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Kris Hopkins (Keighley) (Con):
Does the Foreign Secretary agree that the recent revelations that members of the Karzai Government had received bags of cash from a dangerous rogue state compromise not only the
chances of future peace in Afghanistan but the confidence of the people who are sending their young men and women to support a state that is clearly corrupt?
Mr Hague: I drew attention in my statement to the fact that although some progress on corruption has been made, it is by no means enough. We want to see a lot more progress on tackling corruption. That is very important, and the recent revelations about the Kabul bank have provided the most dramatic illustration of the need for that. In the absence of such progress, international confidence is undermined. It is true that a number of countries provide funding in certain forms to the Afghan Government, and it is important that that is transparent and used for legitimate Government functions and that it is not the basis of interference in the internal affairs of Afghanistan. I reiterate, however, that some progress has been made: 27 of the Afghan Ministers have now declared all their assets, and new mining contracts are being undertaken in a transparent way, published on the web so that everyone can see them. My hon. Friend is right, however, to reinforce the fact that for there to be international confidence, an intensified effort to tackle corruption is required.
Mr David Winnick (Walsall North) (Lab): Unsurprisingly, I would like an earlier date for the ending of the combat role for British troops. At least a date has now been set, but I would like it to be at least two years earlier than 2015. Is it not encouraging that the Government, and presumably my party's Front-Bench team, now accept that NATO will not win an outright military victory and that, as Mr Gorbachev has just said-and he should know-a political settlement can only really be decided by the political forces inside Afghanistan?
Mr Hague: I disagree with the hon. Gentleman on a couple of points. To say that we will draw down from combat operations at an earlier date than when we can expect the Afghan national forces to be able to sustain and lead their own operations would be a mistake, and I would resist his call to set an earlier date. Indeed, to be fair to his party's Front-Bench team, I do not think they have ever maintained that there is a purely military solution to the problems of Afghanistan, and neither have we. We have always stressed that a political process is important as well, and I have often heard the former Foreign Secretary, the right hon. Member for South Shields (David Miliband), and the former Defence Secretary, the right hon. Member for Coventry North East (Mr Ainsworth), who is sitting just in front of the hon. Gentleman, say that. The difference between what Mr Gorbachev has been talking about and what is happening now is that this is not the Soviet Union imposing its will on Afghanistan: this is 48 troop-contributing nations, with more than 70 nations assembled to give various support at the Kabul conference, operating under a United Nations mandate to liberate the people of Afghanistan from what happened before, and also with the important goal of maintaining our own national security. It is a different situation, therefore, and I disagree with the hon. Gentleman's analysis of it.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD):
With a clear date set for a military draw-down, is the Foreign Secretary aware of concerns in the development
community that that could lead to less political interest in Afghanistan and, therefore, less commitment to long-term development aid? Can he reassure those working in development that there is a long-term recognition of how much we need to maintain that commitment to development aid?
Mr Hague: There is a very strong recognition of that, as my colleagues from the Department for International Development are saying from the Front Bench. Development aid to Afghanistan is being increased and for the long-term future we will have a major national interest in the stability and prosperity of Afghanistan and of Pakistan next door. Pakistan is on its way to becoming our largest recipient of development aid in the world, and we put in huge and greatly increased resources there to try to bring stability to the whole region. So, yes, our work in Afghanistan will have to continue in that form long into the future.
Dr William McCrea (South Antrim) (DUP): Our thoughts and prayers are certainly with our soldiers who are standing in daily danger in Afghanistan. We pay tribute to their gallantry, especially that of the Royal Irish Regiment and the Irish Guards. Will the Foreign Secretary tell the House whether our coalition forces are receiving the co-operation that they need from the Government of Pakistan in their efforts to fight the terrorism from within their borders?
Mr Hague: Yes, we have many discussions with the Government of Pakistan and with military leaders in Pakistan. The first thing to note is that relations have improved sharply in recent times between both the political leaders and the military leaders of Pakistan and Afghanistan-this is with each other-and that greatly assists such co-operation. Huge quantities of supplies for NATO also pass through Pakistan. The House will be aware of recent interruptions to the passing through of those supplies, but that matter has now been dealt with and we hope that it will not recur. I do not wish to stand here complaining about the Government of Pakistan, who have sustained enormous casualties. The Pakistani military have sustained enormous casualties in fighting insurgencies within their own country and they ensure that very large quantities of the necessary supplies pass through their country. We are getting a lot of co-operation.
Dr Thérèse Coffey (Suffolk Coastal) (Con): I welcome the Foreign Secretary's statement and add my tribute to Corporal Barnsdale, who received a full tribute from the Prime Minister. Corporal Barnsdale was part of 61 Field Squadron, 33 Engineer Regiment, which is based at Rock barracks in Woodbridge, as is 23 Engineer Regiment, which is currently deployed abroad. I welcome the statement that the Afghan security forces are starting to do more things such as countering the improvised explosive devices. Is there a strategy to prioritise some of the operations that are transferred to the Afghan forces, as opposed to geographical provinces?
Mr Hague:
I have listed some of the geographical areas where the Afghan forces are taking on an increased role. The Afghan forces are building up in size. The army, for instance, was 134,000 strong this year-it is slightly larger now-and is meant to become 171,000 strong next year. The challenge now is to increase their specialist capabilities, particularly their intelligence
capabilities, engineering, logistics and military police functions. Of course, those sorts of things are more difficult to build up, because they require a great deal more training and expertise than the training of what one might consider to be the pure infantry. That is an important part of the strategy going forward.
Jeremy Corbyn (Islington North) (Lab): I thank the Foreign Secretary for his statement and for his commitment to report regularly to the House, which is extremely welcome. I was, however, very disappointed in his reply to my hon. Friend the Member for Walsall North (Mr Winnick). President Gorbachev and his country suffered more than anyone else, apart from the Afghan people, because of the military activities of the red army in Afghanistan. He has called for a political solution and a withdrawal, and countered strongly against any Russian involvement. Is it not time that we faced up to the reality that after nine years in Afghanistan, with a lot of lives and billions of pounds lost, no solution, either immediately or in the long term, is in sight? Is it not time to pursue the political road, rather than the military road, rapidly?
Mr Hague: The important point to make is that the political and military roads, as the hon. Gentleman calls them, go necessarily together; there would not be much of a political road without the military pressure. He has called for a political solution and he can gather from everything I am saying that we want a political settlement in Afghanistan; we want a political process that leads to that. But we will get that only from an effective military campaign, from intensifying the pressure on the insurgency and from doing all the work that we are doing to build up the capacity of the Afghan Government. If we and our allies were to withdraw now, all that work would come to an end and there would be another round of great bloodshed, including among the civilian population, and not a political solution. I ask him to see those things as going necessarily together.
Justin Tomlinson (North Swindon) (Con): What is the Foreign Secretary's assessment of the potential to maintain a full and fair democratic process in the long term?
Mr Hague: It is another of those challenges that I speak about. Clearly, democratic processes are now taking place. A parliamentary election has just taken place in Afghanistan with far fewer incidents, although there was still a lot of fraud. From an international viewpoint, this election was conducted in a more respectable way than aspects of the presidential election, given some of the accusations made about that. Progress has clearly been made. The role of independent members of election commissions is being more widely respected and understood, and I think that democratic principles are making inroads into Afghanistan. This will take time and it is something on which we need to have patient effort and persistence. It is a huge challenge, but some progress is being made.
Sandra Osborne (Ayr, Carrick and Cumnock) (Lab):
The Foreign Secretary will be aware of the British public's concerns about the welfare of our troops returning from Afghanistan and, indeed, that of veterans in general.
I welcome these regular reports, but will he consider including in them details of progress on how we can further support our troops after they return from Afghanistan and as they become veterans?
Mr Hague: That is a very important point, and my right hon. Friend the Defence Secretary will include that subject in his assessment when he gives the next of these reports.
Stephen Mosley (City of Chester) (Con): What is the Foreign Secretary's assessment of last weekend's WikiLeaks reports, which made reference to 21 incidents in Afghanistan involving British troops?
Mr Hague: There is no place in our policies for the mistreatment of detainees, and we have been very clear about that as a Government. We have, of course, published the guidance we give to our intelligence officers and announced an inquiry into previous allegations. But I do condemn the unauthorised release of information, which can endanger our forces and people who have worked with our forces, and which gives a one-sided propaganda gift for insurgent, so I condemn those leaks. It is our forces who are engaged, above all, in protecting the civilian population in Afghanistan, often having to accept casualties because of the work they do to protect that civilian population. The people who indiscriminately attack the civilian population and do not care whether women, children and other people are blown up by their improvised explosive devices are the insurgents and the terrorists.
Derek Twigg (Halton) (Lab): May I thank the Foreign Secretary for the report and ask him to give an example of when during a conflict or war and in the middle of a battle we gave our enemy prior notice that we would be leaving the battlefield?
Mr Hague: For all the reasons that I have given, I think that this is the right thing to do. As I said, there are legitimate differences of view, but considering the subject in the round and the length of our deployment, as well as the need to emphasise the building up of the Afghan national security forces-to concentrate on that over the next few years and to be clear with the Afghan Government that that is our intention-we think that it is right to say what we have about 2015. Of course, it does not mean that forces fighting for stability in Afghanistan are at any point leaving the battlefield. There are now more international security assistance forces and Afghan forces deployed than at any stage in the past nine years. Given the huge increases that are envisaged in the size of the Afghan national security forces, there will continue to be an increase in the number of forces available for years to come. The forces of security and stability in Afghanistan are not leaving the battlefield.
Andrew Stephenson (Pendle) (Con): As chairman of the all-party group on Pakistan, I welcome what my right hon. Friend has said today, particularly about working closely with that country, as well as what he said at the launch of the British Pakistan Foundation two weeks ago. May I have his assurances that we will continue to work even more closely with Pakistan to address the security situation in the region?
Mr Hague: Yes, absolutely. That is critical for the security of the region and for the prosperity and stability of Pakistan, which is a prime national interest of this country. One thing that my right hon. Friend the Prime Minister and I have been busy doing over the past few weeks is trying to ensure that it is commonly agreed across Europe that the future prosperity and development of Pakistan, and our working closely and strategically with the Government of Pakistan, are absolutely essential and in the vital interests of the whole of Europe and the western world, not just of the United Kingdom. For instance, our achievement recently of trade concessions for Pakistan, which we secured at the last European Council last month, is a good illustration of that work.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): The Foreign Secretary mentioned the success of the criminal justice taskforce and the 440 convictions in the past year. Is he satisfied that those convicted actually served their sentences, and will he also update us on the progress made on the number of secure prison places in Afghanistan?
Mr Hague: We will have to satisfy ourselves about those things as we go along. The hon. Lady is quite right to draw attention to that. Where people are sentenced, we will want them to serve their sentences. We want more prosecutions to take place under the same procedures. We do not yet have enough secure prison places in Afghanistan and we are very careful about the terms under which we transfer prisoners to Afghan control. There is a need for more secure places and we will keep the House updated about that, too.
Mr Peter Bone (Wellingborough) (Con): I would like to thank the Foreign Secretary for these regular updates and you, Mr Speaker, for allowing these statements to run for such a long time. It will be particularly welcomed by the families of our servicemen and women who are serving abroad. Many in this House will know the concern when their loved ones are either about to go or when they are out there. They carry on with their normal daily lives, but they never forget their loved ones. We should pay tribute to those people.
