private sector, as has been shown with Deutsche Post in Germany, which has seen massive investment since it was first floated in 2001. This is not just a question of cash: Royal Mail needs private sector disciplines and the freedom from Government intervention to innovate and take the right commercial decisions to secure its future.

I say to the hon. Gentleman that we have a choice: to do nothing and allow Royal Mail to slip into a slow decline, requiring ever-increasing handouts from the taxpayer; or to take action, which I will come to.

Margaret Curran: The Minister referred to working practices that he believes are causing difficulties. Will he outline what those practices are, and say how the Government intend to change them?

Mr Davey: I refer the hon. Lady to the agreement reached by the Communication Workers Union and Royal Mail recently, which looks at significant reforms to working practices. For example, I strongly support the fact that the CWU has agreed to a reduction in the number of sorting offices in order to reduce costs. That kind of change is very welcome.

Gregg McClymont: I have been listening intently to what the Minister has said and, as far as I can tell, he is replying to a speech that I did not make. I am asking whether the licence criteria, as currently constituted, protect the 11,500 post offices in the UK and the 1,400 post offices in Scotland. Unless I am mistaken, he has not addressed that point yet, and I hope that he will be able to do so.

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Mr Davey: I thought that I had made it clear that, under this Government we will see no major programme of closures as we did under the previous Government. The hon. Gentleman will know the number of post offices that closed in his constituency. There were six, and I can list them. Greenfaulds, Queenzieburn, Banton, Rosebank, Waterside and Kildrum all closed in his constituency under the previous Government, and we will not see such a closure programme again.

Gregg McClymont rose-

Mr Davey: Does the hon. Gentleman wish to intervene? I hope that he is going to apologise for those closures.

Gregg McClymont: I understand the determination in a political culture to ask people to apologise for things in which they played no role. I do not intend to go down that route. The Minister has given an undertaking to protect the level of Post Office services, but he has not explained how he intends to do it, beyond making some rather vague allusions to the path that the Post Office might go down in the future. I say again that, in my estimation, the licence criteria as currently written can be met only by 7,500 post offices, and I am waiting with great interest to hear something specific about how the 4,000 post offices are to be maintained.

Mr Davey: Over the next few weeks and months the hon. Gentleman will hear a huge amount about our proposals to ensure that we can make good on our pledge not to repeat Labour's mass closure programme. I have already mentioned the extra revenues-whether from Government services or financial services-that will form a critical part of delivering on that. Frankly, it is not through regulation that we will save the post office network; it is by getting business through the network so that sub-postmasters can have a decent income and post offices can be financially viable. That is the way to do it.

Cathy Jamieson: Given that the Minister believes that a number of the previous post office closures were wrong, what provision will he make for the communities that wish their post offices to be reopened?

Mr Davey: As the hon. Lady will see in the weeks ahead, we want to empower communities and to ensure that the post office network is financially viable for the long term. She will have to wait until she hears this Government's full policy statement, but I hope that she will support it. We saw 5,000 post offices close across the UK under the previous Government, and we will not see a repeat of that. Those closures left my constituents-and, no doubt, those of the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East-far worse off than they were before.

I should like to continue, as I want to deal with an issue that the hon. Gentleman spent some time on. This Government have made a clear choice. We will take action to safeguard Royal Mail and its universal service-the six-day, one-price-goes-anywhere service that is so essential to consumers, small businesses and rural communities. I recognise the hon. Gentleman's particular interest in
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this matter, as that service is highly valued in Scotland, as it is in other extensive rural and remote areas of the UK. He was right to make that point.

Protecting the universal service is our primary objective. That means giving Royal Mail the access to the private sector capital and disciplines that it needs to modernise, innovate and thrive in the modern communications market; it means putting in place a regulatory regime that recognises that post is now competing in a wider communications market; it means giving the regulator an increased focus on safeguarding the universal service, regardless of who owns Royal Mail; and it means making sure that postmen and women have a real stake in the future success of the company. That is why we will be introducing the largest employee share scheme in a privatisation for 25 years-bigger than that of British Gas, BT or British Airways. Indeed, as a percentage of the shares, it will be the largest employee share scheme of any major privatisation. I firmly believe that our proposals for an employee share scheme will help to increase engagement and productivity, and will align the long-term interests of the company with those of its employees.

Let me return to the hon. Gentleman's specific concern. Some have said that privatisation will lead to a degraded service, but they are wrong. The forthcoming postal services Bill will be all about protecting the universal postal service by establishing new, stronger safeguards and a firmer focus on its continued provision.

I do not know whether the hon. Gentleman is aware that our obligation under EU law is to a lesser service than the one that we currently enjoy in the UK. When it comes to the universal postal service and the minimum service that member states are required to provide, the European postal directive specifies only five days per week, with no obligation to keep the service uniform throughout the UK. I am sure that, as one who comes from Scotland, the hon. Gentleman agrees that a non-uniform service would be unacceptable here in the UK. However, the power to downgrade our service to that level already exists, and could be used by a future Government without a parliamentary vote or any need for consultation. That is completely unacceptable to me.

As I said earlier, I intend to establish new, stronger safeguards for the universal service. The Government have no intention of downgrading the service, and will never allow a situation in which the service required in one area of the country is not the same as that required in another. I hope that the hon. Gentleman will support the safeguards in the Bill when they are debated in the House, because they relate to the very points that he has made so eloquently tonight.

The measures that I have described will ensure that our communities continue to benefit from a vibrant post office network and a reliable universal postal service. Safeguarding the Post Office and the universal postal service is at the very heart of the Government's policy, and I hope that I have been able to reassure the hon. Gentleman on that point.

Question put and agreed to.

10.27 pm

House adjourned.

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