Postal Services Bill

The Committee consisted of the following Members:

Chairs: Mr David Amess  , † Mr Jim Hood 

† Banks, Gordon (Ochil and South Perthshire) (Lab) 

† Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab) 

† Collins, Damian (Folkestone and Hythe) (Con) 

† Davey, Mr Edward (Parliamentary Under-Secretary of State for Business, Innovation and Skills)  

† Fuller, Richard (Bedford) (Con) 

† Griffith, Nia (Llanelli) (Lab) 

† Harris, Rebecca (Castle Point) (Con) 

† McClymont, Gregg (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab) 

† Morrice, Graeme (Livingston) (Lab) 

† Newmark, Mr Brooks (Lord Commissioner of Her Majesty's Treasury)  

† Patel, Priti (Witham) (Con) 

Stephenson, Andrew (Pendle) (Con) 

† Swinson, Jo (East Dunbartonshire) (LD) 

† Turner, Karl (Kingston upon Hull East) (Lab) 

† Vaizey, Mr Edward (Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport)  

† Walker, Mr Robin (Worcester) (Con) 

† Weir, Mr Mike (Angus) (SNP) 

† Wright, David (Telford) (Lab) 

Chris Stanton, Annette Toft, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 23 November 2010  

(Morning)  

[Mr Jim Hood in the Chair] 

Postal Services Bill 

Written evidence to be reported to the House 

PS 17 Communication Workers Union 

Clause 3 

Employee share scheme 

10.30 am 

Nia Griffith (Llanelli) (Lab):  I beg to move amendment 22, in clause 3, page 2, line 22, leave out subsections (2) to (4) and add— 

‘(2) Those arrangements must secure that, if at any time the proportion of the company owned by the Crown is reduced from 100 per cent., the proportion of the company owned by or on behalf of the employee share scheme shall be at least 20 per cent. of the proportion of the company that is not owned by the Crown.(3) The arrangements must ensure that an equal dividend is paid from earnings to all participants in the trust.(4) The Secretary of State must report to Parliament when suitable arrangements have been made for the establishment of the scheme, and the report must state—(a) the precise terms of the scheme; and(b) the expected timescale for its introduction.(5) “Employee share scheme” means a scheme for holding shares or share rights in trust on behalf of employees of the company.’.

The Chair:  With this it will be convenient to discuss amendment 23, in clause 3, page 2, line 22, leave out subsections (2) to (4) and add— 

‘(2) Those arrangements must secure that, if at any time the proportion of the company owned by the Crown is reduced from 100 per cent., the proportion of the company owned by or on behalf of the employee share scheme shall be at least 10 per cent. of the proportion of the company that is not owned by the Crown.(3) The arrangements must ensure that an equal dividend is paid from earnings to all participants in the trust.(4) The Secretary of State must report to Parliament when suitable arrangements have been made for the establishment of the scheme, and the report must state—(a) the precise terms of the scheme; and(b) the expected timescale for its introduction.(5) “Employee share scheme” means a scheme for holding shares or share rights in trust on behalf of employees of the company.’.

Nia Griffith:  The amendments seek to strengthen the employee share scheme and increase the opportunity for employees to access shares. Ever since the Trojan war and the unfortunate incident of the Trojan horse, we have been warned “Beware of Greeks bearing gifts.”

I yield to no one in my admiration for Hellenic civilisation, so I happily change the warning to “Beware the coalition Government bearing gifts.” 

The Opposition favour employee share ownership in principle. I see the pain on the faces of Government Members at the mention of the word “principle.” It reminds me of the pained wince that afflicts Dracula whenever a corner of a curtain is raised to let in a beam of sunshine. 

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey):  I am delighted that the hon. Lady bases her approach to employee share ownership on principle. Given that the Opposition now claim that they favour it in principle, why did they not include it in the 2009 Bill? What has happened to their principles between last year and this year? 

Nia Griffith:  I do not wish to repeat myself, but I have said several times that there are differences between the 2009 Bill and this one, the most important being the public ownership stake. The 2009 Bill clearly kept the majority stake in public ownership while seeking a private partner to inject cash at some point. That is totally different from a completely privatised Royal Mail. The circumstances are very different. 

We need more information. What happened in the 1980s left people cynical about the way shares were dangled around with the idea of enticing people to buy them who had perhaps never bought shares before. It was seen by many––and who can blame them?––as a way to make a quick few pounds. How many employees still possess shares in the companies that they work for? What is the average length of time that employees kept their shares? I can see that few members of the Committee are old enough to remember the “Tell Sid” campaign. It was characterised by a worm-like creature with its head held high. I see that puzzled look on the face of the hon. Member for Folkestone and Hythe, so he is clearly far too young to remember. Unfortunately, all that left us with a slightly cynical view. We very much hope that this employee share scheme will be very different and much more positive. 

Richard Fuller (Bedford) (Con):  Is the hon. Lady aware that Sid is in fact the uncle of the hon. Member for Worcester? 

Nia Griffith:  I learn things by the day. I always admired the father of the hon. Member for Worcester, who of course had a very important role in Wales. Let us return to the detail of the Bill, or perhaps rather the lack of detail. 

We accept the principle of employee shares, but employees need to know a lot more about exactly how any scheme would work. We would like a proportion larger than 10% in the employee share scheme and greater certainty about the eligibility criteria. Who would be entitled to shares or share options and what would it mean in practice? In fact, there is still much that we need to know about the scheme. 

Let me turn to subsection (2) of our amendments. Clause 3 says that it is only when nothing is left in public ownership that the employee share scheme will be at least 10% of the privatised Royal Mail. What if only part of Royal Mail is sold off? Supposing a proportion was left in public ownership, what would happen with

employee shares? Amendment 23 proposes a sliding scale so that at least 10% of what is privatised would go to an employee share scheme; amendment 22 proposes a figure of at least 20%. I shall consider the question of 10 or 20% later. 

The purpose of subsection (2) in each amendment is to enshrine the principle of employee shares no matter what proportion of Royal Mail is sold off. We could envisage the Government retaining only a small proportion in public ownership, perhaps as little as 10%, 5% or 1%. As the Bill is drafted, that would mean not having an employee share scheme. We would like a much clearer indication that if a small proportion of Royal Mail were privatised, there would still be an obligation to have an employee share scheme. 

We know from our previous debates that there is as yet considerable uncertainty as to exactly how privatisation of Royal Mail will proceed. Whatever the intention is, the amendments provide an option that would ensure that there were still employee shares if less than 100% was privatised. Amendment 23 proposes a sliding scale so that 10% of whatever is privatised would go to an employee share scheme; the figure is 20% in amendment 22. This is about enshrining the principle of employee shares no matter what proportion of Royal Mail is sold off. Subsection (2) is important to ensure that there are no excuses for not setting up a scheme. No matter how small a proportion of Royal Mail is sold off, we expect to see one. To us, that is very important. Any change in the status of the ownership of Royal Mail should provide an ideal opportunity for setting up a scheme. 

Our preferred amendment, amendment 22, specifies that the employee share scheme should consist of at least 20% of the proportion of the company that is not owned by the Crown. Over the past 20 years in the industrialised world, there has been a significant increase in the proportion of employees who own shares in their own firms. That has happened in the UK, other European Union countries and the USA. By 2004, a fifth of British workplaces had share ownership schemes, covering a third of all private sector employees. The benefits of such schemes have been widely recognised. They can include motivating employees to become more productive, helping to align the employees’ interests with those of shareholders, remunerating employees in a tax-efficient way, increasing loyalty and reducing staff turnover. 

Of course, employee share schemes cannot do that on their own. They have to be part of a wider approach to good industrial relations. Given the more generalised benefits of such schemes and the very significant efforts made by employees to implement the modernisation programme, it seems appropriate to reward that effort by making available an increased proportion of the company for an employee share scheme. That is why the amendment proposes that 20% of the company be made available for such a scheme. We know that any privatisation of Royal Mail will inevitably entail a lot of change and upheaval. Its success will rely heavily on the good will of the work force and on improved industrial relations—and on those relations remaining improved. It would therefore be appropriate to try to give a greater proportion of the company shares to the work force. 

The amendment is still a relatively modest proposal. It would not radically change the balance of power between employee shareholders and other shareholders. I would be interested to know what consideration the

Minister has given to allowing proportions of employee ownership that are higher than 10%. If such levels have been considered, why have they been rejected in favour of keeping the maximum as “at least 10%”? Of course, that phrase leaves the door open to keeping the level at only 10%. It allows for more, but we are left wondering why the level has been set at “at least 10%” and not higher. 

When the Committee heard evidence, Carole Leslie, policy director of the Employee Ownership Association, told us: 

“I am a bit disappointed at 10%, because 10% to me is small, which means that you have to put more effort into giving employees that real voice in the company so that they do feel that it is theirs—they do feel that that ownership, if you like, is real and it is not a token.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 71, Q151.] 

Peter Stocks, a fellow member of the Employee Ownership Association and managing director of Baxi Partnership, echoed her remarks: 

“I want to reinforce that point. I think that 10% is quite low and I think that there is a danger that if it is just shares and there isn’t a participation culture that goes with it, it won’t change a lot. We see real results in companies where the whole of the company feel that they have a sense of ownership. They feel that they participate in decisions. They discuss decisions and when they make a decision they stick with it. It was interesting watching some of our members through the recession. Employee-owned companies are affected the same as everybody else. They would have gone through an awful lot of agony about how you manage through different times but, because those decisions were made in a very participative way, once the decisions were made they were stuck to, and bought into, by everybody. Our members have gone through the recession in a very resilient way and I think that is down to the way you manage the company.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 71-72, Q151.] 

Carole Leslie later went on to reinforce the benefits of such a scheme: 

“The benefits for the Royal Mail in considering employee ownership would be giving employees who work in that organisation a real stake in the company, a real interest in delivering an excellent service to the customers and service users, finding, as Peter said, the right way to solve problems. They look at it not as something that is done to them, but as something they own and have a bit of control and influence over. They also have the information to use that influence wisely. A huge benefit is what I see.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 76, Q156.] 

There are very strong reasons for strengthening the employee share scheme by allowing it a proportion of “at least 20%”, as the amendment proposes. If the Minister is not willing to consider that option, perhaps he will tell us what figure he might be willing to consider. 

Richard Fuller:  Clearly, there is general agreement that this Bill, in contrast to earlier Bills, tries to enshrine some employee share ownership, which is welcome. Obviously, however, whether the level is 10% or 20% would affect the amount of value transfer from the taxpayer to employees. Does the hon. Lady expect that, if her amendment were agreed to, employees would have to contribute to that transfer of value, which would have increased from 10% to 20%, or would they be given it for free? 

Nia Griffith:  That is one of the many questions that arises. At the moment, there is not a great deal of clarity on how the arrangement would work, including on who would be eligible or entitled to participate and what

proportion of costs would be borne by whom. There is a huge amount to clarify, and I would welcome some information from the Minister in his winding-up speech. 

Richard Fuller:  It is clear that under the hon. Lady’s amendment, a substantial amount of value would be taken from the taxpayer and given to the employees, above what the Minister has already referred to, which is more than was allowed for in previous privatisation measures. Surely she recognises that transfer of value. Does she think it is fair to the taxpayer?

10.45 am 

Nia Griffith:  The point is that, as I said, I would like the Minister to give some indication as to whether he has considered levels of up to 20%. If not, what percentage might he be willing to consider, taking into account the information to which he is privy on the likely financial context of the sale? 