Mr Hague: Absolutely. Across the House, we pay tribute to them. I know that that is a heartfelt question from my hon. Friend, because his son is about to go to Afghanistan for the second time, serving in Chinooks. All of us who have flown around Afghanistan in Chinook helicopters marvel at the work that those people do. We can all be in absolute accord with what he has said today.
Points of Order
1.53 pm
Chris Leslie (Nottingham East) (Lab/Co-op): On a point of order, Mr Speaker. Earlier, during the urgent question, the Financial Secretary to the Treasury gave the incorrect impression that Labour Members of the European Parliament supported an increase in the European Union budget. Is it in order for the Financial Secretary to be asked to come to the House to correct his mistake, given that Labour MEPs most certainly did not vote in favour of an increase in the EU budget, as my hon. Friend the Member for Caerphilly (Mr David) made clear yesterday?
Mr Speaker: That is a matter of debate and not a point of order, as I think the hon. Gentleman well knows. He has placed his concern firmly and fairly on the record.
Mark Tami (Alyn and Deeside) (Lab): On a point of order, Mr Speaker. In Prime Minister's questions, in answer to the hon. Member for Macclesfield (David Rutley), the Prime Minister stated that BAE Systems' loss of work under the defence review would somehow be offset by the A400M programme, which is in fact an EADS Airbus programme and not a BAE Systems programme, as the Prime Minister seems to think. BAE Systems will have little or no involvement in that programme. Will he come to the House and apologise?
Mr Speaker: No is the short answer to that. I will say to the hon. Gentleman-I will not call him a persistent offender, but he is certainly persistent-that that is a point of debate and arguably a point of frustration, but I am afraid that it does not constitute a point of order. He has put his views on the record and he may share them with others. If there are no further points of order, we will come now to the ten-minute rule Bill, for which the hon. Gentleman in question has been patiently waiting.
Planning (Developer Bonds)
Motion for leave to introduce a Bill (Standing Order No. 23)
1.55 pm
Justin Tomlinson (North Swindon) (Con): I beg to move,
That leave be given to bring in a Bill to make provision regarding local authority powers to require developers to deposit funds in the form of a bond to be used if the local area is not maintained properly; and for connected purposes.
I am introducing the Bill to highlight an issue that I have previously raised in debates in Parliament and that I campaigned on actively during my 10 years as a councillor in Swindon, which relates to the lack of maintenance in unadopted areas. With housing developments set to increase substantially over the next 25 years, this is an issue that will affect any Member of Parliament who has new housing in their constituency.
When a new development takes place, all related street scene work and costs remain the responsibility of the developer until the area is adopted by the local authority. Developments are often on a large scale, and it is not unusual for an area to remain unadopted for many years. My former ward was a new build estate, growing from just 1,800 houses in 2000 to 8,500 in 2010. Throughout my time as a councillor, my postbag from fellow local residents was dominated by complaints regarding the lack of maintenance in unadopted areas-street scene issues, including those in the following three areas: incidental open spaces, such as grass verges, trees, street furniture, bushes and foliage; general street cleaning, such as that to remove litter and graffiti; and the maintenance of roads, fixing potholes, kerbstones and street lights. The last point is exceptionally apt now that the dark nights are drawing in.
A typical example, which I am sure hon. Members will have experienced, is when a resident contacts the local authority, often through the local councillor or Member of Parliament, to complain about the lack of street scene maintenance in their unadopted local area. The local authority then has to identify the relevant developer and request that the issue be addressed. That can have one of three outcomes. Ideally, the developer will take immediate action to address the street scene issues. I must stress that with many responsible and proactive developers that would be the case. However, all too often it takes repeated effort from the local authority or local residents to encourage the developer into action. In the final outcome, the developer simply never responds, or has even ceased to exist, leaving the issue unaddressed.
The frustration of local residents with the latter two scenarios is compounded by the fact they still pay the full council tax rate, which includes a contribution towards street scene works that cannot be used in an unadopted area as it remains the private land of the developer. In my constituency we have estates such as Ash Brake that have remained unadopted for 15 years. It is no wonder that residents feel they do not get the full value of their council tax when they look out of their windows to see swathes of overgrown shrubs and verges.
In fact, my last residents survey as a councillor brought in a staggering 1,200 responses to highlight outstanding street scene issues across the unadopted areas. When
the local authority was unable to get the relevant developer to respond, either the issues remained outstanding or local residents formed groups such as the excellent Redhouse residents association, not just to hold developers to account but to organise action days to clear litter. I am sure that hon. Members can relate that to their own similar local experiences.
The principle of a developer bond is not new; I am proposing an extension of the powers already granted to local authorities, the first of which was granted through section 38 agreements under the Highways Act 1980. Those powers give the local authority the ability at the point of adoption to ensure that the highways infrastructure is built to an appropriate standard and is not a burden on the public purse. That covers things such as street lighting, pavement construction and drainage. However, it is relevant only when the developer is ready to seek adoption, when we often see an 11th-hour flurry of activity, as the developer is effectively forced to bring an area up to the agreed standard to allow for adoption. A section 38 agreement cannot force a developer into action before adoption, or make the developer complete the process of adoption, which is why areas in my constituency remain unadopted after 15 years.
The other power would allow for commuted sums secured through section 106 agreements. This is proving to be essential in sustaining the long-term maintenance of high-cost assets, which are often used as a wow factor by developers to generate sales, such as architectural street lighting, bridges, ponds and decorative street furniture. Without that, the standard local authority budgets would not be sufficient to maintain those items. The willingness to enter into those agreements shows that developers often appreciate the need for areas to be maintained in the long term. Those powers can be helpful and are to be encouraged, but they are limited to the stage when the roads are formally adopted for maintenance by local authorities.
My Bill would amend section 38 of the Highways Act 1980. It includes a new provision to allow local authorities to include a developer bond for the maintenance of the street scene in unadopted areas as part of a planning application. This is needed, because there are currently no powers available to local authorities to cover the transitional period between the selling of the first house and the area being adopted. In effect, I am seeking to address a discrepancy in the powers available to local authorities to ensure that estates are maintained adequately while they are unadopted.
My proposed system would allow the local authority to step in where a developer has not maintained an area to an acceptable standard, and it would then be able to recover its costs from the developer through the bond. The responsibility for maintaining the street scene would remain with developers, so my Bill would not affect developers who already maintain areas to a satisfactory standard. It would, however, provide local authorities and local residents with a safety net, if the developers do not play ball. That will help when developers refuse to bring an area up to an acceptable standard for road adoption, as they will no longer be able simply to ignore the problem. The bond would not tie developers in to long-term contracts, because it would be released, often untouched, as soon as the area was adopted.
Introducing developer bonds for the period before bringing an area up for adoption will also incentivise the developers to pass the responsibility for the area on to the local authority as quickly as possible. I emphasise that there are many good, responsible developers. In fact, they share the frustration about the damage done to the reputation of new build estates. My Bill would help to increase buyers' confidence in new build areas, which will benefit both residents and developers.
In summation, this Bill will improve residents' quality of life in new build areas throughout the country. As I have mentioned, it will not affect the majority of developers, who already adopt good practice in maintaining the street scene during the transition period, but it will improve good practice among developers for the benefit of residents.
In preparing the Bill I have been grateful to hon. Members who have highlighted their shared experiences of this issue. I hope that the Bill will go some way towards helping to improve the quality of life of all residents who have paid a premium to live in a new build house.
That Justin Tomlinson, Anna Soubry, Andrew Percy, Mr Robert Buckland, Andrew Stephenson, Stephen Gilbert, Caroline Nokes, Mr Philip Hollobone, Bob Blackman, Andrew Bingham, Mark Garnier and Karen Bradley present the Bill.
Justin Tomlinson accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 17 June 2011, and to be printed (Bill 99)
Postal Services Bill
2.5 pm
The Secretary of State for Business, Innovation and Skills (Vince Cable): I beg to move, That the Bill be now read a Second time.
Let me begin by making it clear why we are here: Royal Mail and the Post Office are two cornerstones of our society. They are different businesses, but they are both essential to everyday life in the UK. Royal Mail is responsible for collecting and delivering letters. It provides a universal service that ensures the collection and delivery of letters and parcels from any postbox to any address in the country, and all at uniform, affordable prices. The Post Office is an unrivalled network of shops spread throughout the country. It allows people local access to essential services in the heart of their communities. The aim of this Bill is to secure the future of those two institutions and the services that they provide.
I look forward to support from Labour Members, because I know that they genuinely tried in recent years to secure the future of Royal Mail and the post office network. They no doubt agree with me that this must be the final, successful attempt to conclude that process.
Malcolm Bruce (Gordon) (LD): We know that the previous Government tried unsuccessfully to privatise the Post Office. Does my right hon. Friend agree that the Opposition amendment would, if carried, prevent us from carrying out the reforms that he and I, as former Trade and Industry and Treasury spokesmen, understand require capital to invest in the Post Office, and the workers and mutual beneficiaries to take a degree of ownership and control, in order to get the Post Office out of the mess in which it has been struggling for the past 10 years?
Vince Cable: The amendment to which my right hon. Friend refers was tabled by the nationalists rather than by the Labour Opposition. I think that it was drafted before the nationalists were aware of our proposals to strengthen the network. I hope that when they hear what we have to say they will rethink their amendment, because we will have done a great deal to meet their concerns.
Mr Mike Weir (Angus) (SNP): It will be interesting to hear what the right hon. Gentleman has to say. The National Federation of SubPostmasters has raised its concern about the split between Royal Mail and Post Office Ltd. It has pointed out that it cannot find anywhere else in the world where there is such a split between the delivery network and the post office network. Can he give us such an example?
Vince Cable: I will address the matters that the hon. Gentleman has described in detail. I remember him campaigning on this issue in the previous Parliament, when he lost nine sub-post offices in his constituency. We are implementing measures that will stop that happening in future. When he hears about them he will be considerably reassured.
Turning to the background to the legislation, there is, as I have said, a lot of common ground.
Emily Thornberry (Islington South and Finsbury) (Lab): The right hon. Gentleman may be aware that my constituency includes the second largest sorting office in the world. The 2,000 employees there believe that they provide a universal service at a low price. The system is not broken, and they do not understand why it is being "fixed" by the attempt to privatise it. Why are we going ahead with this?
Vince Cable: The hon. Lady's colleagues in the previous Government would have answered that question for her, because they acknowledged, as we do, that the system is broken. I will take her step by step through the arguments in the original Hooper report and in the updated version, which are common to hon. Members on both sides of the House.
The country that pioneered postal services in the 19th century has been left behind in the 21st century. The rise of e-mail and the internet has led to a dramatic fall in the number of letters that we send. The previous Government were well aware of that problem, and they commissioned an independent review of the future of the universal postal service chaired by Richard Hooper, which found that letter volumes were in structural decline, that Royal Mail was in great financial difficulty and that the universal postal service was under threat. The report's conclusion was encapsulated in its title, "Modernise or Decline". All parts of this House accepted the conclusion that the current system was broken; that relates to the previous intervention.
The company, the union, businesses and commentators all agreed with the Hooper conclusion that the status quo then was "untenable". What was the status quo then is still the status quo now, and Richard Hooper is clear that Royal Mail is now in a worse position. How has that happened? The previous Government endorsed Richard Hooper's recommendations and acted on them. They brought forward a Bill that the Liberal Democrats and our coalition partners supported. Sadly, it never reached this House, so the future of Royal Mail was not secured. That Bill would have allowed private sector investment in Royal Mail. It would also have enabled the Government to tackle the pension deficit, and reformed the regulatory regime for postal services. Those are all measures with which we agree, and they form the basis of this Bill. We agree with those measures because, as Richard Hooper says, they are essential if the universal postal service is to survive.
