Postal Services Bill

The Committee consisted of the following Members:

Chairs: Mr David Amess  , † Miss Anne Begg  , 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 30 November 2010  

(Morning)  

[Miss Anne Begg in the Chair] 

Postal Services Bill

Written evidence to be reported to the House 

PS 19 ifs ProShare 

Clause 17 ordered to stand part of the Bill.  

Clause 18 

Amendments of the RMPP 

10.30 am 

Nia Griffith (Llanelli) (Lab):  I beg to move amendment 42, in clause 18, page 10, line 16, at end insert— 

‘(2A) An order under this section must not include any provision that permits the winding-up of the RMPP.’.

The Chair:  With this it will be convenient to discuss the following: 

Amendment 96, in clause 18, page 10, line 16, at end insert— 

‘(2A) Before making an order under this section the Secretary of State must obtain the consent of the trustee of the RMPP.’.

Amendment 99, in clause 20, page 11, line 15, at end insert— 

‘(1A) Before making an order under this section the Secretary of State must obtain the consent of the trustee of the RMPP to the selection of the assets to be transferred.’.

Amendment 101, in clause 24, page 13, line 7, after ‘RMPP’, insert ‘, such representatives of members of the RMPP as appear to him to be appropriate’. 

Nia Griffith:  It is a tremendous pleasure to serve under your chairmanship, Ms Begg, particularly given the difficulty that some colleagues have had in travelling from Scotland. I inform Committee members that they will have to enjoy hearing my voice today, because they will not have the exciting alternation of different voices from the Opposition Front Bench to keep them amused. 

The amendments relate to clauses 18, 20 and 24. Amendment 42 would insert a new subsection (2A) in clause 18 to prevent the winding up of the Royal Mail pension plan. Clause 18 allows the Secretary of State to amend the rules of the RMPP to enable the Government to assume liability for the deficit and to create a sectionalised scheme. Such a power is inevitable if the deficit is to be transferred and if the scheme is to be sectionalised. Subsection (2) allows the Secretary of State to amend the rules of the RMPP so that, when calculating benefits, years of pre-split pensionable service and past-service liabilities are transferred to the state and can be counted. That means that pre-split service can be paid on the basis of final pensionable earnings and pre-split years

of service can be counted for ill health and redundancy enhancements. Subsections (1) and (2) are, therefore, acceptable. 

The amendment seeks to ensure that, when using the power to amend the rules, the Secretary of State does not insert a winding-up rule. Such a rule is not required and is not in the current rules, under which I understand that the trustee has to consent to any amendment. A winding-up rule would also shift the balance of power between an employer or employers and the trustee in the structure of the RMPP, so allowing the employer to bully the trustee. Will the Minister look carefully at our amendment 42 to see whether there is any way in which he could accept it? If he is not able to accept it, is there any other way in which he might allay our fears and those of the members of the RMPP, and keep a degree of parity with the current scheme? 

Amendment 96 is about consent. As we know, clause 18 enables the Secretary of State to amend the RMPP in ways that he considers appropriate in connection with an order under clause 16 or 17. For example, this would enable amendments to the scheme rules in relation to benefits payable in addition to the qualifying accrued rights, so that it was clear whether those benefits were met from the RMPP scheme or from a public service scheme. 

Subsection (2) allows the Secretary of State to amend the rules of the RMPP, and is expected to dovetail the benefits payable under the new public sector scheme with the ongoing RMPP. The provision is for the benefit of members and is acceptable. The public sector scheme will pay benefits back to members on the basis of their accrued benefits based on pensionable pay as of the date of division. The RMPP will then top that up, linking benefits to actual pay at the point of retirement, and will top up benefits for members who retire early on the grounds of ill health or redundancy. The trustee has to pay the benefits, so it needs to be confident that the dovetailing is technically correct and that the scheme can be managed. 

The Minister will probably tell me that the trustee must be consulted under clause 24. Consultation, however, is not enough. Why does he not consider it necessary to ensure that, before making an order, the Secretary of State must obtain the consent of the trustee of the RMPP? If the scheme is to be run by the trustee, it needs to be satisfied that it is workable. Its consent should, therefore, be obtained, which is the purpose of the amendment. If the Minister does not wish to accept the amendment, will he consider whether there is any other way in which the role of the trustee of the RMPP could be strengthened so that the major changes—it is the trustee that will be most affected by them—do not take place without its being directly involved in the critical decisions? 