Proposed new subsection (3) proposes an equitable division of shares and the dividends that accrue from them. The amendment proposes that equal dividends must be paid to all participants. This may be obvious, but schemes can be set up in which the division is not so equitable and some receive more than others. There are various models. For example, a scheme can be limited to certain key employees, who may have scarce managerial or technical skills. Alternatively, the system could consist of a combination of schemes providing more favourable terms for directors. It is possible to have an enterprise management incentive scheme for directors and a share incentive plan for other staff. 

We need to know what type of scheme is envisaged. We would like to see the most equitable type possible, in which people feel that they are being treated as valuable individuals no matter who they are, and in which no hierarchy is attached to the whole procedure. In terms of employee motivation and participation, that is an extremely important issue that will need to be thoroughly dealt with before any such scheme is acceptable. 

Proposed new subsection (4) relates to the detail of the employee scheme. The clause provides very little such detail. It is also vague about how far advanced arrangements are for the establishment of an employee share scheme. Current legislation could, for example, allow the creation of an option-based incentive scheme restricted to management. In order to ensure that the employee share scheme performs as we should like to see it do and genuinely encourages share ownership across Royal Mail’s employees, more information on the scheme will be required. That is the reason why we have included proposed new subsection (4) in amendments 22 and 23. It would require the Secretary of State to make a report to Parliament which would include the precise terms of the scheme and the expected time scale for its introduction. 

We need considerably more clarity and information, as there can be widely differing interpretations of what an employee share scheme means. Indeed, the witnesses whom the Committee heard in our evidence sessions touched briefly on some of the different models. As Carole Leslie told us: 

“You need to think carefully about the model that you want to go for. The benefit of an employee benefit trust is that it is very stable. It is easy to administer, you do not have the turnover of shares, you do not have to think about people buying and then

selling—it is very stable. It could be said that it is a bit more difficult to give people a tangible sense of ownership if they do not have the bit of paper that says that they are an owner of the company, but companies such as John Lewis Partnership and others do a great job with that. A lot of it comes down to how you enshrine the employee voice, and how governance of the trust is implemented...If you go for individual share ownership, there are mechanisms such as the share incentive plan, which gives tax benefits to employees. Even if you do not see a lot of growth in the shares, the tax benefits themselves can be rewarding and worth while. If you are going down the individual shareholding route, you want to think about who would be eligible to benefit from it. I would argue that you want it to be open to all employees of the organisation, not just executives and managers.”–[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 78, Q160.] 

Proposed new subsection (4) seeks to ensure that the Secretary of State is obliged to comment on the details of the proposed employee share plan. First, there is the matter of eligibility. Obviously, some eligibility restrictions can be useful, to ensure the scheme’s smooth operation, for example by requiring a minimum period of employment or restricting its benefits to a subset of employees. To our way of thinking, that would be against the spirit of the type of scheme that we would like to see. 

Another issue is what restrictions there might be on trading. If the shares are not publicly traded, what facilities will be available to employees wishing to buy or sell shares? If the shares are publicly traded or employees have decided to sell their shares to non-employees, will the scheme encourage long-lasting employee share ownership? 

On tax treatment, what tax advantages are likely to result for Royal Mail and its employees? In particular, the choice of scheme will affect whether employees have to pay income tax, national insurance or capital gains tax on the income from participation in the scheme. 

What exactly is on offer? Will the scheme be offering options or shares? Will the offers partly replace salary or be tied to performance? If shares were on offer, what types of share would be made available through the employee share scheme? 

A large number of issues therefore need to be clarified, which is why our proposed new subsection (4) asks for the Secretary of State to report to Parliament on the precise terms of the scheme and the expected time scale for its introduction. The idea behind our amendments 22 and 23—we put them in order of preference—is to strengthen the employee share scheme and to ensure that full and proper information is provided to us before the commencement of such a scheme. 

Karl Turner (Kingston upon Hull East) (Lab):  I rise to speak in support of amendments 22 and 23, which are in the names of my hon. Friends the Members for Llanelli and for Ochil and South Perthshire. 

I very much welcome the principle of an employee share scheme, but feel that amendments 22 and 23 strengthen the current Government proposals, much improving the employee opportunity of access to shares. As the Bill stands, there are significant problems. The objections could be seen by some as slightly cynical but, in the interests of proper scrutiny, it is vital that such issues are raised and debated. 

Clause 3 is by no stretch of the imagination strong enough to ensure that the employee share scheme is effective. It does not go far enough, and it could be

argued that it is nothing more than a mere token gesture to the members of staff. It seems illogical that the Bill provides no obligation to implement the scheme until state holdings are reduced to nil. The scheme is entirely dependent on privatisation profits following the sell-off. 

Before moving on to each of those points, first I will say why I support the principle of employee share schemes. The benefits of such schemes are widely utilised and can be seen to be working well in other companies in this country. Indeed, as highlighted by my hon. Friend the Member for Llanelli, one fifth of British workplaces operate such schemes, which clearly shows their use. 

There are specific reasons why the employee share scheme provisions in the Bill would benefit from being strengthened. I submit that employee share schemes are an effective tool for motivating staff. They provide a long-term and tax-efficient financial incentive. Their widespread use in businesses such as British Telecom, British Airways, Rolls-Royce and, most notably, John Lewis is proof of the benefits that they provide. 

Share schemes, therefore, should be a serious consideration for many businesses. However, they are of particular advantage to Royal Mail, bearing in mind its long history of management and employee disputes. Share schemes afford employees a real stake in the company—I emphasise “real.” Such a scheme could be an aid in preventing possible future disputes. 

Establishing an employee share ownership scheme is not only the sensible thing to do, but the right thing to do. Royal Mail employees have made significant efforts to modernise the business to secure its long-term future. They therefore deserve to be offered a stake in the business. Witnesses at the evidence sessions and hon. Members in their speeches have paid tribute to the hard work and the pride of Royal Mail staff in ensuring that all customers receive the best possible service. The proposals to privatise Royal Mail by 90% mean that there will be further challenges to overcome. Undoubtedly, employees will face further restructuring, which may put strain on the work force. It is therefore crucial that employees have access to a strong employee share scheme, under which they are afforded more than 10%, as proposed in the amendments. That takes into account the work force’s efforts in the past, present and future. 

The Government propose an employee share scheme of “at least 10%” in the Bill. That seems small compared with the 90% to be privatised and might be considered patronising by Royal Mail employees who have invested their working lives in this public service. That point was intimated strongly in the evidence of the general secretary of the Communication Workers Union, Billy Hayes. I urge the Minister strongly to consider raising the figure to 20%. That would not shift the balance of power a great deal, but would greatly increase the benefits that employees receive. As I said in my opening remarks, a credible stake with proper benefits is the least that the Government should provide for requiring employees to undergo modernisation and upheaval. I agree with the argument of Malcolm Hurlston, the chairman of the Employee Share Ownership Centre, in an article dated 23 September 2010: 

“Previous employees share models in privatisations have followed the BT model too slavishly but this must be avoided with Royal Mail. However, other models have been deployed where the employees received more meaningful stakes.” 

My hon. Friend the Member for Llanelli mentioned that point. One wonders what the hon. Member for Worcester’s Uncle Sid would say now. 

Not only is the amount too low, but the mechanism is faulty because there is no obligation on the state to implement the 10% employee share scheme until 90% is fully privatised. That provides for a situation whereby the state can keep a minority share and not transfer any ownership to Royal Mail employees. I beg the indulgence of the Committee and hope that hon. Members will resist the temptation to tweet, and instead concentrate their efforts on increasing the 10% that is on offer. I urge them to summon the strength to ensure that the mechanism for implementing the scheme does not remain as it is. It is illogical that the state will not be under a statutory obligation to implement the ownership scheme until it has completely privatised Royal Mail. The clause allows for the possibility that the employee share ownership scheme will never come to fruition. Ministers can promise to guarantee its implementation until the cows come home, but everyone would be more comfortable if it was enshrined in legislation. 

I see no reason why the employee share scheme should not be implemented on a sliding scale, as my hon. Friend suggests, increasing every time a piece of Royal Mail is sold off. It seems to be the logical route. It ensures that employees are involved in the process rather than being dragged along by the Government and their private sector investors. 

11 am 

If the Minister is committed to the idea, why will he not consider placing in legislation a provision that ensures that the employee share ownership scheme rises relative to the percentage privatised? That would ensure a good relationship with management. It would also demonstrate to employees that this scheme is more than the token offer to buy them off. The employee share scheme should not be used as a substitute for ongoing and productive employee-management relationships. The employees of Royal Mail are its best asset. An employee share owner scheme, although a useful tool, is still heavily dependent on economic success. We know that TNT experienced heavy losses despite intensive modernisation and innovation. Employees are by no means guaranteed decent benefits as a result of the scheme. One can see that from looking at that model. 

I should also like to support the provisions in the amendments that ensure that equal dividends must be paid to all of the scheme’s participants. I agree with my hon. Friend that this ensures fairness and guarantees that no group profits from the scheme more than another. My obvious fear is that the Bill lacks the regulatory framework to protect employees from the risk of privatisation because it does not specify that dividends are to be paid equally. It is clear that amendments 22 or 23 would enhance the ownership significantly and make it of real benefit to Royal Mail employees. It is vital that the amount offered is not just a token gesture but a substantive offer, a real opportunity for employees. The implementation must also be correct: it should seek to include staff on the journey to privatisation. It is for those reasons that I support the amendments and I respectfully urge hon. Members on both sides to do the same. 

Gordon Banks (Ochil and South Perthshire) (Lab):  Thank you for giving me the opportunity to speak in support of amendments 22 and 23, Mr Hood. I will not go into what they do in detail, but I will touch on that. Hon. Members could be forgiven for not noticing the subtle change in the amendments but, as the Minister will know, we are trying to be helpful as we go through the Bill line by line. The employee share scheme percentages in proposed new subsection (2) are at least 20% and at least 10% of the proportion of the company that is disposed of. That is very important and I will come back to that in a few minutes. 

As we have heard this morning and in earlier contributions, the staff of Royal Mail are arguably its strongest asset. They have gone through a great deal over the past decade or so as Royal Mail has remained high on the political agenda for all of that time if not for longer. While the Opposition are anxious to see the Government retain a controlling share of Royal Mail and the subsidiaries, we are also keen to ensure that if the future business of Royal Mail is sold off, as the Bill proposes, the work force have as strong a voice as possible. 

In earlier amendments we proposed that representatives of the work force should have a seat on the board. The Government saw fit to oppose that, but to facilitate strong employee participation in a fully privatised Royal Mail, without the benefit of those earlier amendments, we need a strong employee share scheme. As my hon. Friend the Member for Llanelli said, we have no direct problem with subsection (1) in principle, which sensibly places a duty on the Secretary of State to ensure that arrangements for an employee share scheme are made prior to the first relevant disposal. But subsection (2) onwards is where the problem lies because the rest of the clause does not strengthen subsection (1) in the way we would like to see. 

As it stands, subsection (2) caters only for a situation of disposal to employees where the Crown reduces its interest to nil—a point made a couple of time this morning and one that I made a minute ago, but it is important. There is no provision to cover the possibility of the Crown retaining a proportion of its interest in Royal Mail or its subsidiary companies, and, at the same time, preserving the concept of the employee share scheme. The fact that the Government have not legislated for that possibility speaks volumes to this side of the House. 