Emily Thornberry: May I make the point that the pension needs to be sorted out, sale or no sale, that regulation needs to be reconsidered, and that both those things can be done without the privatisation of Royal Mail?
Vince Cable: I shall come to the argument for not restricting private investment access in a moment. The simple point is that without private investment we will not get the capital investment that the Royal Mail needs to modernise. That is a simple argument, but I will develop it at length.
Huw Irranca-Davies (Ogmore) (Lab) rose -
Kate Hoey (Vauxhall) (Lab) rose -
Vince Cable: If hon. Members want to make the same point, there is no point in pursuing their interventions, but if the hon. Lady's is on a different point, I shall take hers.
Kate Hoey: If everything that the previous Government wanted to do was so good-and many Opposition Members opposed what they wanted to do-why are the coalition Government not simply taking up where they left off? Why are they going even further and totally privatising Royal Mail rather than leaving a majority share in the public sector?
Vince Cable: I shall take the hon. Lady through the arguments step by step, but the situation has deteriorated badly. I think that she lost seven post offices in her constituency, so she will know that the situation is not satisfactory and that the status quo cannot be maintained.
Vince Cable: I shall take further interventions later but I want to proceed with the next step of the argument.
Let me dwell a little on Royal Mail's financial problems. When I came into government I was left in no doubt as to the real difficulties. I asked Richard Hooper to update his report from December 2008 because I wanted to ensure that the conclusions were still valid-and they are. Let no one in the House be under any illusion regarding Royal Mail's predicament. I recognise that there has been some progress. Opposition Members who represent areas with sorting offices will know that unions and management are now working together better-we acknowledge that-but that the pension deficit has ballooned. It is now more than £8 billion and Royal Mail has, proportionately, the largest pension deficit of any major company in the United Kingdom. In addition, it loses almost £1 million a day on its trading activity. It is an inefficient business in a market that is declining faster than anyone predicted. Hooper now forecasts that letter volumes could fall by as much as 40% in the next five years if nothing is done. That is why we are moving further and faster.
Mr Russell Brown (Dumfries and Galloway) (Lab): I appreciate that the right hon. Gentleman now finds himself in coalition with the Conservatives. There is a pension fund with a substantial amount of money in it; I know there is a deficit, but will he give the House a guarantee that the coalition Government will not do what a previous Conservative Government did to the bus employees superannuation fund? Under Margaret Thatcher they took money from that pension fund, which the Labour Government later had to replace.
Vince Cable: I shall address the pension proposals in some detail. They are virtually identical to what the previous Government were preparing to do. We are talking about taking on a massive liability from that fund. Let me remind the hon. Gentleman, who seems to be trying to defend the status quo, that he lost 13 post office branches under the previous Government. We are trying to deal with the problem that he and others have faced.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP) rose -
Vince Cable: I give way to the hon. Member for Na h-Eileanan an Iar (Mr MacNeil).
Mr MacNeil: My constituents in the outer Hebrides want to know what the service will look like for customers in the Hebrides, and for my postal workers, after these measures.
Vince Cable: As I reminded hon. Members a few moments ago, customers in the Hebrides have experienced a decline. We are going to turn that around, and I shall explain the process and investment by which we will do that.
Mr Russell Brown: On a point of order, Mr Deputy Speaker. I merely want to put the record straight. The Secretary of State has indicated that I lost 13 post offices but I did not; I lost two. I am anxious that he is bandying figures around.
Mr Deputy Speaker (Mr Lindsay Hoyle): That is not a point of order, but the hon. Gentleman has certainly made a point of clarification.
Vince Cable: The hon. Gentleman might want to correct the official record if that is the case.
Let me explain why we need the Bill. We should ask what will happen if we do not act, and do not proceed with it. The Government believe that we still need a universal postal service, collecting from all post boxes and delivering to all 28 million postal addresses six days a week. We will still be required under EU law to fund the universal service if no one can provide it commercially, so the taxpayer could be left to pick up the pieces. We cannot predict how much that would cost, or when it would happen if no action were taken, but we know that it would not be cheap and we are not prepared to take that risk with taxpayers' money-not with the public finances in the current state. That is why we are determined to press ahead with the Bill.
This is not simply about making sure that taxpayers do not have to cover the costs: it is about doing what is right for the future of the company and its employees. Richard Hooper is clear that if his recommendations are taken forward urgently, the Royal Mail has a potentially healthy future. As my predecessor, the right hon. Member for Wolverhampton South East (Mr McFadden), said almost two years ago,
"I believe that Royal Mail and the postal market can thrive in the future, provided that decisive action is taken now."-[ Official Report, 16 December 2008; Vol. 485, c. 966.]
The problems that Royal Mail faces can be addressed through the Bill. After all, it is the only company with the ability to visit all 28 million addresses on a daily basis. It has an unrivalled customer base, and it can build on its position as the leading provider of letters and parcels by providing a new range of digital products for its customers. The Bill is the only way that we can make that positive future a reality.
Sandra Osborne (Ayr, Carrick and Cumnock) (Lab): I shall save the right hon. Gentleman some trouble by telling him that I lost 11 post offices and gained a mobile van service. Many Opposition Members were not happy about partial privatisation. One reason given for it by the previous Government was that the commercial situation and market conditions were not right, so it would be difficult to get a decent buyer. What makes him think, in the current economic circumstances, that anyone else will be interested?
Vince Cable: We are providing a framework in which a sale could take place and we are not setting timetables or limits. Those are the conditions in which we are most likely to get value for money. This is a framework piece of legislation. That is why we are likely to do better than before. I shall come to the details regarding Royal Mail shares in a moment.
Andrew George (St Ives) (LD): The Secretary of State will be aware that people in west Cornwall and the Isles of Scilly are reassured that the universal service obligation will be retained. However, the access arrangements that were agreed, with regulatory intervention from Postcomm, have left Royal Mail in the very weak position of delivering letters for its competitors at a price that, frankly, undermines its commercial viability. I note that clause 48 addresses this issue, but can he reassure me that Royal Mail will have a far better crack of the whip when those terms are negotiated?
Vince Cable: I assure my hon. Friend that will be the case. My colleague the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey), who has responsibility for postal services, will spell out later today and in Committee exactly how the process will operate. My hon. Friend is right: at present the deregulation provisions do not give the Royal Mail sufficient protection against unfair competition. We want to make sure that there is more protection in the deregulation process.
Huw Irranca-Davies: Will the right hon. Gentleman give way?
Vince Cable: I shall take one more intervention before I move on.
Huw Irranca-Davies: I thank the right hon. Gentleman for giving way; I do not know why he was so reluctant to take my question earlier.
I do not have an ideological argument with the Secretary of State. My point is about the argument that he has failed to address. Why is full privatisation needed, rather than the proposal that we put on the table? He has not addressed that point. It is not Red Huw from Ogmore making this argument, but the large majority of Liberals. Conservative voters are saying the same thing: why full privatisation?
Vince Cable: The hon. Gentleman is right to say that this is not an ideological question. I shall come to the share sale issue shortly, but I have no ideological stance on it. I see a role for public ownership in certain circumstances: I think I was ahead of most Opposition Members in pursuing public ownership of the banks during the crisis. There is a role for public ownership in certain circumstances, but this happens to be a case when it serves no useful purpose, and we are quite prepared to adopt a pragmatic approach to get the best provision for Royal Mail and the universal service, and the best value for the taxpayer. We have no ideological hang-ups, and I am glad that the hon. Gentleman does not either.
Mr David Anderson (Blaydon) (Lab): May I point out to the right hon. Gentleman that for more than a century a number of Labour Members have believed in the nationalisation of the banks?
Vince Cable: Is that the voice of heritage Labour-at last?
Let me summarise the substance of the Bill. As the discussion so far has revealed, Members will find much in the measure that is familiar. As I said, when drafting the Bill we drew on much the same evidence as the previous Government. The facts are not in dispute, and we have reached much the same conclusion: the company needs private sector investment, the pension deficit must be tackled and the regulatory regime must be reformed. However, this Bill is not identical to the previous Government's Bill.
We have taken the opportunity to learn from what has gone before and to develop a new Bill that builds on this Government's commitment to employee participation. The right hon. Member for Wolverhampton South East made a major contribution to advancing the debate on the modernisation of the Post Office. When he was Minister for postal services, he said:
"We need a longer-term plan, with a proper buy-in from the work force".
-[ Official Report, 11 February 2009; Vol. 487, c. 1449.]
That is exactly what the Bill hopes to deliver.
First, let me turn to specific issues relating to the Post Office. As I have said, the Post Office and Royal Mail are different businesses. They face different challenges, which means that our approach has to be different. The post office network is unique. There are about 11,500 branches across the country, and it operates in places where other retailers do not. It offers services that other retailers do not. Above all, the Post Office plays an essential social and economic role in our communities. For that reason, the Post Office is for sale. The Bill is absolutely clear on that point.
I am concerned, however, that the current structure of the company is holding the network back. It seems to me that the Post Office is ideally suited to a Co-operative Group style of structure, where employees, sub-postmasters and communities get a greater say in how the company is run. The Bill includes a provision that would allow for a possible future mutualisation of the Post Office. Let me be clear that no firm decision has been taken on mutualisation; there would be a full public consultation before we moved to a mutual structure. In the meantime, I have asked Co-operatives UK to explore options for how a mutualised Post Office would work best.
Mark Hendrick (Preston) (Lab/Co-op): Has any thought been given to whether that would be a worker co-operative or a consumer co-operative?
Vince Cable: It could be either, or a combination of the two. That is why we have turned to the Co-operative Group to give us advice on the structure. However, I take it from the tone of the hon. Gentleman's intervention that that broad approach would be welcome to him.
Albert Owen (Ynys Môn) (Lab): The right hon. Gentleman talks about a mutual for the Post Office, but has he looked at a mutual or other model for the Royal Mail, rather than pure privatisation? In Wales, as he knows, Welsh Water is run by a not-for-profit organisation. It is unique and gives universal service across Wales. Could that not be done for the Post Office across the United Kingdom?
Vince Cable: The Royal Mail and the Post Office are different businesses and they require fundamentally different solutions. The issue for Royal Mail is capital-how we deal with the pension fund. It requires a different model.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): The Secretary of State has made slightly contradictory statements. First, he said he was consulting Co-ops UK for advice on mutuality and then he said he was consulting the Co-op Group. They are distinct organisations-one is advisory and the other is a huge retail operation. Could he clarify which he means?
Vince Cable: We are asking Co-operatives UK to give us advice. The hon. Gentleman is very close to the co-operative movement, so his input to the discussions will be welcome.
Mr John Redwood (Wokingham) (Con): Will the Secretary of State give way?
Mr Redwood: I am grateful to the Secretary of State. Do I assume that he is talking about mutualising the Crown offices, which the state already owns, and not mutualising the bulk of post offices, which are independent private sector retail businesses that it might be difficult to mutualise against their will?
Vince Cable: Individual post offices are of course self-managed, but they operate within Post Office Ltd. It is the structure of Post Office Ltd that we are concerned about. The process clearly needs advice and further thought, which is why we are approaching it with the maximum degree of engagement and consultation, and the right hon. Gentleman will be one of the people whose advice I shall seek.