Amendment 99 relates to clause 20 on the transfer of assets of the RMPP. It proposes the insertion of new subsection (1A), which states: 

“Before making an order under this section the Secretary of State must obtain the consent of the trustee of the RMPP to the selection of the assets to be transferred.” 

Clause 20 provides for the division of the assets of the RMPP. Some of them will be retained by the RMPP, but most of them will be transferred to the Government. The public sector scheme is taking on accrued liabilities and therefore ought to receive an appropriate share of

the assets that have been built up to cover them; otherwise, the public scheme will take on the entire liability rather than the deficit, and the RMPP will become massively overfunded. 

The amendment relates to the selection of the assets transferred to the public scheme, and this involves two issues. First, the RMPP currently holds a mixture of equities, gilts, corporate bonds, real estate, managed funds, cash and derivative contracts. In broad terms, trustees usually match liabilities for older age groups with fixed-interest assets, such as gilts, cash and bonds, while benefits for younger and active members are matched with more speculative investments, such as equities. Property and managed funds fall somewhere in the middle, and derivatives are used to hedge risk. Someone needs to make the division. The new public scheme and the RMPP will have different age profiles. The trustee and its actuary are responsible for the RMPP and ought to have a say in that division. It is a monumental decision—we are talking about the huge number of different assets, the different ways in which they function, and the different potential for meeting the needs of the different sectors that will be divided. 

Assets in the same class could have different characteristics. For example, shares in BP might be more volatile than shares in the Royal Bank of Scotland, or vice versa. Who knows? Or, to take an extreme example, corporate bonds are usually cast as relatively low risk, but possibly bonds issued by Icelandic banks might be a different matter. It is not right that the Secretary of State has the power to cherry-pick and to leave RMPP with an inappropriate mix of assets. We are simply asking for the direct involvement of those directly involved—the trustee should have the opportunity to give consent and therefore be fully involved in the division. I hope the Minister will consider accepting our amendments. If he is unable to do so, will he find other mechanisms to ensure the same effect—that the division is not made without the consent of the RMPP trustee? 

Amendment 101 relates to clause 24. It requires that we insert the words 

“such representatives…of the RMPP as appear to him to be appropriate”. 

Clause 24 requires the Secretary of State to consult before a new public sector scheme is created, before a transfer is made to the new public sector scheme and before any amendment is made to sectionalise the RMPP or to amend its rules. The consultees are the trustee and the employers, and amendment 101 requires the Secretary of State to consult “representatives of members” as well. Member representatives, of course, means trade unions. The formulation comes from the Superannuation Act 1972, which set up local government, teachers’ and NHS pension schemes. Our amendment 101—what a coincidence. Might the trade unions get the impression that somebody was trying to do away with them—to put them into a room 101? The point is that we do not want such a thing to happen. We want them to be fully involved and we would like their involvement enshrined in the Bill, because there is a great variety of approaches. 

In the civil service, the trade unions seem to be fully involved, whereas in one of the armed forces schemes they are much less involved, so there are different patterns. We want to see proper consultation before any amendment is made, in the same way as member representatives must be consulted before amendments are made to the

local government, teachers’ and NHS pension schemes. Amendment 101 seeks to ensure that Royal Mail unions are treated in the same way. It does not give the trade unions a veto, whereas some other amendments might give the trustee a veto, so there is a difference in what we are asking for in some of our other amendments. Amendment 101 is about a proper consultation. 

I should be grateful if the Minister would spell out exactly how he envisages consultation taking place, and if that is to be the norm, why is it not possible to include it in the Bill? I mention that because we have examples of practice differing between various Government sectors. It is therefore important to have this stated, so that we can reassure the trade unions about what is to happen. Knowing the history and given the tremendous improvements over the past two years in industrial relations, I think it would be a tremendous measure of good will and would show a genuine commitment to work with the trade unions in a very difficult period of change, when there will be tensions. We want to ensure that the very best results are achieved in respect of pensions, because that will be one of the major concerns of the members of the work force, and of course the former work force. Is there any way in which the Minister could include a provision for consultation with the trade unions? If it is not in the form of our amendment, there may be other ways to introduce such a provision into the Bill, so that we may have some assurance on that matter. 