Quite sensibly, we have again sought to help the Minister; in the event that he sees the light and looks to retain Government interest in Royal Mail and its subsidiaries, amendment 22 will ensure that if the Crown reduces its interest in Royal Mail in any way, at least 20% of the shares sold, given away, disposed of or allocated—however it will be—would be allocated to the employee share scheme. The Committee asked my hon. Friend the Member for Llanelli about the cost and so on, and this is one issue. We do not know anything about the disposal of the shares. The employees will always have at least 20% of whatever level of shares are sold to big business or privatised differently. 

In amendment 23, the Minister will notice that we are prepared to reduce that to at least a 10% share, should the 20% be too hard for him to stomach. However, we are not prepared to accept, in legislation designed to sell 100% of Royal Mail into private hands, a situation in

which up to 99% of the Royal Mail is sold and no employee share scheme is operating. In amendments 22 and 23, the Minister has not only a choice over the percentage of the company, but a choice to show whether he is committed to keeping the employee share scheme percentage in line with the level of shares owned by the Crown at all stages in the disposal. 

As we have heard, the sale of Royal Mail could take some time, and there is no requirement on the Government in the Bill to provide a functioning employee share scheme, unless the Government share is reduced to nil. It might take years to sell all the Crown assets in Royal Mail; we do not know because the Minister has not told us that yet. We want, as I am sure the Minister deep down inside wants, to keep the employee share scheme ownership in line with shares owned by other non-public organisations. 

The Minister may ask, as my hon. Friend the Member for Llanelli was asked, how we arrived at the figure of 20% in amendment 23. In our evidence sessions, we heard from George Thomson, general secretary of the National Federation of SubPostmasters, who also seems to agree with the 20% figure, and, incidentally, he also agreed with amendment 16, on the location of the headquarters of the newly privatised Royal Mail. However, returning to amendment 22, we also heard from Mr Scott, assistant national secretary of Unite, who argued for 49% of share ownership to be in employees’ hands, to give them what he described as 

“a real share in it”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 30, Q70.] 

I am sure that the Minister has no intention of agreeing to such a percentage, and therefore we have been flexible—a word we keep coming back to—and tabled a compromise. The 20% is less than Unite wants and the same as the National Federation of SubPostmasters wants, but, as well as the percentage, the timing of ownership is important in the amendment. The Minister has refused all our other reasonable amendments, but this one has wider support than just that of the Opposition, so he could increase the share total to at least 20% and do it in line with share disposal to give this area of the Bill a degree of integrity. 

Proposed new subsection (3) of amendment 22 would place in legislation the need to ensure that an equal share of dividend is paid from earnings to participants in the trust that we hope will be established to manage the scheme. I refer the Committee to proposed new subsection (5) of the amendment on establishing a trust. It may appear simple that all shareholders should be treated equally, as has been alluded to, but we know that they are not, and we heard this morning that there is nothing in the Bill to ensure that they are, which is what the amendment is designed to do. I am sure the Minister will want to engage and to accept the amendment to ensure that there is a fairness to this part of the Bill that is currently lacking. 

It is my intention that not only all shareholders within the trust be treated equally, but all shareholders in the business be treated equally. I am sure the Minister can understand my reasoning on that. It cannot be acceptable that employee share owners, in any guise, could be treated differently from any other share owners. The Government need to embrace the amendment to show that they are serious about their plans for engaging the work force of the new company in such a way,

especially as the Minister has refused to accept some of our earlier suggestions that would have strengthened work force engagement. 

New subsection (4) of amendment 22 places what the Minister will, no doubt, see as a burden, but what my hon. Friends and I see as a duty on the Secretary of State to report to Parliament when suitable arrangements have been made for the establishment of the scheme. That report must state the precise terms of the scheme and the expected time frame for its introduction. 

I will say a bit about each point if I may. First, there is a duty for the Secretary of State to report to Parliament on this matter. In the Bill, the Minister has already introduced a duty for the Secretary of State to report at various different stages. If he considers that to be an appropriate level of transparency, I am sure he will be able to support the amendment. Like Mr Sibbick of the Mail Competition Forum, I will be optimistic and hope that the Minister will see the error of his ways and accept the proposal as a duty, not a burden. If the Secretary of State has no responsibility to report to Parliament, MPs will have no basis on which to question him on the matter. I am sure that the Minister does not wish the role of Parliament to be sidelined on such an important matter. 

Moving on to what the report must include, we have stipulated that it must contain details of the precise make up of the scheme. That is really important for us, as legislators, to understand. Hearing the directive from the Secretary of State first hand is the way that this should take place. The way in which the Bill is written means that the Secretary of State does not have to give anyone the details. I fear that if the Bill is passed in that form, any range of reasons, excuses or issues—call them whatever—may be used as reasons for not disclosing certain levels of information. That would not be acceptable. For the sake of transparency—that includes transparency about the terms of the scheme as it affects employers and businesses alike—it is vital that such a report is made to Parliament. 

On the expected time scale of the introduction, the report has to be done in advance of the first disposal. The way the Bill currently stands, clause 2 may allow the delivery of some information on disposal. Our amendment would ensure that employee share schemes are delivered in line with all levels of disposal. That would mean the Secretary of State would have to incorporate the concept of the employee share scheme either into the report demanded by clause 2 or the report demanded by the amendment. If the Secretary of State has to comply with the amendment to subsections (2) to (4), it will ensure that he has to do so at the start of the process, rather than at the end, which we would find unacceptable. 

Subsection (5) of amendment 22 would ensure that the employee share scheme was developed into a trust—this idea has not been developed much this morning—to hold the shares or the rights on behalf of the employees in the company. There is no mention of a trust in the Bill, and we feel that that is lacking. To protect the ownership of the shares in the scheme from being in the hands of employees, such a trust would need to be established. Otherwise, there would be no clarity on whether ownership would, indeed, be in the hands of employees or whether it would be held on behalf of employees. It could be that previous employees would

have a right to hold shares or that employees could hold on to their shares when they leave the business. In theory, there is nothing wrong with either of those suggestions. However, there is something wrong if the scheme is meant to be an employee share scheme. 

There is nothing wrong with employees having the ownership rights to shares, but there is if the Government consider employee share ownership to be some kind of counterbalance to big business investment. Unless a trust is established, there is a danger that the major shareholder could become the only shareholder. The employee share scheme could, to use a phrase already used in Committee, wither on the vine. If the Government are not prepared to preserve the long-term integrity of such a scheme by developing a trust, there will perhaps be people who will consider the Bill to be a mechanism simply to allow for the sale of Royal Mail in any way, shape or form. 

As Labour Members have said, we would prefer Royal Mail to be in public hands. The work force are arguably its best asset and it is only right that they are allowed to have a major say in the future direction of the company. These types of schemes are designed to encourage staff loyalty, because only those working for the company are eligible for the benefits, and any employee leaving the scheme must leave their share behind in the trust for the common law benefit of those in the scheme. The Bill does not offer such protections to the scheme, and amendments 22 and 23 rectify that. We have given the Minister a choice between at least 10% and at least 20%, but the drive of both amendments is the same. There is not enough protection in the Bill for the employee share scheme, and either amendment—we prefer 22—would improve the situation. 

11.15 am 

Mr Davey:  I am delighted with this morning’s debate because it is clear that Labour Members agree with the Government on the establishment of the scheme. We have some consensus on this key feature of the Bill, and can all get behind the notion that improving both employee engagement and the culture of the firm is good for Royal Mail and, indeed, good in principle for more companies. I welcome that, and also the sense that we wish to make more rapid progress, which is perhaps due to the consensus that is emerging over the Bill. 

Although, because of the short length of this morning’s debate, I have had only a few minutes to think about how we should name the amendments, I have come up with some proposals. We could call them the U-turn amendments, but that would go against creating consensus, or we could call them the volte-face amendments. To get a feeling of agreement across the Committee, let us call them the clause 3 moment amendments. 

Karl Turner:  Does the Minister accept that the legislation proposed by my party when in government was very different from that which the Minister and the Government propose? The country would have retained a 51% stake of the company. Employees should be given a bigger share because they need it. 

Mr Davey:  I have listened to the hon. Gentleman during the previous sessions, and I am not sure whether he has ever had a clause IV moment, but I am delighted

that he is having a clause 3 one today. If he looks back at the 2009 Bill, he will see that it contained no provisions for employee share schemes. I was surprised at that, because one of his colleagues from Hull, the shadow Chancellor, when Secretary of State for Trade and Industry in 2005, said: 

“The guild socialists, who formed the union of post office workers, believed in giving workers a stake in the organisation. I was looking for ways to do that when I was in the union, and I’ll be looking for ways to do that as a minister.” 

Unfortunately, he was unable to deliver on that sentiment, even though he was Secretary of State. I am happy to give way to the hon. Gentleman; perhaps he can explain whether he is having a clause IV or a clause 3 moment. 

Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab):  The Minister will understand that I was a very young man when clause IV was being discussed. 

I was struck by the Minister’s reference to guild socialism, because I am sure that he knows that guild socialists would have no truck with any plan that left up to 90% of the business in private ownership. A belief of guild socialism, of which G. D. H. Cole was the greatest exponent, is that there should be 100% ownership by the work force, and I am happy to discuss guild socialism with the Minister if he wants to go down that route. 

Mr Davey:  I would really look forward to that, but the hon. Gentleman ought to have such a discussion with his right hon. Friend the shadow Chancellor, who quoted guild socialists—I did not—and failed to ensure that the 2009 Bill made reference to employee shares. In the other place, however, a proposal, which became clause 13, was passed after some pressure from Liberal Democrat and Conservative peers, and the Government at the time accepted it. It stated: 

“The requirement that a Royal Mail company be publicly owned does not prevent the establishment of an employee share scheme provided the Crown continues to own (directly or indirectly) more than half of the company.” 

In other words, under pressure from Liberal Democrats and Conservatives, the Labour party in government was prepared to discuss in vague terms the potential establishment of an employee share scheme, but said nothing else about it. 

I will give way to the hon. Member for Kingston upon Hull East, but his point and that of other Opposition Members has been that their Bill was different in some way, meaning that there could not be an employee share scheme. How come clause 13— 

Karl Turner  rose—  

The Chair:  Order. The hon. Gentleman must resume his seat while the Minister is speaking. 

Mr Davey:  How come clause 13 was in the Labour Bill, even though it was quite a weak clause, which accepted that an employee share scheme could have been established, had the political will been there? 

Karl Turner:  If the Minister has always been so in favour of the share ownership scheme, why will he not allow it to go up to 20%? 

Mr Davey:  I assure the hon. Gentleman that I am coming to the Government’s position. I am just exploring the Opposition’s position because it is quite muddled. Perhaps my hon. Friend wants to help me. 

Richard Fuller:  The Minister is making some good points. I applaud his reaching out on the issue of employee ownership. I am beginning to doubt the sincerity of Labour voices. The Minister has explained that when they had the opportunity, there was nothing in their proposals about employee stock ownership. We are hearing from Opposition Members that they like employee stock ownership only under certain conditions of state ownership. Will the Minister confirm that the Government are in favour of employee stock ownership because it is a good thing to do? 

Mr Davey:  I give my hon. Friend that confirmation. I also confirm that clause 3 contains the strongest proposal to mandate an employee share scheme that there has ever been in a Bill that provides for the privatisation of a public company. It is a strong statement, given the precedents. Previous privatisations have not contained such schemes or have not mandated them in this way. 

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab):  I take exception to the Minister’s lauding of the “at least 10%” proposal as the greatest employee share scheme ever. That was achieved in 1987 by the Rolls-Royce sale. In the Bill, the interpretation of “at least” is negative. The Minister said in the eighth sitting: 

“We are not saying that the Secretary of State should report only once. If there are different tranches of sales…”––[Official Report, Postal Services Public Bill Committee, 18 November 2010; c. 270.] 