Vince Cable: I have taken a substantial number of interventions and I want to proceed.
I know that these proposals mean setting out on a new course, and that before any changes can be made the network will have to be put on a secure financial footing. Subject to consultation, it is the right outcome for the network. I hope the Post Office can make the transition before the end of this Parliament.
Let me further reassure the House about how we shall put the Post Office on a more secure financial footing.
Vince Cable: I will take interventions at the end of the next section of my speech. I have already given the hon. Gentleman answers to some of his questions.
Communities up and down the country have rightly been concerned about the shrinkage of the network over previous years, and despite the efforts of Opposition Members-notably the shadow Chancellor-there has been remorseless decline over the last three decades. The previous Government's closure programmes shut 5,000 post offices. I commend Members on both sides
of the House who fought against those closures. Those days are over. I echo the words of the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) from some years ago:
"We had a choice. One was to continue to watch decline turn to crisis and crisis turn to collapse, leaving it as someone else's problem down the road."-[ Official Report, 15 February 2000; Vol. 344, c. 870.]
This Government do not believe in passing on the problem, so we shall fund the post office network, and when I say "fund" I do not mean setting aside millions to buy off sub-postmasters when we close their business.
The option of keeping the network on a care and maintenance basis and letting it decline is one we have rejected. I can today announce £1.34 billion of new funding for the Post Office over the spending review period. The funding will be used to reform the current network, to change the underlying economics, and so reverse the years of decline and secure its long-term future. I am grateful in particular to the Chief Secretary to the Treasury for his understanding, even in a tough spending round. I repeat, there will be no programme of closures under this Government and the Post Office will be able to invest, improve its offer and win new revenue streams.
Dr Julian Huppert (Cambridge) (LD): Does my right hon. Friend share my sheer joy and satisfaction both about the money and about the idea that we will no longer have to campaign against Government closures of post offices? We can get on with supporting them in their work.
Vince Cable: Yes, indeed. That is the outcome. For the past decade I and many on the Opposition Benches have been involved in fighting for our local post offices. In many cases, constituencies have seen the loss of a dozen post offices. That will come to an end.
Huw Irranca-Davies: On that very point, I am grateful for the clarity of the right hon. Gentleman's response, although the figure seems less than the support that the Labour Government put into the post office network. An individual in my constituency has just successfully kept a branch open with the investment of tens of thousands of pounds of his own money, as well as funds from the Welsh Assembly Government and some Post Office Ltd money. Will he be an independent trader under the umbrella of Post Office Ltd, or some sort of commercial, co-operative, mutual whatever? He has just put a lot of money in, and the Secretary of State does not seem to be clear.
Vince Cable: I am surprised to hear Opposition Members speaking against mutualisation and co-operation. I thought that was at the heart of the Labour movement's values. We will consult on how, in practical terms, the post office network becomes a mutual structure. I made that clear. By shifting us into the structural arguments again, the hon. Gentleman is taking away from the considerable importance of the announcement that has just been made, which is that the process of remorseless and endless closures-I think he has had seven in Ogmore-is going to come to an end.
Huw Irranca-Davies: On a point of order, Mr Deputy Speaker. The right hon. Gentleman is spraying around statistics on post office closures and, once again, he is getting them wrong. I realise that I may be out of order, but that is unforgivable.
Mr Deputy Speaker (Mr Lindsay Hoyle): Let us clear this up. We both know that that is not a point of order. Many hon. Members want to speak. Spurious points of order do not help the Chamber. We need to get on with the debate. We may have a chance for everybody to put their opinions afterwards.
Vince Cable: I will take one more intervention.
John Hemming (Birmingham, Yardley) (LD): On the issue of the individual, private, sub-contracted post offices, does my right hon. Friend find it surprising that Labour Members cannot understand that those post offices will remain open as independent sub-contractors with a mutual network?
Vince Cable: Yes. Labour Members seem to find the concept of an expanding, properly invested post office system a bit of a culture shock. They have got used to a decade of decline-they presided over it.
Tom Brake (Carshalton and Wallington) (LD): Does my right hon. Friend believe that he has created enough scope for post offices such as the one in Beddington, which shut a number of years ago, to be reopened? In what circumstances does he see new post offices opening?
Vince Cable: As I say, investment capital availability ultimately comes down to the individual decision of individual postmasters. As my right hon. Friend the Member for Wokingham (Mr Redwood) pointed out, these are individual investment decisions, but the network will in future be put on a structurally sound, properly funded basis. That is the essence of the reforms that we are introducing.
Vince Cable: I will press on. The hon. Gentleman has had his say.
In addition to funding, we are injecting new ideas. We have been re-thinking the role of post offices in providing Government and banking services, and we will be coming back shortly with a fuller statement on that problem, setting out some new and positive ideas that I hope will command support on both sides of the House and in the country.
I would like to reassure the House with respect to the relationship between the Post Office and Royal Mail. The Post Office is currently a subsidiary of Royal Mail, but they are separate companies and they are very different businesses. As part of our plans for both companies, the Bill will allow for the separation of Royal Mail and the Post Office. Separation will give the Post Office management greater freedom to focus on the branch network and providing new services, but I want to make it clear that in this case at least, separation is not a first step towards divorce.
The Post Office and Royal Mail will continue to work closely together. Each company needs the other. Post offices carried out over 3 billion mail transactions for Royal Mail last year. The two companies are closely
linked in the public mind, and are bound together by an overwhelming commercial imperative. There is currently a long-term contract in place between the two companies, and there will continue to be a long-term commercial contract in place. The chief executive of Royal Mail has said that it would be "unthinkable" that there will not always be a strong relationship between the Post Office and Royal Mail.
I shall move on to Royal Mail ownership and the processes involved in the sale of shares.
Julie Hilling (Bolton West) (Lab): I am slightly confused by what the right hon. Gentleman has said. First, will all post offices remain open? Secondly, will the private company always have to do business with those post offices? Is that guaranteed for ever and ever?
Vince Cable: No. The relationship between Royal Mail and the Post Office rests on two things-first, on mutual interest. They have strong mutual interests and depend on each other. Secondly, there is a contractual relationship. This will not change as a result of the separation of the two. Public ownership did not secure the arrangement. It is secured by mutual interest and contractual obligation. That will continue.
Mr Redwood: Where the property is shared between the Post Office and Royal Mail, as it is in a number of important locations, is the intention to split the site, create separate title to different parts of the site and give each its own front door, or will they share the property?
Vince Cable: Obviously, such detailed matters will need to be resolved as the process of separation continues. It is a practical issue and, as it is a commercial matter, Post Office and Royal Mail will look for the most sensible, practical, least cost arrangement.
For the foreseeable future, Royal Mail will be the only company capable of providing the universal postal service. That means that if we want to continue to benefit from a universal service with uniform and affordable prices, we have to equip Royal Mail to survive, and indeed thrive. There is no choice. That was the conclusion of the original Hooper review commissioned by the Opposition, and his recent update for the coalition Government.
Malcolm Wicks (Croydon North) (Lab) rose -
Vince Cable: I will finish this section, then I will take the intervention from the right hon. Gentleman, who I know was a Minister and had close involvement with this matter.
Some Members of the House will say that Royal Mail can modernise and survive while remaining in the public sector. They will say that Government can provide the funding that Royal Mail needs, and that the modernisation agreement in place between the union and the company is sufficient to stave off the decline in the market. That is not a view that I share. I did not share it in opposition and I do not share it now, nor is it shared by Richard Hooper or the company.
Let me be clear. The Government are the wrong shareholder for the company. Given the Government's financial constraints, we cannot invest enough quickly enough, we cannot invest flexibly enough, and every
investment that we make has to be cleared by the European Commission under state aid rules. Richard Hooper is also clear that Royal Mail cannot modernise properly, and cannot take the decisions that it needs to take, while it has the threat of political interference hanging over it.
Private sector capital will bring with it private sector disciplines, which will allow the company to modernise faster to keep pace with the changes in the market. As the last Minister with responsibility for postal services wisely said:
"Unless modernisation happens, the company will be ill equipped to deal with its challenges."-[ Official Report, 11 February 2009; Vol. 487, c. 1452.]
The Bill will therefore lift the restrictions that currently exist on the sale of shares in Royal Mail.
Malcolm Wicks: For a range of reasons, there is a widespread acceptance that Royal Mail has to modernise. That should not be a source of controversy. But given that, according to a recent YouGov poll, 60% of the public wished the service to remain a public service, including a clear majority of the Minister's own party's supporters-voters-and Conservative supporters, with only 15% opting for privatisation, why have the Government rejected the option of modernising a public service? We have modernised public services before. Modernisation and public service can go together.
Vince Cable: That has been happening for 13 years and it has not solved the problem. The problem is deteriorating and the Government cannot provide the investment capital. The right hon. Gentleman is right about public opinion. The public are concerned about the universal service obligation. That is the essence of public service, and it will be protected. The protections will be strengthened under the Bill in a way that I will explain in a moment. When the public understand that it is the universal service obligation, rather than public ownership itself, that is being maintained, they will have considerable reassurance.
Mr Roger Gale (North Thanet) (Con): I shall support Second Reading because Royal Mail is broke. It has to be fixed, which will take a considerable amount of money, and the Bill is the only way forward. The Secretary of State may consider this a peripheral issue but, since Queen Victoria, Royal Mail has borne the royal imprimatur. My understanding is that under European regulations, it is not possible to restrict ownership of Royal Mail once it goes on to the open market, so it could well be sold to the Dutch or the Germans. Notwithstanding the provisions of clause 60, how will the royal charter be maintained?
Vince Cable: We certainly do not have any doctrinal or other objections to foreign ownership. I spend a lot of my time trying to attract foreign investors to the country, but, as far as the royal charter is concerned, it is clear that the association with the monarchy is probably the most powerful brand that the company can possibly have, and there will be every interest in the new owners continuing to maintain it.
We need to be careful of specific issues. We need to be careful that the new owners do not abuse the royal association, and we are discussing with the palace how
we build in those protections. The monarch will continue to have the right, which we are also building in, to ensure that any new stamp, for example, is cleared by the palace. So, the royal interests in the matter are fully protected. We are very sensitive to them and to their importance.
Let me return to the core of the argument, which is the sale of shares in Royal Mail. That is a departure from the previous Government's Bill, but I should remind the House that the purpose of the Bill before us is not the sale of shares in Royal Mail for its own sake, but rather, as I pointed out to the right hon. Member for Croydon North (Malcolm Wicks) a few moments ago, the protection of the universal postal service and Royal Mail as the only company capable of providing it.
It is therefore right that we allow for the flexibility to seek the investment required to secure the future of Royal Mail and the universal postal service. So, we see no reason at this stage to set an arbitrary target for how much we must sell, by when and by which method. Those are critical decisions that need to be taken with proper advice and in the full knowledge of market conditions, assessing both value for money and the company's needs.
Of course, Parliament will be kept informed of those decisions, and the Bill requires a report to Parliament once a decision has been taken to begin a sale process. I hope to be in a position to report to Parliament on the sale process in the first half of this Parliament. In the longer term, I do not believe that there is a need for the Government to keep a stake in Royal Mail, but I will ensure that the Government have the flexibility to ensure the right outcome for taxpayers, for Royal Mail and for its employees.