On that note, I conclude my comments on clause 18, and I hope that the Minister will respond to some of my questions. 

10.45 am 

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey):  It is a great privilege to serve under your chairmanship today, Miss Begg. Although we are without the hon. Member for Ochil and South Perthshire, we hope that at some stage he will arrive, because he has been a very active member of the Committee, and we are always interested in his views. In moving the amendment, the hon. Lady has asked a range of questions, and I hope that I am able to answer her satisfactorily. 

Two of the amendments under consideration—amendments 96 and 99—relate to obtaining trustee consent. We debated that during our consideration of amendment 43 last week, and no doubt we will reprise some of those arguments today. Amendment 42 seeks to protect against the future winding up of the Royal Mail pension plan. The final amendment, amendment 101, relates to consultation with member representatives. 

I shall deal first with how clause 18 might be affected by amendment 42, were it to be accepted. Clause 18 provides powers that allow the Secretary of State to amend the Royal Mail pension plan in connection with any changes required during the setting up of a new public scheme and any division of the RMPP. The creation of a new public service scheme under clause 16 and the creation of a new section of the RMPP under clause 17 will require technical and consequential amendments to the rules of the RMPP. Such amendments are necessary both to ensure that changes are fully effective and to ensure that the overarching requirement for the protection of scheme members against adverse treatment can be fully met. 

A major theme of part 2 is ensuring that there is no adverse treatment of any scheme members, and I shall cite two examples of that. The rules of the RMPP may need amending to make it clear that the liabilities for paying the pensions that transfer to the new public scheme no longer rest with the RMPP. It is important that we have clarity on the matter, and we may need to make amendments to ensure that. Another example of that is the creation of a new section for Post Office employees, which will require a number of changes to the RMPP rules in order to address the funding, investment and governance arrangements for the new Post Office section. The whole purpose of clause 18 is simply to make sensible amendments to the RMPP rules to give effect to other clauses in this part. 

Amendment 42 would prevent the Secretary of State from amending the plan to include a provision permitting the scheme to be wound up—in other words, to be terminated by discharging its liabilities. Before considering the amendment in detail, it would perhaps be helpful if I were to outline the current winding-up provisions in the RMPP. The RMPP is unusual in that, under the scheme rules, the company has no express power to wind up the scheme, and because of that the employer would need to obtain the consent of the trustees or the members before the scheme could be wound up. That is an unusual, but very important, protection for members. We have said that, through the new public scheme, we will protect past accruals that members have built up, but future pension provision will, as now, be a matter of negotiation between the employer, the members and the trustees. The provisions in the current RMPP that restrict its winding up help protect members’ future interests. 

I am sure hon. Members will appreciate that, as with so many amendments that the hon. Lady has tabled, I welcome the sentiment behind the amendment. The amendment’s purpose appears to be to ensure that the current position, which I have outlined, is maintained. Although I agree entirely with the spirit of the amendment, I do not consider that it is necessary. Any amendment to the RMPP rules that would allow the scheme to be more easily wound up would fall foul of the protection provided for members under clause 19(2), as any such amendment would have a material effect on members’ “relevant pension provision”. Under the terms of clause 18, the Secretary of State may only make such amendments as he 

“considers appropriate in connection with any order made under section 16 or 17” 

and given that our intention is to take on the historic deficits for the Royal Mail together with a more manageable scheme, it would not be appropriate for the Secretary of State to make any amendment to the RMPP that would allow the scheme to be wound up. So there are two very strong protections there, which mean that amendment 42 is simply not needed. Given those strong assurances, I hope that the hon. Lady will withdraw the amendment. 

Amendments 96 and 99 would require trustee consent to be obtained before certain actions by the Secretary of State. Under amendment 96, trustee consent would be needed before an order could be made to amend the RMPP by way of the powers in clause 18. Under amendment 99, trustee consent would be needed over the type of assets that would be left with the RMPP to

fund its ongoing liabilities. As discussed during Thursday’s debate, we are working in close partnership with the trustees on the implementation of all our proposed changes, including those relating to the RMPP rules and the transfer of assets. When the chairman of the trustees, Jane Newell, gave evidence, she confirmed how closely she and her colleagues are working with the Government on this. 