The employee share scheme is dependent on the Crown not owning any shares in the company. If the sale is broken into segments, therefore, the negotiation of employee sales of more than 10% will not even begin. 

Mr Davey:  I am happy to come to the hon. Gentleman’s point, and to those of other Opposition Members, but I want to explore the Opposition’s position. It is only last year that their Bill was before the House and their position is muddled. The hon. Member for Llanelli spoke about principles in her opening remarks, but their principles appear to be mightily flexible. I, my party and the Conservatives have argued for employee shares for many years and we are delivering them in this clause. 

The effect of the clause 3 moment amendments, amendment 22 in particular, would be to reduce the Government’s ability to attract private capital and their flexibility to get the right deal for the company and for taxpayers. We have designed the measures to ensure that there is flexibility. That is why there is a minimum commitment to 10% and why we are not being as specific as the Opposition want. It is important to retain flexibility in such complicated transactions in which the best way to make the sale to get the maximum value for the company and the most benefit for Royal Mail is not clear. It is only Labour Members who want to put shackles on the Government and to undermine the way in which we go about the transaction. That militates against the sensible decision making that is in

the interests of Royal Mail and the taxpayer. I hope that the hon. Lady will explain why she wants to tie up this transaction so as to undermine the searches for value for the taxpayer and for the best solution for the Royal Mail. 

Nia Griffith:  Will the Minister explain how he came to the figure of 10%? What made him come to that figure—what is the evidence base and what consultations has he done? 

Mr Davey:  I am coming to the size of the stake and am happy to answer that and some of the other questions that the hon. Lady and her hon. Friends have asked. In deciding the size of the stake going to employees, a number of things must be balanced. We want to ensure that we are giving a meaningful stake to employees, without getting in the way of attracting private capital—we have established the need for private capital, and we do not want to harm our ability to attract that. 

The minimum 10% share requirement in the Bill is the largest statutory employee scheme of any major privatisation. In response to the hon. Member for Middlesbrough South and East Cleveland, I should say that I know about Rolls-Royce—I have looked at all the different privatisations over the years, and at the percentages of employee shares. We could have a long debate about that—I am keen to have that debate, if he wants it, but he should listen to what I said. It is the largest statutory employee share scheme: in other words, the Rolls-Royce scheme did not require 100% in the legislation, but we are putting a minimum—“at least”—in the Bill, and that is a strong statement. 

There is no doubt that the share is meaningful. The hon. Member for Llanelli quoted some of the witnesses from our evidence sessions two weeks ago and tried to suggest that the 10% stake was not a large one, but I will quote back to her Alexy Armitage of ifs ProShare, who said several things suggesting that 10% was quite a good figure. For example, 

“But to say that every company should have x amount for employees and x amount for executives does not really work as a model. It will depend on the company and where it is in its industry.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 79, Q162.] 

She said later: 

“That is what a lot of corporations do, to be honest. They will start at a level and then will encourage employees as the company grows, or as the industry market changes, to acquire more shares.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 83-84, Q171.] 

Clearly, when looking across different companies that have employee shares—we have looked at them, in this country and elsewhere—different percentages have different impacts depending on the nature of the company and of the industry. 

Tom Blenkinsop:  Will the Minister explain how we will get above “at least 10%” through the processes he explained earlier when seeking capital investment? As far as the Labour members of the Committee are concerned, we cannot see how the figure will get above 10% if the prime aim of the Bill is to get capital investment? 

Mr Davey:  I will try to deal with some of the questions asked by the hon. Gentleman and his hon. Friends as I proceed. However, I want to stress that we need the

flexibility because we must attract private capital—there will not be a company to work in, or for employees to have a share in, unless we have that critical private investment. We must ensure that what we put into law and hardwire into the transaction retains flexibility. 

We must also consider value for money. As my hon. Friend the Member for Bedford made clear, it is important that taxpayers get a return on the money that they put into the business, as well as ensuring that the Royal Mail gets the capital it needs. There are several things to weigh up here. We have drafted the clause to allow us huge amounts of flexibility in making some of those judgments. At the same time, unlike in the Bill last year, the clause guarantees that employees will have at least 10%, which is a significant step forward. 

The hon. Member for Llanelli, in one of her amendments, talks about employees owning at least 20% of the company, once the Government have sold all their shares. The danger of hardwiring the higher figure into the Bill is that it will reduce the likelihood of getting the investment that the company needs. It will be a difficult judgment. When we engage with investors, potentially as we approach an initial public offering, it is very important to have that flexibility. If engaging in a trade sale or with a private equity buyer, or preparing for an IPO, as soon as one starts thinking about the processes one would go through, one realises the need for flexibility. 

Parts of the hon. Lady’s amendments, and some of the comments of the hon. Member for Kingston upon Hull East, were about the design of the scheme and what form it would take. Again, I am keen at this stage to keep open options on the design. When I gave evidence to the Committee, I made it clear that I see the attractions of an employee share trust, not least because such an arrangement ensures the longevity of the employee shareholding. 

11.30 am 

We have had references to BT and the “Tell Sid” campaign. One of the lessons from that was how quickly some employees sold their shares. Some of the benefits that we see in long-term employee share ownership were therefore lost. However, that is not to say that some BT employees do not still have their shares, so let us not speak too strongly against individual employee share ownership. That, too, has merits, but there is a balance to be struck. I made it clear in my evidence that to say now that it must all be in a trust or it must all be individual employee shares or there must be a mix—to hard-wire that into the Bill—is not the right thing to do. We need to develop our thinking on which of those options is correct. I have made it clear quite strongly that I see the attractions of an employee share trust, but hard-wiring that sort of thing into the Bill is not sensible. 

Gordon Banks:  I am sure that the Minister will understand our concern that an employee share scheme may be an employee share scheme on day one, but by day 10 it may well not be an employee share scheme. It was to preserve and strengthen the concept of an employee share scheme—to do what it says on the tin—that the amendments were tabled. They are designed to preserve the employee side of the share scheme. 

Mr Davey:  There seems to be consensus about these provisions; we seem to be coming together on support for employee shares. Let me be clear that I think that

some of the sentiments and ideas behind some of the amendments are very laudable and certainly attractive, particularly, for example, the requirement for the trust, if there were a trust, to pay equal dividends to all its members. That is a laudable approach, but again it would be dangerous to set in stone the form of the employee share scheme before we have more certainty on the nature and level of private sector involvement. 

There are other worthy methods for determining the allocation of shares and therefore dividends. One could think of length of service. I am sure that if hon. Members have been round the delivery sites in their constituencies, or a sorting centre if they have one, they have talked to Royal Mail employees who have been employed in the business for 20, 30, 40 or even 50 years. We therefore want to ensure that we think about and weigh properly the different approaches to allocating shares without hard-wiring something in the Bill and restricting how we might go about that. 

Gordon Banks:  We will come on to these issues later, in relation to other amendments, but if the Minister recognises some of the issues relating to long service and so on, Opposition Members would have no problem with, as he says, hard-wiring that into the Bill so that we have a clear understanding of what this employee share scheme stands for. 

Mr Davey:  I hope that this debate is beginning to provide that. We are trying to give hon. Members and people who read the record of our proceedings—God bless ’em—clarity about the fact that we want to engage on the design of these schemes. We are not closed-minded. We have some thoughts, which I have been articulating today and which I articulated in evidence, about the best way of going about that. We do want to hear from the experts, be they at ifs ProShare or the Employee Ownership Association, and from other stakeholders. That is the right way to proceed. 

This is the strongest commitment that I am aware of mandating an employee share scheme in a Bill. Given that, the clarity of direction could not be stronger and the strength of the Government’s commitment could not be clearer. The strength of my personal commitment could not be clearer. The commitment in the Bill is, historically, extremely strong. Some of the concerns of hon. Members have to be seen in that light. 

I am trying to be as helpful as possible, so let me move on to talk about the requirement for a report that hon. Members wish to see. I am very keen to keep Parliament abreast of how we develop these ideas. That is precisely why we have provision for a report in clause 2. That would cover the issue of how shares are transferred or issued into a Royal Mail company, including an employee share scheme. The provision is already there and we are keen to do that. Again, there is shared ground. 

I know that hon. Members have been concerned about how the proportion of shares will be allocated into the employee share scheme. Let me explain why we have phrased that part of the clause in such a way. We wanted to keep our options open while also making a strong commitment, and the phrase “arrangements in place” achieves the flexibility that we need. There may be a complicated sequencing once one gets to the transaction, but it ensures that no sale can go ahead until the arrangements are in place and clear. 

Gordon Banks:  “In place” and “in operation” are two different statements. We would like to see the scheme in operation, not just in place. 

Mr Davey:  I am happy to commit to the hon. Gentleman and the Committee that we will put shares into the scheme on day one. We still want to retain flexibility on the question of how much, and of when we will arrive at the figure of at least 10%. That is a critical point. We are keen to get the scheme going from day one, but we must remember what is in the interests of the employees. That has been uppermost in my mind. I know that the hon. Member for Ochil and South Perthshire thinks that there is some sort of conspiracy to do employees out of their shares, but nothing could be further from my mind. I want to ensure that when the shares come from the Crown and go into the employee share scheme, we will get a good deal for employees. 

If we committed now to putting all the shares, the whole 10%, in on day one, and wrote that into the Bill, the upside of private investment staged in phases, going into Royal Mail and improving its performance, could mean that the share values are reduced. I want to ensure that we get the best deal for employees. The flexibility in the legislation is not to do employees out of anything, but to ensure that we get them a good deal. 

Gordon Banks:  I am grateful to the Minister for making that commitment to have the share scheme in operation from day one. We are not saying that the end result of however many millions or billions of shares—10%, 20%, or whatever—must be placed into the scheme on day one. The amendment would mean that if 20%—or whatever proportion—is disposed of from the Crown, and if we are talking about the figure of 10%, then 2% should be placed into the trust. We are not saying that all the shares must be up front, but rather that there should be a proportionate amount at every step along the way. 

Mr Davey:  Let me also try to help the Committee: I do not object in principle to the concept of phasing in the introduction of shares to employees as we sell the shares in the company. That would be a sensible and transparent way of doing the transfer. However, I do not want to hard-wire that into the Bill because one can imagine situations where that could undermine value for employees. That is why I want to keep flexibility, not to try to create problems in some way. This will be a complicated transaction; lots of things are happening. We must deal with removing the £8 billion pension deficit. That is a complicated matter, as we will no doubt see when we consider the relevant clauses. We must ensure that the scheme is created in a sensible way that is in the best interests of the taxpayer, the company and the employees. 

Gordon Banks:  I am grateful for the Minister’s comments. He alludes to being supportive of our objectives. Will he go away and come back on Report with something that will satisfy him but also satisfy my hon. Friends and me? 

Mr Davey:  I cannot give the hon. Gentleman that commitment because when thinking about the correct approach—and I assure him that I have thought deeply

about this clause—my overriding conclusion is the need for flexibility. For the record, I repeat that it is not flexibility somehow to cheat the employees. We are being pretty positive about the future role of employees in this business. We want them to be engaged, to take a share in Royal Mail’s future success and to contribute to Royal Mail’s better performance, better productivity and growth. That is why we have included the scheme in the Bill and opted for a minimum of 10%. 