Let me turn to the interests and concerns of the employees. The employees are critical to Royal Mail's ability to modernise and thrive, and it will come as no surprise to Members when I say that Royal Mail has a history of poor industrial relations. Members may have noticed that Unite announced two days ago that it would ballot Royal Mail managers on industrial action. That recent development aside, I have been heartened by some of the positive steps that have been taken to improve industrial relations-in particular, the agreement with the Communication Workers Union on the modernisation of the business. The agreement accepted that, unfortunately, job losses would be associated with the modernisation. It accepted, too, that there would need to be changes to working practices, and that mail centres would close. The plan has already been agreed with the CWU, and the company is implementing it now.
Kate Hoey: One depot that has been suggested for closure is the very large one at Nine Elms in Vauxhall. There has certainly been no agreement in London that it should close, and everybody will fight its closure very hard, because it would be just crazy for everything-lorries and vans-to go in and out of London, adding to pollution.
Vince Cable:
I am not familiar with the details of the argument in that case. I was referring to the fact that there has been a constructive relationship between the union and management on modernisation, but such
issues do exist, and they are essentially commercial ones that must be dealt with by management and their employees in the normal way. None the less, I would be interested to know whether there is a specific role in the matter for the Government, and I shall respond to the hon. Lady on that.
So, I acknowledge that there will be job losses. The company is losing money and the market is declining, and that is regrettable, but it is unavoidable. The question that we need to pose is, what happens if we do not take action? What happens if Royal Mail fails and the market collapses? That is the current trend. I know that the CWU has been in Parliament today, talking to many hon. Members about their views, and I and my hon. Friend the Under-Secretary, who has responsibility for postal affairs, met the CWU to discuss Royal Mail. We look forward to continuing to talk to its representatives as the Bill goes through Parliament.
However, I have one thing to say to the union directly today: the worst thing for its members, Royal Mail's employees, would be to do nothing, because that is the real threat to jobs in Royal Mail. The employees of Royal Mail also deserve better than constant battles between the union and the management. They deserve to be properly engaged in the business that they work for, and to have a real stake in its future. That is the only way in which we will break for ever the cycle of antagonism and mistrust that has bedevilled the company. The Bill therefore requires the creation of an employee share scheme, which will hold at least 10% of the equity in Royal Mail in future. That is very far from being a token gesture; it is nothing less than the largest employee share scheme of any major privatisation.
The employees of Royal Mail will also be concerned about their pensions, and they have good reason to be, because Royal Mail's pension deficit is huge, growing and volatile. Put simply, it is not sustainable. Even the recent agreement between the pension fund trustees and the company is fragile. It requires that Royal Mail pay off its deficit over 38 years, which is at least twice as long as any other UK company's repayment plan, and the pensions regulator has already said that it has substantial concerns about the agreement.
Mr Jim Cunningham (Coventry South) (Lab): Will the right hon. Gentleman give way?
Vince Cable: I am going to go on to explain the new mechanism. Would the hon. Gentleman like to wait until I reach the end, or does he wish to intervene on that particular point?
Mr Cunningham: On that particular point.
Mr Cunningham: On pensions, what will happen to the assets, and what is their value? I am told that the pension plan has assets of about £26 billion. Is that true?
Vince Cable: Yes, it is true, but the liabilities are much bigger. I shall explain in a moment how we will deal with the assets.
The pension deficit, which is the starting point, threatens the very existence of the company. It is draining cash from Royal Mail's modernisation and preventing it from undertaking the reforms it needs to survive. That
is why the Government have to take action today. As part of the sale, the Bill will allow the Government to take on responsibility for the pension deficit. We will not only address the deficit, but reduce the size of the Royal Mail pension plan to a more manageable level for the business. The liabilities of Royal Mail are more than 50 times annual profits. By comparison, the liabilities of the average FTSE 100 company are closer to one times profits-an enormous difference.
We intend to reduce the plan to about one tenth of its size today. We will do so by creating a new public sector pension scheme that will assume responsibility for paying out the past pension benefits of Royal Mail employees. In effect, all members of the Royal Mail pension plan will have their past service moved to a new Government scheme like that of the NHS or teachers. It is the same solution to Royal Mail's pension problems as the previous Government proposed in their 2009 Bill.
I know that hon. Members will be concerned about the detail of the proposed pension arrangements, and we will provide a note to Parliament in order to explain the practical effects of those very complex changes, but I should like to reassure the House on two points in relation to pensions.
First, let me be clear that this solution is by far the best outcome for the employees of Royal Mail. The action that we are taking in the Bill will ensure that all the benefits that employees have earned will be safeguarded. The benefits that become the responsibility of the Government will be protected in the Bill, and all members of the Royal Mail pension plan will benefit from that support-Post Office and Royal Mail employees alike.
As a bottom line, the Bill places an obligation on the Government to ensure that our action leaves members in no worse a position than they were in before. This means that the amount of benefits that they receive will be at least as good as if the Government had not acted. There will also be a restriction on the Government's ability to make any changes to the new public scheme in future that would adversely affect members. The Government intend to use that restriction to reflect as closely as possible the current protection that members of the pension plan are afforded under section 67 of the Pensions Act 1995.
Secondly, the measure is not a Government plan to massage the Government's accounts, for the very simple reason that the Royal Mail pension plan has a deficit of £8 billion. That is the cost to the Government of implementing the solution on behalf of the company and its employees. Let me be clear: the Government are taking on liabilities that are much bigger than the assets. I have seen reports-perhaps this is what the hon. Member for Coventry South (Mr Cunningham) was referring to-that the Government will be selling off the Royal Mail pension plan's £24 billion of assets. It is certainly true that the surplus assets above the level needed to leave the ongoing pension plan fully funded will be transferred to the Government. It is also true that these transferred assets will be sold because it makes no sense for Government to sit on a massive investment portfolio.
I, for one, do not wish to see central Government taking such a huge investment risk with taxpayers' money. So yes, we will sell the portfolio of assets which transfer across to Government, and this is likely to involve over £20 billion of asset sales over time. But the
important point-it is absolutely crucial to this argument-is that we will be making payments to members of the Royal Mail pension plan for at least the next 50 years.
Mr Anderson: Can the Secretary of State explain why the liabilities are so huge? Is part of the reason the fact that Royal Mail took a 13-year contributions holiday in the 1980s and 1990s?
Vince Cable: I understand that my hon. Friend the Under-Secretary is very familiar with this and has spent a lot of time talking to the pension trustees. There is a whole set of reasons behind this deficit, one of which is that employees are living longer; another is that the pension fund made some rather bad investment decisions. There are contributory factors. But we are where we are: there is a massive deficit and we have to deal with it; that is the centre of the problem.
Let me add that the Government's support for the Royal Mail pension plan is subject to state aid approval by the European Commission. The House can rest assured that we will be going to Brussels to make this case in the strongest possible terms.
Let there be no doubt: this is a good deal for the employees of Royal Mail. In almost all important respects, it is exactly the same deal as that in my predecessor's Bill-but coupled with the legal requirement for employee shares, it is a much better deal for employees.
Vince Cable: It is a solution on which I hope that Members in all parts of the House can agree, including the right hon. Gentleman.
Malcolm Wicks: On the pension issue, which is so crucial, Labour Members will want to scrutinise the plan and the idea of selling off the assets in return for guarantees. It seems to me, however, that that plan, whether it is the right one or not, could still be carried out if the service remained a public service. I do not see why it is intrinsically and inextricably linked with privatisation. Something like this needs to be done anyway, whether or not this is the right model.
Vince Cable: Of course it does need to be done anyway, but as I explained a few moments ago, the key point about bringing in private capital is that it brings in investment as well as new and better methods of management. There are separate issues involved. However, the right hon. Gentleman is quite right: the pension fund deficit needs to be dealt with. If it were not dealt with-if the thing just continued-there would be a real danger that it would contribute to the collapse of the company: that is why we have had to intervene.
I apologise to the House for going on for such a long time, but a large part of that has been taken up with interventions, as I was anxious to ensure that Members who had concerns were able to raise them.
The last section of my speech relates to reform of the regulatory regime. At the heart of this Bill, just like the last Bill, is protection of the universal postal service. The Bill will maintain the universal postal service at its current levels-that means six-days-a-week delivery and collection at uniform, affordable prices. I would like to
reassure the House that I have no intention of downgrading this service. I know that some Members have been concerned about their constituents receiving a reduced service, and I share that concern. I have therefore ensured that the Bill contains new and stronger protections around the service than is currently the case-stronger protections, too, than were in the Bill put forward by our predecessors.
Members may not be aware of this, but the Government already have the power to reduce the minimum requirements of the universal postal service without even requiring a debate in Parliament. Through the European Communities Act 1972, it can reduce them to the minimum requirements of the European postal directive-that means five- days-a-week delivery and no requirement for uniform pricing. I do not think that that is an acceptable situation. Another way of putting it is that we have European regulation to protect the universal service obligation. This is one occasion where we are arguing in favour of gold-plating; indeed, as my hon. Friend the Under-Secretary has pointed out, we are platinum-plating this particular set of protections.
Robert Halfon (Harlow) (Con): I very much welcome the reforms that the Secretary of State has announced today and the commitment to a universal postal system. However, will he allow other companies also to provide a universal postal system if they so wish?
Vince Cable: We cannot do it in that way. Of course, other companies have access to the market, subject to strict conditions, but we envisage that Royal Mail will continue to be the universal service provider: that is the basis on which we are proceeding.
The Bill puts in place three new safeguards: the platinum-plating, so to speak. First, the Bill ensures that no proposal to reduce the minimum requirements of the universal postal service can be proposed until the new regulator, Ofcom, has conducted a review of user needs. Secondly, any proposal to reduce the requirements of the universal postal service must be subject to a majority vote in both Houses of Parliament. Thirdly, any reduction in the minimum requirements cannot change the uniform nature of the service. The Bill states that the service and the price must be the same across the whole of the UK. I hope that Members in all parts of the House will support these new protections for the universal postal service.
Glenda Jackson (Hampstead and Kilburn) (Lab): Earlier, the Secretary of State said that one of the central issues in the modernisation and advancement of Royal Mail and the Post Office was-I am paraphrasing-the removal of political intervention, but he is now talking about a contract that is surely still politically in the hands of politicians. How can he possibly stand there and guarantee that there will be no changes whatsoever to the universal service? I cannot, for the life of me, imagine any private company signing up for a contract that is immutable, which is surely what he is saying the changes will bring about.
Vince Cable:
I am not making these commitments as political commitments. They are enshrined in regulation-regulation that will be strengthened and has the force of law. Of course, that is political in the widest sense if one
regards this Parliament as political. The protections are going to be legal and regulatory; this is not a matter of political discretion for individual politicians.
We will also be taking other measures to secure the universal postal service. The greatest threat to postal services comes from the decline in mail volumes and the rise of e-mail and the internet. It therefore makes sense for the postal sector to be regulated alongside the broader communications market. For that reason, the Bill will transfer responsibility for the regulation of the postal services sector from Postcomm to Ofcom. Ofcom has a deep understanding of the wider communications markets and will be well placed to take decisions as regulator of postal services. The Bill will also give Ofcom a primary duty to exercise its functions as regulator of postal services in a way that it considers will secure the universal postal service-and it will need to consider the financial viability and efficiency of the universal service in taking its decisions.