Under clause 24, as the hon. Member for Llanelli was good enough to admit, we are duty-bound to consult with the trustees on the orders that are laid under this part of the Bill. However, while it is important to recognise the need for close consultation, requiring the consent of the trustees to legislation is a very different matter. 

Nia Griffith:  Can the Minister envisage a situation where consent would not be given by the trustee? Can he envisage a situation where there would be an impasse and a real divergence of views? How would that be resolved in the current situation and how might it be resolved if our amendment were accepted? 

Mr Davey:  I am grateful to the hon. Lady for that intervention. The way that we are working with the trustee, the track record of close partnership working and the way that we are binding ourselves to continue that consultation suggest that her concerns will not arise. The way in which Jane Newell talked about that in her evidence to the Committee was particularly interesting. Just as I said when we discussed amendment 43, which would have imposed the same requirement on the operation of clause 17, amendment 42 would place a significant responsibility on the individual trustees of the RMPP, which would be neither necessary nor appropriate. The hon. Lady is not taking the extra responsibilities that will be placed on the individual trustees into account. 

In addition I should like to assure members of the Committee that the Government’s amendment power in clause 18 is constrained by the protection against adverse treatment for members provided for in clause 19. I am sorry that I keep coming back to the protection for members in clause 19 but it goes throughout this part of the Bill and is critical to the way that we have drafted the Bill. It should give members of the Committee and members of the RMPP a great deal of reassurance that there is no ill intention at all—quite the reverse. 

Those constraints mean that the RMPP could not be amended to make the members any worse off than they were before that amendment. Forcing the trustees to provide their consent to any changes under clause 18 would not increase protection for members. While I understand the hon. Lady’s intent, I do not think it is needed, again because of the protections for members. Given that this key safeguard is in the Bill and given the need for the Government to retain responsibility for the implementation of the provisions in the Bill and not to put extra responsibilities on the trustees, I hope that the hon. Lady will not press amendment 96. 

Under amendment 99, the consent of the trustee must be obtained regarding the selection of assets to be transferred. Before dealing with the details of the amendment, I think we have to outline the purpose of clause 20 and remind hon. Members of our intentions on the transfer of assets. 

Clause 20 provides that the Secretary of State can, by order, transfer assets from the Royal Mail pension plan to the Government. The provisions of the clause, which should be read with the provisions of clause 21, mean that such an asset transfer order can be made only in conjunction with the transfer of liabilities from the RMPP to Government and where it will not worsen the proportion of assets to liabilities remaining with the RMPP. Those are two clear criteria. 

Clause 20(1) contains provisions for where the assets will be transferred to. We intend any gilts and cash transferred to go to the Treasury and the Consolidated Fund respectively. The other assets will go to a fund established by the Secretary of State and be sold in a measured fashion, with proceeds going to the Consolidated Fund. 

We estimate that around £27.5 billion of assets will be transferred to the Government, compared with the liabilities of approximately £35.9 billion, meaning that the Government will absorb a deficit of £8.4 billion. We intend that only liabilities relating to the salary link—the real growth of salaries for active members—and ongoing pension accruals that build up after the cut-off date will remain with the RMPP. We estimate that that will amount to approximately £1.5 billion of liabilities in the RMPP, at the point at which the Government will implement the measures in part 2. Subject to state aid clearance, we intend to fully fund the liabilities remaining with the RMPP, so that it will also retain £1.5 billion of assets. 

Before any assets are transferred, a valuation of the RMPP will be made. The valuation exercise will follow standard actuarial principles and reflect the assumptions agreed between the trustees and the Royal Mail in the recently agreed March 2009 triennial valuation. The output of the valuation will be an up-to-date view of value of the assets and liabilities in the plan. As a result, there will be nothing to be gained in terms of value from the RMPP retaining one type of asset rather than another. However, as we heard last week from the hon. Member for Ochil and South Perthshire when we debated amendment 43, careful consideration will need to be given to the type of assets that are left with the RMPP to cover residual liabilities, and to how those assets are to be allocated between the Royal Mail and Post Office Ltd sections. 