However, that is also why it would be wrong to include constraints. We could, for example, have said, “We want to give 10% to employees on day one.” I considered that option, but I thought that it would have been against the employees’ interests. As amendment 22 proposes, we could also have done things proportionally. I considered that option as well, but I did not think that it was in the employees’ interests. I hope, therefore, that the hon. Gentleman will understand the motivation and the intention behind the way we have structured the clause. 

Gordon Banks:  I want to take the Minister back to something that he said a few minutes ago. He is backtracking on what he said. He said that he was quite happy to see a staged introduction of shares into the employee share scheme. Now he seems to be saying that he is not. I am a little confused. Will he clarify what he has said? 

Mr Davey:  The import of the amendment tabled by the hon. Gentleman and the hon. Member for Llanelli is that the phasing of shares into the scheme would be directly in proportion. My point is that that could work against the employees’ interests. I am happy to repeat that I have seen no real objection to that concept, which seems sensible, but it would be silly to proceed with it were we, while engaged in this complicated transaction, to find that it militated against the interests of the employees, the taxpayer and Royal Mail. 

Gordon Banks:  The Minister said that he could not bring anything back on Report, but can we not have something along the lines that it is his intention to have a staged introduction? That still gives him an opportunity to find a way out, for want of a better expression. 

Mr Davey:  The hon. Gentleman is tempting me, and I congratulate him on the way in which he is selling his side of the argument. However, I am going to resist temptation. 

Gordon Banks:  I am going home. 

Mr Davey:  I hope that the hon. Gentleman will understand that, in resisting temptation, I am not closing down the possibility that, at some stage in future, after the Bill has received Royal Assent and become an Act, as I hope it will, we will consider such an approach. I genuinely think—I hope that hon. Gentleman will understand where the Government are coming from—that flexibility is important to this company and the employees. The policy direction and intent of getting a good deal for employees could not be clearer. 

Tom Blenkinsop:  To a certain extent, the Minister talks in a paternalistic fashion about what is in employees’ interests, and it might be fruitful to talk to the employees now about what type of scheme they would be interested in, the amounts and how it would be distributed. 

Mr Davey:  Paternalists are people who will not even trust employees with shares in the first place, so I am afraid that I will not accept that sort of language from the hon. Gentleman. 

Perhaps I can deal with some of the other comments that were made in the debate. The hon. Member for Llanelli worried that employee shares might replace wages. Let me make it absolutely clear that employees would receive their awards, including any additional awards under the modernisation agreement, in line with their original terms of employment. Separately, employees would then receive their share of any dividends as owners of the company, depending on the way in which we decide to structure the employee shares. There is no intent to do what the hon. Lady mentions, so let me completely quash that idea, which comes out of neither the Bill nor the Government’s policy statement. 

At one stage—I will have to respond to him on this—the hon. Member for Ochil and South Perthshire intimated that he supported Unite’s statement in favour of a 49% employee share scheme. The Opposition might really be doing a volte-face on these issues—this clause 3 moment is becoming quite dramatic. The hon. Gentleman has made it clear that he is an expert on arithmetic, but if he and his hon. Friends want to retain a majority stake, give 49% to employees and get private capital, they have a problem. 

11.45 am 

Gordon Banks:  I did not allude to any number other than the 20% included in the amendment. I quoted from an evidence sitting, during which 49%, as well as 20%, was suggested. The Minister would never have agreed to 49%, which is why we compromised and went for 20%, along with the national federation. 

Mr Davey:  Sometimes, one wishes one could share all one’s thoughts about how one went about preparing this legislation, but I would probably get into trouble if I did that. I will simply say that we looked at a lot of different options in relation to what the level of employee shares should be, how they should be structured and so on. We have put a lot of thought and effort into it, which I hope will reassure colleagues of our complete commitment. This is not simply about Royal Mail employees and the future of Royal Mail, critical though they are to the Bill. Recent evidence includes reports, sponsored by the Employee Ownership Association and independent academics, such as the recent report by the Cass business school. Other evidence has pulled together all the published works that look at how employee shares can impact upon the performance and productivity of companies and upon things such as absenteeism, and how they can improve the sustainability of business performance over difficult economic periods. 

Although one cannot say that they always work in all cases—business and the economy are not like that—there is a strong evidence base, not only in the UK or in recent years, but over the world and over time, that

employee shares can help companies motor and can be very good for long-term productivity and performance. That is why I am so supportive of the provision and why I, along with my hon. and right hon. Friends, want to promote such an approach more widely in the economy. Moreover, making it such a big part of the Bill sends a strong signal of this Government’s longer-term policy intent. I cannot stress enough how strongly we support the provision and how determined we are to make it work. 

It will only work if two things hold. First, it must be in the interests of employees, and we will make sure that it is. Secondly, both the current management, who are doing a very good job in this area, and the future owners must understand that the benefits of employee shares or profit-related pay and all the different incentive schemes will only work when they engage with employees so that they are involved and can participate in the day-to-day business of the company. That is why, when I gave evidence to the Committee, I talked about the world-class mail projects in a number of sorting centres, which are engaging employees in how they work. The employees in the Gatwick and Cardiff centres, which are the two leading exponents in the Royal Mail sorting network, think about their work in a completely different way and talk about enjoying it more than ever before. They are more committed, and that is even before employee shares. The combination of putting trust in employees, engaging them and giving them a financial benefit can be powerful for Royal Mail, corporate Britain and the UK economy, which is why I think this is an important economic development. 

Tom Blenkinsop:  I agree with the Minister. When he says that employees feel better at work and more engaged, that is because the modernisation process—from its very inception through to its end—engaged with the employees. The problem with the Bill is that employee engagement appears somewhere in the mid to end-part of the process and not at the very beginning. Can the Minister conceive of a situation whereby applying a number without engaging with the employees at this stage means that employees do not actually buy into the share scheme later on down the line, unless they are engaged with it at the beginning? 

Mr Davey:  I can confirm to the Committee that I have spoken to the general secretary of the CWU and his deputy about the share scheme. I am very keen to continue to engage, as I am in many areas of the Bill, with the CWU, as the representatives of employees, and indeed with other representatives of employees, such as Unite. 

Taking employees along with this thinking is important. For now, however, as Royal Mail management get on with the challenge of modernising the company in anticipation that it will then also have access to private capital and the other freedoms that the Bill gives them, I think that they understand the need to take the employees with them. When I have spoken to Royal Mail’s senior managers, and of course to Moya Greene and Donald Brydon, I have been very impressed about how they see the employees being at the centre of their business plans. They know that they have some tough decisions to make about the future of the business, but they also know that they will only succeed if they engage and take the employees with them. 

The type of question that I was asking of the chief operational officer, Mark Higson, when I went around the Gatwick site was, “Well, this is great, you’ve got a bit of a roll-out here at Gatwick, Cardiff and one or two other sorting centres. What about rolling out world-class mail and engaging with the employees on the delivery side?” In a way, one can see it more easily at a sorting site, because there are the machines and a type of factory process, but there is another aspect—where the actual labour is—and it is on the delivery side. We have to see these new techniques at that level and on that side of the operation too. 

We actually have quite a long way to go with modernisation, and with engaging and involving employees. I believe that the Bill and this clause, particularly if we do not accept the amendments tabled by the hon. Member for Llanelli, will help to develop that process further, so I hope that the hon. Lady will withdraw her amendments and understand that the share scheme we are proposing is vital to the future of Royal Mail. It is something that she ought to welcome and I hope that she will join me in having a clause 3 moment. 

Nia Griffith:  We have had a very interesting discussion about our amendments 22 and 23. However, I must say that we have not been convinced that everything that we want to see in the Bill will be put in the Bill. In fact, there seems to have been quite a lot of wriggling about and quite a lot of, “Well, you’ve got to trust us, we’ve got the best intentions in mind”, and so forth. That is one of those very difficult unknowns for people. 

We want to press our amendments to a vote. As you will be aware, Mr Hood, the amendments are similar in their wording, and you will see that amendment 22, which is the first on the amendment paper, is our preferred amendment, because we would like to see at least 20% as the percentage available for an employee share scheme. Therefore, Mr Hood, with your leave I would like to press amendment 22 to a vote and in the unfortunate event that that vote is not won I would like to press amendment 23 to a vote. 

Question put, That the amendment be made. 

 

 

The Committee divided: Ayes 7, Noes 8. 

Division No. 2 ]  

AYES

Banks, Gordon   

Blenkinsop, Tom   

Griffith, Nia   

McClymont, Gregg   

Morrice, Graeme (Livingston)    

Turner, Karl   

Wright, David   

NOES

Collins, Damian   

Davey, Mr Edward   

Fuller, Richard   

Harris, Rebecca   

Newmark, Mr Brooks   

Swinson, Jo   

Vaizey, Mr Edward   

Walker, Mr Robin   

Question accordingly negatived. 

Amendment proposed: 23, in clause 3, page 2, line 22, leave out subsections (2) to (4) and add— 

‘(2) Those arrangements must secure that, if at any time the proportion of the company owned by the Crown is reduced from 100 per cent., the proportion of the company owned by or on behalf of the employee share scheme shall be at least 10 per cent. of the proportion of the company that is not owned by the Crown. (3) The arrangements must ensure that an equal dividend is paid from earnings to all participants in the trust.(4) The Secretary of State must report to Parliament when suitable arrangements have been made for the establishment of the scheme, and the report must state—(a) the precise terms of the scheme; and(b) the expected timescale for its introduction.(5) “Employee share scheme” means a scheme for holding shares or share rights in trust on behalf of employees of the company.’.—(Nia Griffith.)

Question put, That the amendment be made. 

The Committee divided: Ayes 7, Noes 8. 

Division No. 3 ]  

AYES

Banks, Gordon   

Blenkinsop, Tom   

Griffith, Nia   

McClymont, Gregg   

Morrice, Graeme (Livingston)    

Turner, Karl   

Wright, David   

NOES

Collins, Damian   

Davey, Mr Edward   

Fuller, Richard   

Harris, Rebecca   

Newmark, Mr Brooks   

Swinson, Jo   

Vaizey, Mr Edward   

Walker, Mr Robin   

Question accordingly negatived.  

Gordon Banks:  I beg to move amendment 31, in clause 3, page 2, line 32, leave out ‘or include’. 

I shall not detain the Committee too long, because the Minister will be anxious to make progress. I hope that he and the Government recognise that the early part of the Bill contains a lot of important matters that require our attention. That is not to say that what comes later is less important, but perhaps it will be less contentious. Who knows? 

The amendment is designed to omit the words “or include”. It will take us back to a debate that we have already had. The Bill as currently drafted gives rise to concern that the employee share scheme could hold for someone other than employees. I tried to make that point to the Minister earlier. I understand that it could be appear to be a contradiction in terms, but there is a degree of confusion in the clause as it is written. I see that it may be possible to hold shares for past employees, but that depends on the nature of the scheme. Of course, we still know little about this issue, despite the Minister’s comments on previous amendments. 

We have talked about the scheme’s ability to create a mechanism to hold shares in trust for employees, from which they would accrue the benefits but not outright ownership. It is disappointing that the Minister did not see fit to vote with us on that. However, in such a case, are the words “or include” really necessary? Do we take it, from the wording of the Bill, that the Minister does not regard that as the way forward and regards employees as being able to hold individual ownership through their employment and beyond? I am not saying that the system is not workable—in the past I have benefited from such a scheme—but we are guessing what the Minister means by the current wording. As we discussed earlier, there is a real worry that an employee share scheme that is not protected, in the way that such a trust would protect it, could result in the major shareholder

becoming the only shareholder in the business. I do not want to make all those points again; I am sure that they are fresh in the minds of Committee members. 