We want to ensure that the new regulatory framework is proportionate to the needs of the market. We want to allow for rapid deregulation where there is competition. All mail providers need to be able to operate in a fair and effective market as soon as possible. As an ultimate protection for the universal service, the Bill includes provisions for special arrangements should a universal service provider be at risk of entering into insolvency proceedings-a remote risk but one that we have to consider. The arrangements would allow the appointment of a postal administrator whose objective would be to ensure that the universal service is maintained. We do not expect ever to have to use these provisions, but they provide an additional safeguard for the universal service. These measures mirror those that have been taken in the energy and water sectors.
Vince Cable: I will take one more intervention and then move to a conclusion.
Andrew George: I am much reassured by what the Secretary of State is saying. Further to my earlier intervention, I am merely seeking reassurance that the access agreements between the new Royal Mail and its competitors will be set in a regulatory framework that gives it a fair crack of the whip when negotiating the terms and the price. Under the present arrangement, Royal Mail is clearly, in effect, subsidising its competitors because it is delivering their mail.
Vince Cable: I believe I have given my hon. Friend that reassurance. Royal Mail will not subsidise its competitors, protections will be built in and there will be a genuine regulatory level playing field in a way that has not been quite true in the past.
Previous attempts at legislation on Royal Mail have not had a great history of success. I anticipate that there may be some opposition to the Bill both inside this House and elsewhere, although I believe that after 20 years of false starts, there is now a willingness to do what needs to be done. There is no easy way out, and the problems that Royal Mail faces will not go away. There will be no winners if we fail to act. Royal Mail's employees will face continued uncertainty over their pensions and their jobs, customers will face a declining
service and taxpayers will continue to bear the risks. Ultimately, Richard Hooper was clear that without this action, Royal Mail would fail.
Royal Mail needs this Bill. The company says so, Richard Hooper says so, the previous Government said so and I say so. I therefore strongly commend this Bill to the House.
Mr Deputy Speaker (Mr Lindsay Hoyle): I inform the House that Mr Speaker has not selected the amendment.
3 pm
Mr John Denham (Southampton, Itchen) (Lab): For more than 350 years, the Royal Mail has delivered the post to homes and businesses across the United Kingdom. Created by the Crown, for all that time it has been to all intents and purposes a public service run in the public interest, and it has always been seen as a huge and valuable national asset, run in the national interest. Today's Bill would change all that. It would lead to the total sale of the Royal Mail, and a huge sum of public money would be spent to enable a private sale to take place. I believe that that sum has just gone up again by a substantial amount.
The Bill may mean the Royal Mail, this national asset, passing into foreign ownership or to short-term investors interested only in the quickest possible profit. For the first time ever, it has to provide for a special procedure to deal with the insolvency of a private Royal Mail.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): The right hon. Gentleman talks about Royal Mail being owned in the national interest and about profits in the private sector, but was not the great burden hanging over it when it was owned in the national interest that its profits were taken by the Treasury for other purposes, rather than being invested in modernising it to let it compete effectively in the market that his Government forced on it?
Mr Denham: The hon. Gentleman may have a point about the use of those profits, but I would rather they went to the Treasury or to the Royal Mail, not to a private company whose owners lie overseas. The defence of the national interest lies with public ownership.
Today's Bill provides, for the first time ever, for the breaking up of the Royal Mail, with different organisations providing the universal postal service in different parts of the country. It breaks the umbilical link between the Royal Mail and the network of local post offices prized by residents and communities up and down the country, and does so in a way that threatens the future of thousands of local post offices. It is a very serious Bill, and it must be considered seriously and in detail in the weeks and months ahead.
Of course, serious discussion of the Bill must acknowledge why the coalition Government have concluded, as the previous Labour Government did, that doing absolutely nothing is not an option. The competition for the services offered by Royal Mail, including from new ways of communicating, has changed more dramatically than anyone envisaged even 10 years ago. Last year, it reported a drop of 7% in letter volumes. Other operators have been taking business upstream faster than expected. Some 87% of all mail in
the UK is sent by businesses to people at home or to other businesses, and competitors have already won more than 60% of the upstream, pre-sorted bulk mail market, delivering their customers' mail into the Royal Mail system for final delivery.
Over the fast-approaching horizon will come the full impact of technological change-e-mail, web-based advertising, text messaging, mobile phones and all the other modern ways of communicating. The worldwide postal market is expected to decline by 25% to 40% over the next five years. The problems with the pension fund, which had their origin in the 13-year pension holiday until 2001, have mounted. There was, therefore, a consensus that action needed to be taken.
Kate Hoey: My right hon. Friend has mentioned a number of issues, but he has not drawn attention to the EU directive on postal services, which allowed companies such as TNT to cream off all the profitable parts of Royal Mail and leave the universal service within the public sector. That directive was agreed to. Does that not show that we should examine EU directives a little more carefully in future?
Mr Denham: All EU directives should always be examined very carefully as a matter of principle. There is perhaps a debate to be had about whether a six-day service exceeds the strict requirements of the EU directive, but my hon. Friend raises an important point. If she will allow me, I will return a little later to how competition has developed in practice and whether we have a level playing field.
There was consensus about the nature of the action that needed to be taken. The Royal Mail needed to be transformed to become more efficient and competitive, and that transformation would need new management and vastly improved industrial relations. The taxpayer would need to take on the liabilities of the pension fund, and access to investment was needed.
However, the central question that the House must ask today and in the coming weeks is whether the Secretary of State's way forward is the best. We will oppose the Bill, although we do not oppose every element in it. We believe that abandoning the commitment to keep Royal Mail as a publicly owned organisation is wrong. Clause 1 abandons that commitment, which was restated by the Labour Government. That will inevitably threaten the public interest, from the moment the sales process starts to the long-term future of both Royal Mail and the Post Office.
Public ownership of the Royal Mail provides the ultimate safeguard for the public interest. It ensures that even if other policy fails, it is not too late to defend the interests of the public, whether by protecting the delivery of letters six days a week to every home in the UK at a standard price, or by guaranteeing the business that can sustain a network of local post offices. Public ownership can ensure that public money is invested for public benefit, not private profit.
The front-line defence of the public interest lies, of course, in the legal framework in which Royal Mail and the Post Office operate. The Bill will transfer responsibility for regulation from Postcomm to Ofcom, as did Labour's Bill. We will need to consider carefully in Committee whether a regulatory framework designed for a publicly
owned company remains as well designed for the foreign-owned or private equity-backed company that might soon run Royal Mail.
The relationship between the public interest and Royal Mail is not governed by regulation alone. Local post offices need a continuing public subsidy, and that in turn depends on the commercial relationship between Royal Mail and the post offices. Both those issues have properly concerned Ministers and Parliament in the past. In some crucial areas, such as the relationship between Royal Mail and the Post Office, the Bill will weaken the ability of Ministers and Parliament to act in the public interest. In other areas in which Parliament might wish to defend the public interest, such as the universal service obligation, it leaves too much discretion for the regulators and Ministers to waive the public interest.
The Secretary of State made no case for why he had decided to go beyond the limited equity stake that was proposed, not without controversy, by the last Labour Government. I wait with interest to hear the remarks of my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), if he catches your eye, Mr Deputy Speaker. The Secretary of State made no case for the full privatisation of Royal Mail.
As the Secretary of State said, we recognise parts of the Bill from our own legislation, and we broadly support parts of it, including employee share ownership. The possible mutualisation of the post office network deserves positive examination at the very least.
I have set out the changes that everyone agreed were needed, but in truth many people thought that Royal Mail could not change while it was a public company. However, change has happened. Considerable progress has been made, and more is under way. An important agreement was reached this March between the Communication Workers Union and Royal Mail supporting the £2 billion modernisation plan, £1.2 billion of which has now been spent. CWU members supported the agreement by a 2:1 majority.
Differences are being felt in operations. The opening hours of delivery offices have been extended and new generation letter-sorting machines have been installed. There are new machines so that mail is sorted for the exact route that postmen and women walk, and there is better equipment, including hand-held devices to track and record items of mail. Of course, the pace of change must be maintained, but in an industry dogged by difficult industrial relations, both the CWU and management should take credit for the start that has been made.
Our debates on Royal Mail have for some time been informed by the Richard Hooper reports of 2008 and 2010. Two years ago, Hooper's report called for two changes: the injection of private capital and, closely related to that, the involvement of private sector management. However, he rejected full privatisation, saying that that
"option would only be appropriate and feasible if modernisation had been completed."
His recent report also identified a need for private sector capital, but was markedly more confident about the quality of existing management and the capacity for change given the changes that had already taken place. The 2010 report states:
"The specific need for corporate experience is reduced today".
It used to be said that Royal Mail could not change without an injection of private investment and management, but change has been possible. The argument now seems to be that change is needed so that Royal Mail can be sold, but that is simply not true.
The House needs to ask what the real costs could be. The public are making a heavy investment in preparing the postal services offered by Royal Mail for sale, including through a £2 billion loan to fund the modernisation process. In addition, the subsidy for the post office network was already set to increase from £150 million to £180 million next year, and we heard today of a further investment in sub-post offices, to which I will return. The Bill also leaves the taxpayer assuming the huge liabilities of the pension fund while Royal Mail benefits from a reduced contribution.
That is a huge public investment in preparing Royal Mail for sale, yet the returns look pretty low-according to media speculation, the sale price will be around £700 million, meaning a one-off income of less than £1 billion in return for costs of many billions. The Secretary of State did not make clear the timing of the changes. I simply point out that if he goes early, he will probably get the lowest possible price, but the later he goes, the more essential it will be to complete the transformation of Royal Mail, because as he said, Royal Mail cannot simply stand still and mark time. There is no relationship between the change that is necessary and his desire to sell the whole of Royal Mail.
As the Government's own briefing makes clear, a fully efficient and competitive Royal Mail could generate a very significant return. Companies such as Deutsche Post in Germany achieve profit margins of 13% from their mail operations, even though they face greater end-to-end competition than Royal Mail does in the UK. There are similar profit margins in the postal services of Finland, Austria, France and other European countries. Some are private and some public. That shows what efficient companies can do. However, the Bill excludes the public from any gain from a transformed Royal Mail.
Richard Graham (Gloucester) (Con): Is the right hon. Gentleman aware how much investment the German post office has had in the past few years? I believe that the figure is £15 billion. Is he suggesting that the UK Government have £15 billion for such investment?
Mr Denham: Richard Hooper's point, which I do not fundamentally contest, is that additional access to capital is necessary, which may well need to be private capital, but that is not the same as making a case for the total privatisation of Royal Mail, which is what the Government are doing. Government Members need to defend that.
Mr Marcus Jones (Nuneaton) (Con): What share of Royal Mail does the right hon. Gentleman think should be sold?
Mr Denham:
The previous Labour Government floated proposals for the sale of a minority stake. Given the changes that have taken place in Royal Mail, there may be ways of accessing private capital that do not depend on an equity stake. Some partnerships of that sort might well be highly desirable, but the question is whether anything the Secretary of State said made the case for a
total sale of the company. I listened to him very carefully, but I did not hear a single sentence that made a case for clause 1, which is the basis on which we oppose the Bill.
Mr Jim Cunningham: It does not take long for employees to sell their shares, so selling shares to employees would create another imbalance.
Mr Denham: I understand my hon. Friend's point, but the Opposition should explore positively, including in discussions with the unions, how employee share ownership might work. Models of trust-based employee share ownership would avoid the risks he describes. It would clearly be nonsense to provide shares to employees that could be sold on within a few months, which happened in many previous privatisations, to everyone's great regret. We should look at the conditions, but I agree that it would be a complete nonsense to create the conditions he describes.