We fully recognise that the assets to be left with the RMPP should reflect the future investment strategy of the trustees. Again, Jane Newell mentioned in our evidence session that she would look to engage the Government on that point. Now that we have come to a view on the level of liabilities that will remain with the RMPP—when I made an announcement to the Committee regarding the cut-off date—we can commence discussions with Jane and her team. 

Members of the Committee need to bear it in mind that trustees will be free to sell assets and change investment profiles as they see fit. However, given the charges that will be levelled by selling assets and changing investment profiles, it is in everyone’s interests that we work together to reach a satisfactory agreement. 

I hope that I have assured the hon. Member for Llanelli of our commitment to work hand in glove with the trustees on the matter. I do not think there should be any doubt in her or anyone else’s mind regarding our intention to work incredibly closely with the trustees.

In light of the aligned interests of Government and the trustees to ensure that the assets left with the scheme will fit the residual liabilities, and the arguments that I have outlined on amendments 43 and 96—that it would be unnecessary and inappropriate to require trustee consent as well as consultation—I cannot see any advantage to the hon. Lady’s amendment 99, and I hope that she will withdraw it. 

The final amendment in the group, amendment 101, would require the Secretary of State to consult member representatives, Royal Mail and the trustees of the RMPP when making orders under part 2 of the Bill. Throughout our discussions on part 2, we have been in complete agreement that member interests should be at the heart of the pension changes. As the hon. Lady admitted in previous debates, almost all of part 2 reflects the 2009 Bill and follows heavily on its protections of members’ interests, which is why clause 24 provides for consultation with the RMPP trustees. The trustee has a number of responsibilities and must always act in the best interests of all the plan beneficiaries, including deferred members and pensioners as well as active members. That obligation means we can be sure that the interests of all beneficiaries are represented. 

11 am 

It is also important to recognise that the trustee board has strong member representation at its heart. There are 11 trustee directors, four of whom are nominated by the unions. One is elected by a ballot of pensioners and the chair is an independent trustee appointed by Royal Mail with the agreement of the unions. What we can say absolutely about the trust is that it is extremely representative of members. The broad range of stakeholders represented on the trustee board highlights how well positioned they are to represent the interests of members to the Government. That is why the commitment to consult them is covered by the Bill. There will then be no doubt that they will be consulted and their interests taken into account. 

We recognise that it is also important to engage widely with other groups that have an interest in the measures under part 2, which is why we have held several meetings on pension issues with the Communication Workers Union and the National Federation of Occupational Pensioners. In our debates last week, I read out a series of meetings that I, the Secretary of State and officials have had with the CWU about pensions. I reiterated that I was happy to meet the CWU again to talk about pensions so there should be no doubt that the door remains open to discuss matters with the CWU and other representatives of members of the pension fund, should they wish to avail themselves of such an opportunity. 

We will continue to engage with the important stakeholders throughout the implementation stages. However, given the central role that the trustee holds in representing interests of all members of the pension scheme and the obligation under the Bill to consult with the RMPP trustees, it is neither necessary nor appropriate to broaden the obligation to cover other member representatives so I trust that the hon. Lady will withdraw amendment 101. As I think that I have dealt with all her points, I hope that she can withdraw the group of amendments, particularly as it has been left unchristened by my good self. 

Nia Griffith:  I shall begin with amendment 42. The Minister has spoken convincingly and helpfully about it. Obviously, there will always be a feeling at the back of people’s minds about what could happen in the future, the inevitable position and so on, but his words will offer some reassurance about that. The hon. Gentleman highlighted liability as well as consent, and we hope at least that the trustee would be firmly at the centre of what is going on. It sounds as though his intention is that that should be the position, given the number of meetings that have been held. He has again offered several very helpful comments on the matter. 

On amendment 101, the Minister said consultation with the Treasury and representatives is mentioned explicitly in the Bill. We hope that he will take the issue seriously and consult them fully, as much as possible, in every phase of the Bill, to ensure that interests are fully taken account of and that no one ends up feeling that they have been badly dealt with because the proper procedures were not followed through. 