12 noon 

Many people have argued for a trust to be established, as I referred to a little earlier, and some of our witnesses have already been quoted. Mr Hooper made similar comments. He said that he thought that 

“there is a problem with employees just having shares.”––[Official Report, Postal Services Public Bill Committee, 11 November 2010; c. 116, Q230.] 

We heard the reference to BT earlier. In fact, Mr Hooper made reference to the BT privatisation in 1984 and to some of the difficulties that he thought came about from that. I wonder whether the Minister agrees with Mr Hooper about that. 

Mr Hooper went on to advise us that a trust would be more engaging, but that that was his personal view. In relation to the amendment, I am confused about what format that would operate under and what added value the words “or include” really offer. Does the Minister share my concern that the scheme must be related to employees and that the clue is in the title—the employee share scheme? What opportunities does the wording, as it currently stands, create for non-employees, and indeed people who have never been employees, to hold shares through the scheme? I genuinely seek his clarification on that point. 

The Minister no doubt feels that engaging the work force through an employee share scheme is all that is necessary to get the work force on side. However, the question is how, and with what regulations, will the shares be distributed, and whether the Bill is strengthened by taking out the words “or include”? As I said earlier, an employee share scheme without a trust would give rise to the possibility of shares delivered through this mechanism falling into the hands of other private investors, or indeed investor, who already have the possibility of owning the remaining 90%. The words “or include” do not assist in that matter at all, because they do not protect the employee share scheme. 

The employee share scheme may be well-intentioned, but without safeguards we may find that those shares can very easily be purchased from employees. In doing so, the aspiration of the Government could, in fact, result in a scheme that is worthless. By agreeing to the amendment, the Minister could break a bad habit that he has got into—I am trying to coax him out of it; I nearly got him there on the last one, but we are hoping—and at the same time prevent the scheme becoming worthless and, in doing so, protect the objective of this part of the Bill, which is to keep work force engagement. Of course, he could do that through a John Lewis-style trust, as we debated on the previous amendment. There is, however, no such mechanism to make that happen, so we must do all that we can to improve the Bill. Although the Minister’s words are well-intentioned, he might not be the Minister at that point. Someone else might be delivering some of the solutions further down the line. Who knows? 

As I said in my first Committee speech and will say again, we really are trying to help the Minister. The removal of the words “or include” strengthens the Bill and strengthens the employee share scheme concept. I do not want to detain the Committee much longer.

To conclude, the amendment protects the share scheme to be just that—an employee share scheme. There is a raft of information missing from the Bill, some of which we have discussed in the previous amendment, and the Minister alluded to some assistance in his remarks. If there is going to be an employee share scheme, it must do what it says on the tin. The amendment protects the concept that I think the Minister is trying to promote in the Bill with the employee share scheme. 

Nia Griffith:  I rise very briefly, Mr Hood, to support the comments of my hon. Friend the Member for Ochil and South Perthshire. As it is such a simple little amendment, I will make no further comment. 

Mr Davey:  I think that the hon. Member for Ochil and South Perthshire is getting into good habits. Amendment 31 moves away from temptation into the arena of probing amendments, which I welcome. We want the Bill to be properly scrutinised, and we want to be probed so that we can explain the intention behind the different parts of the Bill. I am grateful to him for giving us the opportunity to provide clarity. 

Amendment 31 relates to the scope of the employee share scheme. The words “or include” allow the scheme to encompass employees of Royal Mail who work for its subsidiaries, even those subsidiaries that do not fall within the strict definition of a Royal Mail company in clause 2. It is one of our flexibility points, but I hope that the hon. Gentleman will understand that once again we are being flexible in order to ensure the benefits of employees. 

As the hon. Gentleman knows, Royal Mail has a number of subsidiaries that do not directly provide the universal service but are nevertheless considered part of the overall company infrastructure. During our debate on subsidiaries last week, a number of them were listed—for example, Royal Mail Estates Ltd. Clause 3 is explicit that all those who work for a Royal Mail company—the company providing the universal service—must be part of the employee share scheme. Without the words “or include” in subsection (4), the Government cannot extend employee shares to employees of companies that do not strictly fall within the definition of a Royal Mail company. 

Gordon Banks:  Does the Minister not agree that the words “or include” could also indicate some other intention? They might allow a decision not to create a trust, so that people other than employees in the business can hold shares. I understand the Minister’s intention, but clause 3 could have been drafted in a more precise and exemplary fashion. 

Mr Davey:  I understand what the hon. Gentleman is saying, but if we went down his route there would be a danger that some staff in Royal Mail Group would be barred by statute from membership of the employee share scheme. They would not, therefore, have the same incentives to engage with the business for which they work and to share in its future success. Let us be absolutely clear that clause 3 ensures that we introduce an employee share scheme for the benefit of Royal Mail employees. It is not the intention to make the shares available to anybody and everybody in the world; it is

clearly the intention to make shares available via the scheme to employees and people connected with the Royal Mail family of companies. 

I can see that Opposition Members are keen to engage. Perhaps they are worried that we are excluding them because they do not work for a Royal Mail company. We are absolutely clear about the intention, and I hope that they will accept it. 

Nia Griffith:  I really want some further clarification. Will the Minister consider a stronger wording for the clause, which would explain the intention? On this side of the Committee, we think that the words “or include” could result in a small number of participants in the scheme being employees and a large number being all sorts of other people. If the scheme will be available to a specific group that is defined by the Minister, could a definition of that group not be provided? Could the clause not be tightened up—perhaps referenced somewhere else and defined in another clause that links back to this one—so that it is absolutely clear whom we mean? The Minister has clearly defined the intended group of employees for us, and that needs to be somewhere in the Bill. 

Mr Davey:  This is why I am so grateful to Opposition Members for tabling the probing amendment, because it enables me to put the intention beyond doubt. The Bill is about Royal Mail, and the clauses about employee share schemes contain definitions. It would be difficult to draw the conclusions that Labour Members are trying to draw, but I have made it absolutely clear that the intention is for the shares to be made available via the scheme to those who are connected to the Royal Mail family of companies. I am repeating myself to ensure that the record is clear on that point. 

Gordon Banks:  I hear the Minister’s words. He says that shares will be made available to members of the Royal Mail family, but people will not necessarily always be a member of that family. As the Minister has not accepted the amendment with the trust in it, the two words included here—“or include”—may provide the opportunity for a trust to not be set up and for employees to retain their shares when they move on. It would then no longer be an employee share scheme, but an employee and ex-employee share scheme—something other than what the Minister aspires to create. 

Mr Davey:  In a way, we are returning to the previous debate. If we chose to go down the trust model route for whole or part of the employee share scheme, the rules of that employee share trust would determine whether someone who has left the trust would be able to take the shares with them. The general assumption—certainly, my assumption—given the policy intention of trying to have longevity in employee-shared ownership, is that they would not be able to take the shares from the trust; the shares would remain in the trust. Again, I hope that the hon. Gentleman understands that if one thinks back to the previous debate and brings those ideas to this one, some of the concerns fall away. 

Gordon Banks:  I hear the Minister’s good intentions, but retaining the words in the legislation would override them and could prevent the formation of a trust. That is why we would like to see the Minister give some ground on those two words. 

Mr Davey:  Those words would absolutely not prevent the formation of a trust—let me be clear about that. The problem is that if we excluded those words, some Royal Mail employees might not be able to participate in the employee share scheme, which I am sure that Labour Members do not want to occur. I therefore urge them to withdraw their amendment. I am grateful that they have probed us on the matter, so that we have had to make it absolutely clear that the words are about making the scheme as inclusive as possible for employees involved in the Royal Mail family. That is the intention, and I invite the hon. Gentleman to withdraw his amendment. 

Gordon Banks:  The Minister said throughout his remarks that the amendment was a probing one. I have never used those words, and I want to press the amendment to a vote. 

Question put, That the amendment be made:— 

The Committee divided: Ayes 8, Noes 8. 

Division No. 4 ]  

AYES

Banks, Gordon   

Blenkinsop, Tom   

Griffith, Nia   

McClymont, Gregg   

Morrice, Graeme (Livingston)    

Turner, Karl   

Weir, Mr Mike   

Wright, David   

NOES

Collins, Damian   

Davey, Mr Edward   

Fuller, Richard   

Harris, Rebecca   

Newmark, Mr Brooks   

Swinson, Jo   

Vaizey, Mr Edward   

Walker, Mr Robin   

The Chair:  The Ayes were eight, the Noes were eight. In accordance with the practice of the House, I cast my vote with the Noes in order to present the Bill in its existing form. 

Question accordingly negatived.  

12.15 pm 

Gordon Banks:  I beg to move amendment 24, in clause 3, page 2, line 33, at end add— 

‘(5) Any employee share scheme will be entitled to have at least one representative from the scheme on the board of any company operating the scheme.’.

The amendment, in my name and that of my hon. Friend the Member for Llanelli, takes us back to the debate on amendment 16, and I do not want to repeat myself. The Minister did not see fit to accept our proposal to include a representative of the work force on the board of the newly privatised company. Amendment 24 takes that philosophy forward to the employee share scheme, and it would entitle the share scheme to have at least one representative on the board of the newly privatised Royal Mail. The objective is to ensure that the scheme is at the heart of each, every, and any decision that the company may make that might impact on the existence of the scheme. The opportunities to impact on such matters would be many and varied, but I want to take a minute to run through one or two possibilities. 

For instance, if the worst fears of my hon. Friends and I were realised, the lack of a trust designed to protect a particular shareholding on behalf of employees—if

the Government failed to establish it—might result in the erosion and elimination of such an employee share scheme. We do not want that, and we think that it is something that a representative on the board would be able to try and preserve. Perhaps the employee share scheme would become something else, as I have alluded to in other contributions this morning. An employee or past employee share scheme in which shares could be sold to the main shareholder would allow the scheme to be eroded, and with it a key point of the legislation and something that the Minister is very keen on. 

The purpose of a scheme representative on the board would be to argue that every decision taken by the new business should not impact negatively on the very employee share scheme that the representative is there to protect. With that in mind, there would always be an argument being made at board level on the impact of decisions on the scheme. As the Government do not yet accept the need for a trust to be established through the content of the Bill, it is not impossible that decisions on the longevity of the employee share scheme could be taken by the board of the operating company to which the scheme has relevance. I am quite sure that no one would like to see an erosion of the Minister’s intentions, which he has set out today. 

The amendment provides some comfort to employees in the scheme, as there would be someone fighting their corner at the highest level of the company. Perhaps it would also be possible for the structure of share distribution, such as quantity or parity with other shareholders, to be less than equal, which is something that we touched on this morning. None of us in the Committee has a burning desire to see that, but it is something that the legislation, in the way it is presented, allows for as an outcome. The amendment would ensure that someone arguing for the benefit, strength and longevity of the employee share scheme would be able to fight their corner at the highest level of the company. Shareholders are less than equal, in many ways, with any such changes that may be proposed by the new company, and therefore a strong voice from the scheme on the company board is the least that should be expected, and it is the least that employees should expect of us. We have the employees’ interests and the employee share scheme’s interests at heart and, because of that, we have the Minister’s best interests at heart. If the employee share scheme is such a strong part of the Bill, I cannot see a reason for the Minister to refuse the amendment—after all, we only wish to protect the scheme, as I have said. The scheme is built into the legislation, and it is a creation of it. 