Mr Cunningham: I remember the privatisation of Rolls-Royce. The employees were given shares, but rapidly sold them.
Mr Denham: Clearly, any measure that allowed that kind of swift onward sale, resulting essentially in 100% private ownership of Royal Mail, would explode the Government's rhetoric on the Bill. I can assure my hon. Friend that we will look at the proposals in great detail in Committee.
Dr John Pugh (Southport) (LD): The right hon. Gentleman makes a rational and intelligent case, but if the Bill proposed a majority stake for private finance-say 51 or 55%-would it be possible to protect the public interest?
Mr Denham: That is an important point. If the hon. Gentleman will forgive me, I will return in a moment to how majority sale or full sale would shift the balance of power against the public interest during the sales process.
Mr Jim Cunningham: Will my right hon. Friend give way?
Mr Denham: If my hon. Friend will forgive me, I will happily take another intervention from him when I come to my point on protecting the public interest during the sale.
I said that the Bill excludes the public from any potential long-term gain from a transformed Royal Mail, but in addition the benefits could go entirely to overseas interests. Frankly, I am surprised how sanguine the Secretary of State is at that prospect, because faced with the sale of Cadbury to Kraft, he said:
"It is particularly galling...that state-owned RBS should part fund this takeover when it is clearly not in the interests of the UK economy."
I must point out that the Secretary of State is today effectively using taxpayers' money to transfer the ownership of Royal Mail overseas.
There are good reasons to worry about the public interest during the sales process. On one side will be potential buyers, who will have every interest in lobbying for the maximum commercial freedom for the operation and for the minimum of social obligation. The other
side-we might like to think this means the Secretary of State, but it means the Treasury-has an interest in gaining the highest price. Both sides, therefore, will argue to cut social obligation to a minimum. It is not difficult to anticipate the outcome of that situation. I suspect that one reason the Secretary of State was able to say so little on the long-term interest of Royal Mail in the post office network is precisely that he is caught uncomfortably in the vice between the Treasury and potential buyers.
Mr Weir: I am listening carefully to the right hon. Gentleman and agree with a lot of what he says. He mentioned the pressures of the sale. Has he seen the letter from the current chief executive officer of Royal Mail, who argues for loosening social obligations now? Is that an indication of how things will go?
Mr Denham: I have seen that letter, and I will refer to it a little later, if I may.
Michael Connarty (Linlithgow and East Falkirk) (Lab): Is my right hon. Friend aware that in previous discussions about possible privatisations, no interest was expressed by any of the companies, either in the UK or abroad, in running mail services? Are we not likely to have a situation in which, basically, some equity finance company will borrow large amounts of money to buy Royal Mail and then load it up with masses of debt? There is no operator challenging Royal Mail's ability to deliver the services that it currently delivers.
Mr Denham: That is certainly a real risk, and my hon. Friend is absolutely right. I return to the point that I made earlier. If the Government are serious about rejecting potential purchasers who they think are wrong or who offer a poor price, the Government will have to deal with the problem of transforming Royal Mail in the meantime. They cannot let it simply stand still, given all the commercial pressures. My fear is that the Government will go to the wrong place, with an inappropriate sale at an inappropriate price, because of the figure that has been pencilled in-although it is hard to find it in the detail-in the comprehensive spending review, and that this would happen irrespective of the long-term interests of the public in this country.
That pressure to reduce the social obligations brings me to one of the central concerns regarding the public interest: the relationship between a privatised Royal Mail and the network of local post offices. We oppose the Bill in part because of its central aim, which is the sale of Royal Mail and the breaking of the key contractual link between Royal Mail and the post offices. There are around 11,500 post offices. The Royal Mail Group is required by licence to support 4,000 post offices. The managing director of Post Office Ltd told a parliamentary Committee that a commercially viable network would have only 4,000 offices.
The previous Labour Government made provision to keep a further 7,500 branches open. They are supported by an annual public subsidy of £150 million, which is due to rise to £180 million next year, and by business that is guaranteed to Royal Mail through the inter-business agreement. The Royal Mail business that is guaranteed by the IBA is crucial to the current viability of the post office network. Leaving aside the public subsidy, Royal
Mail business generates 37% of the income of local post offices. However, the IBA could end immediately under this Bill when Royal Mail is sold. A privatised Royal Mail could simply take the work elsewhere. As Consumer Focus-the organisation that the Secretary of State wishes to silence-says in its briefings,
"following privatisation of Royal Mail, subsequent contracts would require a competitive tender process with no guarantee that Post Office Ltd would retain this contract".
The Bill provides no mechanism to ensure that the continued long-term use of the post office network is an integral part of Royal Mail. That would be a disaster for non-profitable post offices in rural and urban areas alike. The Bill could have defined post offices as access points for the universal postal service. Consumer Focus says that the Bill could have specified the number of post office branches to remain. However, the Bill does none of those things. That is a fatal flaw. The axe of uncertainty hangs over thousands of post offices, which puts a huge question mark over the interesting and attractive concept of a post office mutual, because mutuals can go out of business too if their income is taken away. Hooper concluded that the Post Office should remain publicly owned, saying:
"Given the social obligations of the Post Office, there is little prospect that the network will be sustained on a fully commercial basis."
However, a mutual is a commercial organisation, subject to commercial logic, and without guarantees of income, it will fail.
The Secretary of State spoke about an additional investment of, I think he said, £1.34 billion. I acknowledge that, although it would perhaps have been useful to have more detail. We will need to explore that figure in greater detail than we can this afternoon, as we have no detail now, although it is clearly a large amount. We will need to know the answer to a few obvious questions. Does that money come from the Department for Business, Innovation and Skills budget that was set out in the comprehensive spending review last week, or can it be found elsewhere in the CSR? Does the Secretary of State intend to continue the annual subsidy beyond the CSR? Is the making available of that money linked in any way to the participation of sub-post offices in the formation of a mutual, or will it go to every sub-post office, whether or not it wishes to take part in a mutual? Will the beneficiaries be only current post offices, or could the money be made available to new entrants and companies that wish to enter the market for providing local post offices for the first time?
The Secretary of State talked about building up the business that is done through the Post Office, which I welcome. Doing so would build on work done by my right hon. Friend the Member for Wolverhampton South East on post banking and other areas, but we need more detail. I acknowledge that the figure that the Secretary of State cited would be a very large investment, but we need to know much more about it, and I hope that we will learn more before the Bill goes into Committee. However, I return to the same, fundamental point. Investment in the network without the guarantees of future business simply sets the network up to fail and puts a question mark over the public value for money of the investment now being made. I worry that the proposed
mutual may ultimately be seen as a cynical attempt to shift responsibility for future closures of post offices on to the shoulders of the mutual owners of the post office network.
Let me make a few other points. Despite what I have set out, the Bill makes it clear that many risks still lie with the public, in addition to those that I have listed. The Bill results in the nationalisation of risk and the privatisation of profit-a phrase that the Secretary of State may well remember from the recent past. Part 4 sets out the provisions for taxpayers to step in through administration if a privatised Royal Mail becomes insolvent. That is a necessary part of the Bill, given the coalition's intention to sell Royal Mail, but it should kill the idea that once Royal Mail is privatised, the taxpayer will no longer need to worry about or bear any expense for failure. Clauses 34, 35 and 43 create the possibility for the universal service obligation to be split between different operators and for there to be different levels of universal service obligation in different parts of the country. In turn, that makes it possible in practice for Royal Mail to be split up once in private ownership, creating the risk of a commercial dynamic that will make it difficult to maintain the same quality of postal services throughout the UK.
The other major issue of customer concern is the maintenance of the six-day universal service. The Bill gives Ofcom the power to make a universal service direction, and in principle this must include the current level of provision for collections and deliveries. However, the Secretary of State has given himself unilateral and unqualified discretion to remove services from Ofcom's direction if he takes the view that Ofcom's order is too extensive. Similarly, if Ofcom were minded to order a universal service provider to maintain the current post office network, the Secretary of State can overrule it. The Secretary of State has given himself the power to reduce services, but not to extend them. That tells us what he is thinking.
Finally, it is in all our interests to have a Post Office that operates as efficiently and cost-effectively as possible. We have recognised the need for private sector investment in the past, and it is likely that this will be needed in future. Now that there is less emphasis on changing the management, it seems that a wider range of approaches to engaging private capital can and should be explored, but I do not believe that the need for private capital justifies the privatisation that is proposed today.
It is also essential that the Government are clear about the future burden of regulation designed to allow competitors into the market. Many argue that that now imposes a real and unnecessary cost on Royal Mail. During its mandate, Postcomm chose to apply a challenging competitive regime to a near-monopoly organisation. Today, that regulatory regime applies to many parts of Royal Mail's activities that are open to intense competition. In some areas, Royal Mail is forced to carry mail on behalf of its competitors at well below cost price, and the market share taken by new entrants is certainly much larger than predicted. I know that the figures are contested, but Royal Mail told Postcomm in August that it was subsidising new players in the upstream market at a cost of £100 million a year. Does that regulatory regime make commercial or competitive sense any more?
Crucially, what guidance will Ministers give to Ofcom? Potential buyers will want to know that now. Without a guarantee of more commercial freedom where competition is already strong, Royal Mail will be much harder to sell. By the same token, however, greater commercial freedom for a publicly owned Royal Mail would enable it to generate a higher income. I hope that all Members on both sides of the House will agree that it would be completely unacceptable for Ministers or regulators to offer greater freedom to a privatised Royal Mail than they are prepared to offer a publicly owned Royal Mail.
If the House is being asked to choose between a privatised, foreign-owned Royal Mail and a publicly owned Royal Mail, it must do so on a fair and level playing field involving a publicly owned Royal Mail enjoying the same level of regulatory freedom, and the same financial freedom and ability to reduce outgoings that comes with the taxpayer assuming pension obligations. The transformation of that publicly owned Royal Mail must also be well under way, and it must be able to explore a wider range of ways of raising the private capital that it might need. I invite the House to oppose the Bill.
Mr Deputy Speaker (Mr Lindsay Hoyle): Order. Many Members wish to speak, and I remind them that Mr Speaker has decided to impose a six-minute limit on Back-Bench speeches.
3.30 pm
Mr Brian Binley (Northampton South) (Con): The House needs to recognise that the Post Office is a bust flush-
Mr Binley: It is absolutely bust! In fact, the previous Government recognised that and tried to enact a Bill, but they did not have the courage to carry it through. So we want no lessons from Labour Members. The Post Office is a bust flush. Its management needs rejuvenating, its work force are demoralised and its pension fund is in massive deficit. If that does not add up to a company that is totally off the rails, then I do not know what does. It would do the Opposition good to recognise that fact, rather than pontificating about a matter that they dared not deal with.
The Post Office faces a massive challenge. Volumes have declined enormously since 2005, and they are now down by 13 million units per day. Good God! If any other business faced that kind of decline, it would instantly recognise that it was bust; it would not need me to tell it. The Post Office is now 40% less efficient than its European competitors, and its modernisation programme is proceeding exceptionally slowly.
Mr Edward Leigh (Gainsborough) (Con): Does my hon. Friend agree that if I had been allowed to privatise the Post Office when I was the Minister with responsibility for it 17 years ago, we would now have a world-beating international company earning huge riches for this country? That was a wasted opportunity, and we must never fail again. We should privatise it as soon as possible.