With the assurances that we have been given, I will not press amendments 96, 99 and 101 to a vote, and I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Clause 18 ordered to stand part of the Bill. 

Clause 19 

Protection against adverse treatment 

Nia Griffith:  I beg to move amendment 97, in clause 19, page 10, line 28, leave out subsection (3) and insert— 

‘(3) “The relevant pensions provision” means the provision for the payment of pensions or other benefits which is contained in the RMPP or under a new public scheme or both, and includes pensions or other benefits payable—(a) in the event of early retirement on the grounds of ill-health or otherwise,(b) in the event of a contingency, or(c) upon the exercise of a discretion by the trustee of the RMPP under the rules of the RMPP.(3A) If the amount of a pension or other benefit is calculated by reference to a person’s remuneration at the date of leaving the RMPP (by reason of death, retirement or otherwise), his remuneration for the purpose of establishing all of his relevant pensions provision shall be taken to be his remuneration at the date of leaving the RMPP (by reason of death, retirement or otherwise), and not his remuneration at the date of the exercise of the power to make an order.’.

The Chair:  With this it will be convenient to discuss the following: 

Amendment 98, in clause 19, page 10, line 31, leave out ‘(3)’ and insert ‘(2)’. 

Nia Griffith:  May I clarify, Miss Begg, whether you will be offering a separate opportunity to speak to clause stand part? 

The Chair:  Yes. I always give that chance. 

Nia Griffith:  Thank you. I will, therefore, focus specifically on amendment 97, to which amendment 98 is closely attached. 

Clause 19 is intended to ensure that the benefits payable by the new public sector scheme, when added to the benefits payable by the Royal Mail pension plan, are at least as good as the benefits currently payable by the RMPP. 

Pensioners and deferred pensioners will not be materially worse off under the new public sector scheme. They should have exactly what they have with the RMPP as it is now—clearly, as worked out in the past, things should be there for them. I am sorry; some of my notes have been printed wrongly, so I am trying to find things—my sincere apologies, I have a copy without half the words. 

Active members, however, will be treated rather differently when the scheme is divided, being treated as deferred members. From the public sector scheme, they will be paid deferred member benefits, which between the dates of division and of retirement will go up in line with the consumer prices index. Anything else will come from the Royal Mail pension plan. 

Clause 19 allows the RMPP to top up in three respects. Members of sections A and B of the RMPP currently accrue final salary benefits, and final pay is likely to be higher than pay at the division plus the CPI increases. The RMPP provides notional added years of service for some members who are made redundant; redundancy pensions are payable immediately. Thirdly, for members who retire on grounds of ill health, an immediate and in some cases enhanced pension is payable. 

Has the Minister considered clarifying the relevant pension provision in line 28, to ensure that the section refers to both the RMPP and the new public scheme? Why should pensions or other benefits payable not include benefits payable in the event of early retirement, on the grounds of ill health, a contingency or otherwise, or on the exercise of a discretion by the trustee of the RMPP in accordance with its rules? Furthermore, does the Minister agree that if the amount of a pension or other benefit is calculated by reference to a person’s remuneration at the date of leaving the RMPP by reason of death, retirement, or otherwise, the remuneration for the purpose of establishing all relevant pension provision should be taken to be the remuneration at the date of leaving the RMPP by reason of death, retirement or otherwise, and not the remuneration at the date of the exercise of the power to make an order? 

Acceptance of that direction would make enhancements for ill health and redundancy explicit. It makes the earnings link explicit too, and it is important for anyone that the trustee decides is entitled to an ill health or redundancy pension, while the RMPP part will be payable immediately and in some cases will be enhanced, with any enhancement coming from the RMPP alone. 

The public sector scheme benefits are ordinarily payable at retirement age. If the Minister agrees with that line of thought, it would mean that where the trustee decides that the member is entitled to RMPP benefits, the public scheme has to fall into line and pay out immediately. That could avoid any conflict between the trustee and the Secretary of State. In order to ensure that the intended safeguards, which include clause 19, also cover associated benefits payable under the RMPP, we propose to replace subsection (3) with the following: 

“‘(3) “The relevant pensions provision” means the provision for the payment of pensions or other benefits which is contained in the RMPP or under a new public scheme or both, and includes pensions or other benefits payable—(a) in the event of early retirement on the grounds of ill-health or otherwise(b) in the event of a contingency, or(c) upon the exercise of a discretion by the trustee of the RMPP under the rules of the RMPP.