We heard a lot during our evidence sessions about employee-owned companies, and reference has been made this morning to the contributions of Carol Leslie, the policy director of the Employee Ownership Association, and Alexy Armitage, the head of employee share ownership at ifs ProShare. We must recognise, however, that a privately owned Royal Mail will not be an employee-owned company. It will perhaps be owned by an overseas-based global company in which employees have ownership of possibly as little as 10% of the share capital, because the Minister did not embrace our earlier amendments. We are still not clear whether that holding will reach 10% only when the Crown has reduced its own holding to zero, and we are still not clear what form that staging will take. I accept that the Minister is well-intentioned, but he has not taken up my challenge to do something

about that on Report. In such a situation, there must be a representative on the board with the sole interest of the scheme at heart, and the amendment would do just that. 

It was also evident that, although it was asked to give evidence to the Committee, and there has been reference to its evidence not only in my contribution but in the contributions of others, ifs ProShare has not been involved with any of the Government’s discussions of the scheme. The Minister mentioned an intention to engage with ifs ProShare in the future, so I hope that he will take up the kind offer that was made to him during the evidence session to do just that. 

There is no mention in the Bill of how the ESS will work—the idea has been touched on, and even the Minister raised this in one of his contributions. Would every employee receive a one-off comparable amount on their first day or after 12 months’ service? We do not know whether long service would be rewarded with a share allocation. The details are extremely sketchy, so we are being asked to put our faith in something that does not contain a lot of detail. 

I propose that we put our faith in somebody on the board, that we put our faith in somebody who has the best of intentions for the employee share scheme and that we put faith in that person’s ability to stand up for the share scheme in every decision that is taken within the new company. We understand that every decision that is taken within the company might affect the employee share scheme, and having someone on the board arguing the case for the scheme and for the employees would be a significant step forward. That is the least that we can accept. The presence on the board of a representative from the scheme would ensure that any changes to the scheme would always have a voice of the scheme’s members at the decision-making heart. Although the Minister presents the scheme as it appears in the Bill, there is no guarantee that the Minister’s concept of the scheme today will be the same as the scheme that is in operation in, say, five months’ time, five years’ time or 10 years’ time. 

Karl Turner:  Does my hon. Friend agree that the amendment would enshrine in the Bill an opportunity for employees to have their voice heard? Does he agree that it would be illogical, and it would rather contradict their mantra that we are all in it together, if the Government were to say no to the amendment? 

Gordon Banks:  I am grateful to my hon. Friend for his intervention. During the Committee’s deliberations we have moved a number of amendments that would have strengthened the representation of the employees throughout the new company should the Bill receive Royal Assent and should the business be sold off, but the Government have seen fit not the embrace those amendments. So here we go again trying to do it at another level. My hon. Friend’s point is important, because it empowers employees. Sadly, we were unable to secure representation at a high level during earlier stages of Committee debate. 

Representation would ensure that the validity of decisions could be evaluated. If advice and opinions were ignored by the rest of the board, a record of decision making could be kept so the impacts of decisions could be

assessed. That is an important point to make. We have had a number of votes in the Committee and seen how people can be outvoted. It is unlikely that one representative on the board would be able to outvote the rest of the board, but we would be able to see, and the representative could ensure, that they stood up for the benefit of the employee share scheme and the employees in it when any decision was debated and voted on in the new company. 

Such transparency and accountability should not be the worry of the employee share scheme representative; it should be the concern of other members of the newly created board. We would not want them to make decisions detrimental to the employee share scheme without some as yet unknown reason that would make that tolerable; I cannot see it myself. The employee share scheme representative would be there to evaluate and determine whether the decision-making process and any decisions that came from it were in the best interests of the scheme. 

As I have mentioned, I am disappointed that the Minister has not seen fit to accept our offer of representatives from the workplace. We are still waiting to hear whether he will allow a customer representative on the board. 

Mr Davey:  In your dreams. 

Gordon Banks:  I think “in your dreams” probably means no. However, if the Minister could embrace such representation for employees, customers and the share scheme, there would be a strong voice concerned with work practices, the customer experience and the longevity and fairness of the employee share scheme. That could be useful in preventing the scheme’s assets from falling into the hands of big business, as was discussed earlier. If a trust does not exist, there is a fear that the shares might find their way on to the open market and be gobbled up by the major shareholder. 

I accept fully that there are no guarantees in life, and that such representation would not be a panacea for all ills, as I have said, but it would allow remaining board members to be briefed on the impact of every decision that they make in relation to the employee share scheme and to have regular information that would empower better and more informed decisions. I have been a company director for many years. It is important when running a company to run it for the company’s benefit. We are arguing that the company’s benefit is also the benefit of the employee share scheme. Directors can lose sight of what is for the overall benefit of the company, its employees, its customers and the people engaged in it. The amendment would ensure that the business’s directors did not lose sight of what is beneficial to the employee share scheme. 

Not much more needs to be said about the amendment. It is straightforward. Previous contributions discussed some of the arguments, and as far as we can see, they stand the test, whether they are arguments for amendment 16, amendment 22 or other amendments. My hon. Friends and I support the amendment—and its ambitions; they, too, are important. I understand that the Minister does not like the drafting of the amendment, but if he comes back with something that represents the same sentiment, we would be happy to support it. 

12.30 pm 

I trust that the Minister will be supportive—although I doubt it—because refusing such an engagement would challenge his commitment to the longevity of the employee share scheme. He has not agreed to embrace the creation of a trust by including it in the Bill. If he does not embrace those at the heart of this new business, arguing for longevity in the best interests of the employee share scheme, people will draw their own conclusions on what he really means by such a scheme. It is important to preserve the share scheme on behalf of the employees in it. I would be interested to hear the Minister’s response. 

Mr Davey:  As the hon. Gentleman said, we have already discussed the principles underlying the notion of employee representatives on the board. Like him, I do not wish to detain the Committee by repeating or rehearsing those arguments. As I said during that debate, however, such ideas have some merit. 

I have never been opposed to the idea of employee representatives being on boards, or on board committees. However, it is for the company—in this case, Royal Mail and its shareholders—to decide how to structure its board. The point is—we had the same discussion last time around—that however much the Committee or the Government think it a good idea to engage with employees, with share options and shares, and even employee participation schemes, the notion that we hard-wire into the legislation a particular board structure seems wrong. It is not appropriate to impose it through legislation, and I am not aware of a precedent for such an imposition being made by statute. 

Gordon Banks:  I hear what the Minister says about the hard-wiring analogy on the make-up of the board. We do not wish to prescribe its make-up. The amendment merely asks that at least one person should be designated as a personal representative of the employee share scheme. The Minister did not see fit to embrace our earlier amendments, so we are talking about only one board member. That is hardly prescriptive as to the board’s constitution. 

Mr Davey:  I understand what the hon. Gentleman says, and I have made our position clear. Assuming that an employee share trust is set up, it is highly likely—indeed, desirable, given its importance—that the employees’ voice should be properly heard and represented. However, the hon. Gentleman must answer this point. 

If the amendment were passed, and if the legislation were uniquely to prescribe the structure of the board, a fully independent Royal Mail with no Government shareholding that wanted to change the structure of its board would have to come back to the House and request legislation. That would be an onerous regulation to impose on a private company. It could cause the company problems that it might be difficult to envisage. 

Gordon Banks:  I hear what the Minister is saying, but he said a few moments ago that the employee share scheme should have its voice heard at the highest level. How does he propose that its voice should be heard, if not at board level? Can he tell the Committee how he will ensure that it is heard if he does not embrace the amendment? 

Mr Davey:  The hon. Gentleman will be aware that there are many examples of ways in which different companies ensure that the voice of their employees is heard, in particular in the employee share ownership sector. There are many ways in which those kinds of companies ensure that the voice of their employees is heard, and that they increase employee participation. I have made it clear to this Committee that I am extremely keen on that. 

The previous Government could have done a great deal more on that—in fact, they did almost nothing. We want to start with this Bill and other things that we are doing to put that right. I make it clear that this is not about whether the principle of representation on the board is worth while—I think we can agree on that. The question is whether we should bind the company for ever in respect of the structure of its board. 

Graeme Morrice (Livingston) (Lab):  If we are all in favour of an employee share scheme, the logical conclusion would be to have a member of it on the board. I note what the Minister said, but I do not agree with him. 

Some time ago, if my recollection is correct, the Minister spoke about the Bullock report of 1978, which dealt with industrial democracy and employee representation on boards. He was critical that the then Labour Government did not enshrine it in legislation, which would have hard-wired in companies those things that he now seems to oppose. There seems to be a lack of consistency. 

Mr Davey:  The hon. Gentleman is right, in that I did refer to the Bullock commission, but he is absolutely wrong to suggest that I thought that the Labour Government who set it up should have accepted all its recommendations in full and hard-wired them in legislation. I certainly never said that, and I am not saying it now. 

The point I was seeking to make was that this debate had occurred in the past but had disappeared from general debate in the politics of this country. Aspects of the Bullock report are not places where I would like to go: nevertheless, some of the concepts and the philosophy behind it are things that should be encouraged in the workplace of a modern company in the 21st century. Engagement between employers and employees is a good thing, and I have paid tribute in the past to a Secretary of State in the previous Government, the right hon. Patricia Hewitt, then MP for Leicester, West, for introducing the right to request flexible working. Why am I bringing that into the debate? It is because that progress in employee rights helped to trigger conversations between employees and employers that previously were not taking place, for whatever reason. 

One of the objectives of Government policy needs to be to break down the barriers that prevent those reasonable conversations from taking place, so that employees and employers can come together. By and large, their interests are actually much more closely aligned than is often thought. If the hon. Gentleman is pointing to the fact that I referred earlier in our debates to the philosophy behind the Bullock commission, he is right. We do need greater engagement, and I think that the proposals will result in that, but the amendment goes too far because it is trying to put into statute something that should not be there. 

Gordon Banks:  I thank the Minister for what he has just said, but he seems to think that an amendment that prescribes one representative on the board of a company which might have 10, 20, 12 or six—who knows how many?—members of its board is a particularly onerous thing for a private business to cope with. I come from private business, and I put it to him that it is not. It is something that the owners of the new Royal Mail could and should easily embrace, and therefore the Minister should not worry about the impact on the private company or even whether there would be a possibility of them selling off the business. 

The Chair:  Order. Interventions should be a bit shorter than that. 

Mr Davey:  I am always pleased to hear the dulcet tones of the hon. Gentleman, who always tries to be helpful, even if he sometimes does not succeed. I understand what he is saying, but there is a reason why I am not aware of any precedent for such a proposal in British company law, which is that it is too restrictive. It might even work against the interests of employees, and I am sure that he would not want that. 

I am also sure that he would not want to set in stone a law that would lead to a private company banging on the doors of a future Government to demand new legislation, because what was passed in 2010 was far too restrictive and inflexible. That does not make for good law, and that is why we are resisting it, while making it clear that we are keen to have employees’ voices heard not only in law, but more generally. That makes for good workplaces and, more importantly for Britain plc, improves productivity. There is strong evidence, which I mentioned earlier and could go on at length about, for the need to improve productivity and how greater employee-employer engagement can be part of that process. 

I hope that the hon. Gentleman will withdraw the amendment. It is important that we ensure that the Bill is not changed in the way that he has proposed, and I look forward to voting on that. 

Gordon Banks:  The Minister read my mind. He has not changed my opinion. We should support the amendment, and I would like the Committee to vote on it. 

Question put, That the amendment be made. 

The Committee divided: Ayes 8, Noes 8. 