Mr Binley: My hon. Friend was a wise prophet in a House that failed to listen to him, and that is a great pity. I accept his point totally.
The truth is that something needs to be done, and that was accepted by the previous Government. I first came across this matter when it was presented to the then Business, Enterprise and Regulatory Reform Select Committee in 2008. That Committee's report highlighted the importance of the organisation to our local communities. It recognised that the poor, the elderly and the disadvantaged relied heavily on the Post Office, but it was not only disadvantaged people who felt that way. Small and medium-sized businesses also felt that the Post Office played an important part in the way they ran their businesses. Research by Postcomm estimates that the social value of the post offices up and down the country runs to about £10 billion. The case for the network is clear, well made and, I believe, totally understood by the Opposition. Sadly, however, they ran away from the issue.
There is a great need to heighten, increase and force through technical development. Of course, that could not happen in the past. Hooper said that the Royal Mail needed to modernise, improve its management and expand its range of services. I believe that the Bill will achieve all those objectives.
The relationship between management and work force needs to be improved-and the problem is not all the fault of the unions by a long chalk. Previous management, I believe, acted in a bullying way that did nothing for good industrial relations-and I said so at the time, as did my colleagues on the Select Committee. This is one reason why I came to the conclusion that there was a massive need for a real injection of good-quality management into the Post Office.
Michael Connarty: I just wonder where the hon. Gentleman has been. I happen to be secretary of the communication workers group in this Parliament, although unlike my predecessor I have never been a communications worker. Massive changes to the agreement took place in March. Where else in Europe can we find a management that is willing to work with the trade unions? In all other places, they have banned trade unions from their premises. These firms are absolutely out of order in their treatment of their workers.
Mr Binley: I understand the hon. Gentleman's concerns. When I talked about senior management, I meant very senior management indeed. The lesson should go out to the whole House that bringing in from the private sector people who are sometimes seen as bully boys is not the best way to produce good industrial relations. That is, in fact, what happened. I see the hon. Gentleman nodding; I am glad he agrees with me.
Mr Jim Cunningham: I am sure that the hon. Gentleman will recall, as I do, that the previous chief executive of the Royal Mail was a very difficult man for Members to meet.
Mr Binley:
I had the distinction-perhaps that is not the best word-of meeting the chief executive in question, and I read some of his letters to the work force. I have to say that if I had been a member of that work force, I would have been horrified to receive those letters. If they had been circulated in a company that I had
anything to do with, I would have done my very best to bring the gentleman in question to book. I hope that my answer will enable the hon. Gentleman to understand that I too share his concerns.
We need a massive change in management. I believe that the Bill is designed to achieve that and might well succeed, but we still have not had the answers we need to provide any certitude in that direction. We are dealing with a pension deficit in the region of £10.4 billion. We have to find answers as to how best to deal with that, and I believe that the Bill finds those answers.
Finally-I know many Members wish to speak-I want to return to the question of management, which is central to the success of any measures put in place to save a broke and bust Post Office. I appeal to the Minister responsible for postal affairs to explain in more detail how his proposals will achieve that objective. The previous Government saw that as an important part of the process of rejuvenating the Post Office. That is why they introduced a Bill that would have meant a new injection of capital, with 30% ownership from the private sector. Sadly, that did not work. I do not believe that the previous Government worked hard enough to push it through. I understand why it did not work-because the Government did not have the courage to go further. No private company would seriously consider that small a holding for that big an investment. It was a very difficult proposition from the beginning.
The truth is that the success of the Post Office will revolve around better relationships with the workers, better modernisation and removing the great pension fund burden. I believe that all those things can happen under the Bill if-I say again, if-we get the correct level of quality management. Such management must recognise that the whole of the marketplace has moved so quickly that there are very many opportunities, but it will take creativity, courage and bravery on the part of that management to achieve the successes that the organisation can achieve. I ask the Minister to use a little of his time to explain to us how he will attract that quality management, which is so central to the success of the operation.
3.39 pm
Mr Nicholas Brown (Newcastle upon Tyne East) (Lab): It is a pleasure to follow the hon. Member for Northampton South (Mr Binley), and I strongly agree with what he had to say about the bully-boy school of management. The hon. Gentleman is committed to privatisation, as he made clear in responding to the intervention from his hon. Friend the Member for Gainsborough (Mr Leigh). However, although I listened carefully to the Secretary of State, I do not think that he made a case for selling Royal Mail.
My problem with the Bill is that it does not seem to be directed at the individual problems faced by Royal Mail. Indeed, I believe that in some ways it would make matters worse. Specifically, privatisation does not of itself deal with the problems identified in the Hooper report.
At the time of the Bill proposed by the last Labour Government, two arguments were advanced in favour of a private sector minority stake in Royal Mail. It was
argued that Royal Mail needed private sector drivers, incentives, commercialisation and benchmarking-all the disciplines associated with private enterprise. It was said that they were necessary to drive forward the modernisation programme. At the same time and in the same context, it was argued that there was a need for the managerial expertise that could be found in the private sector, which prompted a question: if that managerial expertise was really needed, why could it not simply be hired?
The Government-correctly, in my opinion-have asked Richard Hooper to review his work. He has reported progress on the crucial modernisation issue, and has had reassuring things to say about managerial expertise. The key necessity is surely to drive the modernisation through, but that will not be easy, because mechanisation brings with it job losses and reorganised work arrangements.
The challenges are well understood. My right hon. Friend the Member for Southampton, Itchen (Mr Denham) listed some of them. Modern communications such as text, e-mail and mobile phones have led to a remorseless decline in the use of traditional postal services. That has been offset to some extent by the use of direct mail marketing and the growth of the parcel business, which is partly dependent on internet shopping-but the trend is clear, and change is therefore essential. I accept that the background of poor industrial relations makes the process harder, but in the circumstances it is surely right to support the progress that has already been made-and identified by Richard Hooper-and to find ways of reinforcing the work on the modernisation programme.
In any event, why do we need legislation to bring about privatisation? The Government have the power to sell shares now, although they are handicapped by the need to report the precise arrangements to the House and obtain our consent. The then Business and Enterprise Committee was very forceful on that point when it examined the Labour Government's proposals, and I am pretty certain that its members' views will not have changed.
The Bill also separates Royal Mail from the post office network, even more explicitly than is currently the case. That will not solve the problems faced by individual post offices, and it will open up new dangers. In short, the problems are insufficient turnover and a small margin on individual transactions through the outlets. It is reasonable to consider what other business could be put through traditional sub-post offices-that is not an original idea-but it will be difficult to provide services requiring a volume of users in smaller population catchment areas. The problem is usually discussed in terms of rural communities, but it affects inner-city and other urban communities as well. The Government should focus on that, rather than on separating Royal Mail from the post office network.
The burden of the universal service guarantee still rests effectively with Royal Mail, to the extent that it is effectively forced to subsidise its competitors in the parcel business, apparently-although I understand that the figures are a matter of dispute-to the tune of some 6.5p per item. That cannot be fair, and it is evidence of poor regulation.
I urge caution, although I am not opposed to the idea of share ownership. However, as my hon. Friend the Member for Coventry South (Mr Cunningham) pointed
out, when employee share ownership was introduced at Rolls-Royce and by the municipal bus companies, the employees took the shares and then sold them. What matters to employees is the wages, job security and pension arrangements; those are the crucial things for them.
Part 3 of the Bill deals with the regulator and reconfigures the existing arrangements. The relationship between Royal Mail and its regulator is poor. I have looked at the arrangements in the Bill, and this looks to me-I was wondering how I could explain this in summary to the House-like the Post Office version of the Independent Parliamentary Standards Authority, with the industry having to pay for the regulator, at costs set by the regulator.
Part 4 deals with what happens when everything goes wrong. I will urge the House to pass that part of the Bill if the rest of it is passed.
3.45 pm
Lorely Burt (Solihull) (LD): I welcome the Bill, which largely represents the policy that the Liberal Democrats went into the general election with. There are differences. Under our policy, the Government would have retained a stake, but we understand the problem of making this a very attractive sale, so that part of it has gone. Under our policy, share ownership for employees would have been larger, but the measure still represents the largest share ownership ever on record, so we can live with that. Another difference is the potential to mutualise the Post Office. That is right up our street as Liberal Democrats; it is Liberal Democrat-plus, so we welcome that.
We have strongly maintained that the Post Office should never be sold and we hope that, under the new proposals, it will become stronger, thrive and even grow. The £1.34 billion announced today is extremely welcome.
Sarah Newton (Truro and Falmouth) (Con): On that point, I echo the warm welcome that my hon. Friend has given to the Bill. In the remote rural part of the world that I represent, the postal network is the lifeblood of the community. Opposition Members' response is really disappointing. They should be welcoming the commitment to no further network closures and the massive investment that will enable those post offices to come up with new services, such as financial service products for people on a low income who do not have ready access to banking-
Madam Deputy Speaker (Dawn Primarolo): Order. This is not a speech; this is an intervention. It is supposed to be brief.
Lorely Burt: I wholeheartedly endorse the comments of my hon. Friend.
We know that mutualisation of the Post Office cannot occur straightaway, so I wonder whether my right hon. Friend the Secretary of State could indicate what conditions need to be in place before mutualisation can take place. In his aptly titled report, "Modernise or decline", Hooper strongly recommended private sector involvement in Royal Mail and that the Government should relieve Royal Mail of the burden of its pension scheme.
Michael Connarty: The hon. Lady is moving on from mutualisation of the post office network. I thought she might ask the Minister where the guarantees will be when the Post Office is mutualised or split off. I believe that we have to put in £270 million at the moment to keep the network alive. I can see no guarantee under the Bill that the Post Office will be supported. How could mutuals find that £270 million to keep the network intact?
Lorely Burt: We have already had the announcements of the Secretary of State, which have covered the point that the hon. Gentleman has made. The Secretary of State might wish to address that point in his summing up.
Mark Hendrick: Will the hon. Lady give way?
Lorely Burt: I cannot take any more interventions. I am sorry.
The point is that 90% of Royal Mail will become a private company. That necessitates close scrutiny to ensure that Royal Mail employees and customers and the taxpayer are protected.
Consumer Focus wants changes that protect consumers to be added to the Bill. It believes that Ofcom "must" impose a consumer protection condition on every postal operator-rather than "may", which is the term currently used in the Bill. Please can we have "must" instead of "may"? Can we also add the requirement that Ofcom must impose the essential condition that every postal operator must guarantee the confidentiality, safety and security of mail?
I know that Opposition Members are concerned that the Bill's provisions may be detrimental to customers in rural areas. Can we therefore insert into the Bill a definition of the minimum number of access points to the mail system-post offices and post boxes-and the criteria for geographic distribution, together with criteria under which exceptions could be sought? Can we also add a requirement on Ofcom to consult representatives of residential and small and medium-sized enterprise customers, and other particularly vulnerable customers, when conducting any review of the universal postal services order? SMEs often get left off the list, but it is important that they are consulted as well.
Customers need proper protections when things go wrong. Can we build into the Bill a requirement for postal operators to be members of an approved redress scheme to ensure complaints-handling standards can be monitored and independently investigated? Finally on the consumer front, can we build in a requirement that postal operators continue to provide appropriate information to the regulator and an appropriate consumer watchdog in order to enable independent monitoring of performance, quality of service, complaint handling and services provided to vulnerable consumers?
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