(3A) If the amount of a pension or other benefit is calculated by reference to a person’s remuneration at the date of leaving the RMPP (by reason of death, retirement or otherwise), his remuneration for the purpose of establishing all of his relevant pensions provision shall be taken to be his remuneration at the date of leaving the RMPP (by reason of death, retirement or otherwise), and not his remuneration at the date of the exercise of the power to make an order.’.” 

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab):  I believe that the CWU has an agreement with the Royal Mail on early retirement through ill health for people who are part of the pension plan, so that they can get access to their pension on leaving employment through ill health. The clause, as it stands, does not cover that agreement with the union. 

Nia Griffith:  My hon. Friend makes a good point. The difficulty is that a gap seems to be left, and it is possible that when the division is made and different groups are put in different sections, this may be an area where some people miss out, which needs to be looked at. That is the point of the amendment; it is about making sure that we try to get the best, most appropriate deal for those who have given many years of service but have to leave the scheme for the reasons outlined. The new subsections would replace subsection (3), which is why we have tabled amendment 98, so that the wording will fit appropriately. Has the Minister given the issue any thought? It is worrying some people, and it clearly needs to be dealt with correctly, ensuring that nobody is disadvantaged in any way. 

11.15 am 

Tom Blenkinsop:  I want to make some brief points on amendments 97 and 98, which relate to clause 19. That clause suggests that the benefits in the public sector scheme are at least as good as those that are currently paid and that pensioners and deferred pensioners are not worse off under the proposed new scheme. The unions, as well as the Opposition parties, welcome that element of the proposals. Active members may be treated, however, slightly differently to deferred members of the scheme, as we heard earlier from my hon. Friend in relation to the calculation of those pensions and CPI. 

The redundancy element of the RMPP is an issue, and that goes back to my earlier point in my intervention on my hon. Friend. Currently, the redundancy pensions are paid with immediate effect, and the issue is with early retirement and ill health. The existing scheme has a negotiated and agreed arrangement with the CWU that remuneration of the pension is available for those who are leaving on ill health or for the next of kin following a death. The existing employment law does not cover pensions for all schemes for early retirement through ill health. From my own experience at Forgemasters, for example, we had members leaving employment because of high-level hand-arm vibration syndrome. The company was trying to get rid of four individuals, who were union members at the time, through ill health, giving them the option of redundancy, but not ill-health retirement. Ill-health retirement and redundancy were seen as separate issues. The CWU arrangements with Royal Mail are that, in the case of ill health, redundancy and access to pensions are somewhat different. Those elements need to be explored before clause 19 goes ahead, and amendment 97 explores that issue further. Without amendment 97, there is a possibility that existing agreements may not be carried. 

My main concern, which I will close on, is that that may present the danger of TUPE and custom and practice elements within the arrangements, under employment law, being undermined. Amendments 97 and 98 allow those existing arrangements to be examined in greater depth, and I would suggest that they be added to clause 19. 

Mr Davey:  I am grateful to the hon. Member for Llanelli for tabling the amendment, because it enables me to both reassure her and the hon. Member for Middlesbrough South and East Cleveland and ensure that the intent of our provisions in clause 19 can be put on the record. 

I will begin by christening the amendments to clause 19. I have established a tradition that groups of amendments get a particular soubriquet, and I christen these “the retreads,” because they were tabled to the relevant section of the 2009 Bill in the other place and have been debated before. Therefore, I am grateful to be able to refer to those, as I no doubt will do in due course. 

This group of amendments relates to the vital protection for members that is provided by clause 19. Amendments 97 and 98 seek further information on the particular benefits that are covered by that protection and any circumstances in which that protection might not apply. Amendment 97 seeks to refine the description of “relevant pensions provision” that is provided in clause 19(3). It is an important amendment, and I understand why it was tabled before and has been tabled again, because it relates to important safeguards for RMPP members. 