Division No. 5 ]  

AYES

Banks, Gordon   

Blenkinsop, Tom   

Griffith, Nia   

McClymont, Gregg   

Morrice, Graeme (Livingston)    

Turner, Karl   

Weir, Mr Mike   

Wright, David   

NOES

Collins, Damian   

Davey, Mr Edward   

Fuller, Richard   

Harris, Rebecca   

Newmark, Mr Brooks   

Swinson, Jo   

Vaizey, Mr Edward   

Walker, Mr Robin   

The Chair:  The Ayes were eight, the Noes were eight. In accordance with the practice of the House, I cast my vote with the Noes in order to present the Bill in its existing form. 

Question accordingly negatived.  

Question put forthwith (Standing Orders Nos. 68 and 89), That the clause stand part of the Bill. 

Question agreed to.  

Clause 3 accordingly or dered to stand part of the Bill.  

Clause 4 

Restrictions on issue and transfer of shares and share rights in a Post Office company etc 

Nia Griffith:  I beg to move amendment 34, in clause 4, page 3, leave out line 7 and insert— 

‘(b) the Secretary of State has laid a report before Parliament about the disposal and each House of Parliament has come to a Resolution on a Motion in the name of the Secretary of State approving the report.’.

The Chair:  With this it will be convenient to discuss the following: amendment 25, in clause 4, page 3, line 25, at end add— 

‘(8) A disposal of the Crown’s interest in a Post Office company will not be authorised until—(a) The Secretary of State has secured a written contract from the proposed purchaser that at least one representative from those directly employed by the Post Office or its successors will sit on the board of the new body;(b) The Secretary of State has secured a written contract from the purchaser that the headquarters of the new body will be located within the United Kingdom;(c) It has been agreed that any subsequent plans to relocate the headquarters of the new body will require the approval of the Secretary of State;(d) A consultation exercise has been held where all those engaged in the provision of postal services in the UK have the opportunity to express their views on the proposed transfer;(e) The Secretary of State has responded formally to that consultation;(f) A vote of all employees of and stakeholders in the affected Post Office company has taken place and a minimum of 50 per cent. + 1 of the workforce have voted in favour of the proposed transfer; and(g) The Secretary of State has presented to Parliament a Bill which confers on the Secretary of State the power to dispose of the business and the duty to report to Parliament on—(i) all aspects of the proposed transfer, and(ii) how the £1.34 billion investment in the Post Office has been spent at the proposed time of transfer and the value of the unspent budget, whilst detailing the progress made towards the expected goals.’.

Amendment 26, in clause 5, page 3, line 33, leave out ‘report’ and insert ‘Bill’. 

Amendment 29, in clause 5, page 3, line 33, leave out from ‘report’ to end of subsection (2) and insert ‘identifying the preferred purchasers, and must deliver an oral statement to Parliament on the matter and lay an order on the proposed disposal which will be subject to the super-affirmative procedure under section 18 of the Legislative and Regulatory Reform Act 2006.’. 

Amendment 30, in clause 5, page 3, line 33, leave out from ‘report’ to end of subsection (2) and insert ‘identifying the preferred purchasers, and must deliver an oral statement

to Parliament on the matter and lay an order on the proposed disposal which will be subject to the affirmative resolution procedure.’. 

Amendment 27, in clause 5, page 3, line 34, at end insert ‘which confers on the Secretary of State the powers to make the disposal.’. 

Amendment 28, in clause 5, page 3, line 35, leave out ‘the report must’ and insert ‘when laying the Bill the Secretary of State must report to Parliament and’. 

Amendment 35, in clause 5, page 3, line 40, at end add ‘and 

(d) be subject to the approval of both Houses of Parliament, on the basis of a Motion in the name of the Secretary of State.’.

Clause stand part. 

New clause 3—Guarantee of inter-business agreement—  

‘Prior to any sale or transfer of a post office company an agreement must be secured to guarantee the inter-business agreement between Post Office Ltd and Royal Mail for a period of at least 10 years.’.

New clause 4—Guarantee of inter-business agreement (No 2)—  

‘Prior to any sale or transfer of a post office company an agreement must be secured to guarantee the inter-business agreement between Post Office Ltd and Royal Mail for a period of at least 15 years.’.

New clause 8—Report on the future viability of the Post Office network—  

‘(1) Before the time at which the first relevant disposal is made in relation to the Royal Mail Company, the Secretary of State must report to Parliament on the future viability of the post office network.(2) The report must include details of—(a) the inter business agreement, and(b) plans for any new forms of business for the Post Office network.’.

New clause 9—Annual report on Post Office network to devolved government bodies—  

‘(1) A Post Office Company must send to the Secretary of State each year a report on its network of post offices as operating within the territory of the devolved government bodies.(2) The report will give details in an identical manner to Clause (Report on the future viability of the Post Office network) above with the exception that these will cover the territory of the Great London Authority, the Northern Ireland Assembly, the Scottish Parliament and the Welsh Assembly.(3) The report must contain such other information as the Secretary of State may from time to time require.(4) The Secretary of State must ensure that a copy of the report is laid before each of the appropriate devolved government bodies.’.

Nia Griffith:  We now come to an extremely important clause dealing with post offices, and many people will be concerned about what the Bill has in store for their post offices. There are many elements to this debate, so I will focus on some and my hon. Friend the Member for Ochil and South Perthshire will focus on others. 

Language is power. People can deceive, hoodwink, bamboozle and confuse if they use the appropriate language. Some politicians in the recent past have been accused of spinning. However, none have been quite as breathtakingly shameless as those who portray the Bill as friendly to postmasters, postmistresses and customers. Let us consider the hijacking of language. “Mutual”, like “communities,” has a comforting, warming-of-the-heart

feeling about it. When the press try to explain “mutual,” in most cases there is a reference to John Lewis. That characteristically Welsh surname naturally inspires confidence, conjuring images of Welsh cakes by the hearth. Nothing could be further from reality. 

Peter Holbrook, chief executive of the Social Enterprise Coalition, said in Thursday’s lead story in The Guardian: 

“Without the necessary safeguards there is a danger that the mutuals could be demutualised and sold off to the private sector, reminiscent of what happened to British building societies in the 1980s. It would be criminal to see that happen to our public services. All mutuals need to be asset-locked to ensure that they operate for the benefit of the public, forever.” 

Nothing ambiguous there: he says, “forever”. That is clear. It is the language of the Lord’s prayer. Nothing could be further from the language of the promoters of the Bill. 

To focus a little bit more on specifics, the Government’s proposals on mutualisation are vague. They do not give us a clear idea of exactly what form the mutualisation will take, although we are aware that there have been considerable discussions on this issue with sub-postmasters; they do not guarantee direct employee involvement; and they leave rather a loose definition that could allow many different interpretations of “mutual”. 

Amendment 25—particularly paragraph (g)—deals with a number of issues that we would like to explore in detail. Some of the points that we make in paragraphs (a) to (f) will be familiar to Committee members from previous discussions. Paragraph (a) deals with worker representation. Many of the arguments that my hon. Friend the Member for Ochil and South Perthshire has advanced relating to the employee share scheme are equally appropriate in respect of the future of the post office network. Those who are involved most closely need to be best represented. We would like there to be a great deal more clarity about how that representation will take place and who will have a voice, because this is a major new step forward and a terrific adventure that is exciting in many ways. None the less, it will bring with it fears and concerns about what the future holds for the post office network. The maximum amount of involvement is critical, which is why we want to amend the Bill to that effect so that there is proper worker representation. 

Let me move on to discuss the UK headquarters. The Post Office may be in a different situation to the Royal Mail. Nevertheless, people feel strongly that whatever happens to the Post Office in future—it may metamorphose in different ways—we want some safeguards on the headquarters remaining in the UK. I will not repeat my previous comments about the way that the sub-postmasters gather information from local communities. Quite clearly, they are very concerned about keeping the headquarters in the UK. Proposed new paragraph (c) of amendment 25 is pertinent here because we do not quite know what is going to happen to the body once it has been floated off. Therefore it is important that the headquarters remain in the UK. That is intricately linked with the idea of proper representation so that there can be proper decision-making procedures. 

It is possible through consultation to tease out exactly what people want. The clause does not give us a very clear idea of exactly what is envisaged. We know that we are talking about an organisation that is not uniform. When starting a mutual from scratch with a blank piece of paper, everyone can pile in using exactly the same

format. But the Post Office has a very different structure. We have all sorts of people who have put different amounts of money in. There are people with different types of post offices, some of which are viable, some of which are not. So we have a whole range of different scenarios for those people. Some people may be setting out in their careers. Some may be looking to retire very shortly. Clearly there are going to be different views. Indeed, we heard as much on Second Reading. 

Consultation is critical before we set out on any structure at all and if this is going to be a viable and successful organisation, we want that consultation to be meaningful and we want it to have a proper response from the Secretary of State. In other words, we want it to be listened to. So that is the purpose of paragraph (e). We want to ensure that the Secretary of State takes on board what is said in that consultation. 

Paragraph (f) is critical. If the proposal is for a mutualisation, no mutual could expect to succeed unless it had the full support of its members. That is the very essence of a mutual. There has to be some form of vote or democratic process in which those who are going to be directly affected and involved show that they want to see the post office network become a mutual and be separated off from the state. Clearly the democratic process needs to take place and we need to have some proper evidence that at least 51% of those who will be directly affected wish to see the transfer into a mutual take place. 

I should like to focus my comments on paragraph (g) because it is critical to the proposal. Whereas everybody would rush to be part of a money-making enterprise that was clearly going to do well, our post office network faces a difficult scenario with the declining mail volumes, the decline in Government business and the declining footfall in many post offices because so many people do things online. Some post offices manage to combine other types of activity and are symbiotic with village shops or garages. Everybody who might participate will want to know how viable the post office network will be if it is made into a mutual, because they will be making their whole livelihood part of the new organisation. 

Recently, we had a very glossy document and an interesting announcement on the funding for the post office network and the £1.34 billion investment. For all those who are involved in the post office network, the question will be how the £1.34 billion will be used. 

Mr Mike Weir (Angus) (SNP):  Does the hon. Lady agree that one problem with the mutual solution is that a mutual would become viable only if the network was profitable and viable, as was clear from the evidence that we received? The network is a long way from that. Does she see any indication in the Bill of a time scale for getting it to that stage? 

Nia Griffith:  That is one of the big questions: what is the time scale for getting things in place? A sum of money has been floated for investment and we understand that that is for 2012 onwards. Funding of £150 million was pledged for this year by the Labour Government and there is £180 million for the year up to April 2012. The sum of money is for beyond that time, but a proportion of it will be needed for direct subsidy, just like the current £150 million and £180 million. If costs rise, that may be more than £180 million. If post offices close, it could be less than that. We do not know at the moment exactly how much will be needed for a running-cost subsidy. 

Furthermore, we need to know what will be done with the remainder of the money. Different things might be done. There could be modernisation that makes post offices into very attractive places. That may be a good use of money, but it might not create additional income streams. There could be investment in equipment or the computer system. That may be beneficial for people who use the post office and for the people who serve them, but it might not create additional business. 

We want a report on the use of the £1.34 billion so that we know what is done with it to make post offices more viable. If a number of post office branches are not profitable or viable without considerable cross-subsidy, which involves a considerable amount of Government money, the question will be what has been done with that £1.34 billion to create new forms of custom. If something has been done, there should be an evaluation of whether those new forms of custom have materialised. 

Mr Davey:  The hon. Lady will have read our policy statement, “Securing the Post Office Network in the Digital Age”. Chart 4 on page 19 sets out how the funding will be used. 

1 pm 

The Chair adjourned the Committee without Question put (Standing Order No. 88).  

Adjourned till this day at Four o’clock.