We must return to the essential feature of clause 19, which is that it is critical to part 2 of the Bill. It requires that the Secretary of State protects members of the RMPP from being detrimentally affected by the Government’s proposals. Subsection (2) requires that in establishing a new scheme, in transferring rights to the new scheme, in splitting the RMPP into sections, or in amending the RMPP, the Secretary of State must ensure that he does not negatively impact the “relevant pensions provision” of members, comparing the position immediately after the exercise of the power with that immediately before. The relevant pensions provision is defined in subsection (3) as 

“the provision for the payment of pensions or other benefits which is contained in the RMPP or in a new public scheme.” 

The payment of “pensions or other benefits” is deliberately a very broad definition. Whether one has a broad definition, which can encompass things about which we have not necessarily thought, or a narrow definition, as in the hon. Lady’s approach, is key to the debate. 

Our approach speaks from the 2009 Bill, when Lord McKenzie of Luton debated a similar amendment in the other place. He made a number of points, which I echo. He said: 

“We do not want to risk narrowing the definition of relevant pensions provision set out in the Bill.”—[Official Report, House of Lords, 31 March 2009; Vol. 709, c. 997.] 

That is why he asked Members of the House of Lords to reject a similar amendment. As I get into the detail, I want hon. Members to be aware of that. If we narrow the definition as it is in the amendment, there is a real risk that we will undermine the benefits to members, which I am sure Opposition Members would not wish to do. 

The broad definition includes pensions that are already in payment to RMPP members, and benefits relating to past accruals, which will become payable when members retire. Those will include revaluation and indexation in accordance with the scheme rules. The definition is much broader than that in the amendment—it includes discretionary benefits and survivor benefits, such as a widow or widower’s pension, which is payable on the death of a member. It also includes provision for early retirement, in accordance with the rules of the scheme, including retirement on the grounds of ill health. I assure Opposition Members, therefore, that the existing definition in subsection (3) covers those specific benefits that are set out in paragraphs (a) to (c) of the amendment. I hope that my putting that on the record will reassure the hon. Member for Llanelli. 

The “relevant pensions provision” also already includes any increases that active members may receive in respect of past accrual, as a result of their pensionable salary growing in the future. I confirm that the existing broad provision in clause 19(3) already covers the salary growth that is described in proposed new subsection (3A). 

The reason for the broad definition in subsection (3) is to ensure that all the benefits that members have accrued are protected by clause 19. It would be unnecessary and confusing to substitute a narrow definition and might even risk arguments that not all possible benefits are captured by clause 19; that is why I cannot support the amendments. 

I know from our consideration of part 2 so far, that hon. Members do not want members of the RMPP to receive a lower level of protection; I want to ensure that their rights have the greatest possible protection, and that is why the clause has been drafted so broadly. Considering the size of the trust deed and its rules relating to the RMPP, it and related documents potentially have a whole range of benefits, so any specific and detailed definition would require an extremely long clause. I assure the hon. Member for Llanelli that I have asked whether we should have specific, detailed references in the Bill, or whether we should go for the very broad definition. The previous Government concluded, as have I, that the broad definition is the best way to ensure that we have the widest possible member protection. 

I hope that hon. Members are assured by the strength and depth of the protection provided by clause 19, and I hope that the hon. Lady will withdraw amendment 97. 

Amendment 98 also relates to clause 19. Clause 19(4) means that the Secretary of State is not required to include provision in the new Government scheme that would be incompatible with any obligations under UK or EU law. The amendment would require the Secretary of State to replicate in the public scheme RMPP pension provisions that were, or had become, unlawful under UK or EU law. 

I assure Members that clause 19(4) is included in the Bill only to make it clear that although the Secretary of State has to ensure that members’ pensions are protected—as in clause 19(2)—he also has to act within the relevant UK and EU laws, and we are not aware of any rules in the RMPP that are not compliant with such legislation. Subsection (4), therefore, is not included in the Bill to address a specific issue that we have identified. 

However, developments in case law or EU legislation might mean that before the public scheme is established, an RMPP provision could become incompatible and would need updating. The inclusion of the subsection means that the public scheme is not bound to replicate unlawful provision and set it in stone to preserve “member protection”; rather, the scheme can amend unlawful provision, in the same way as the RMPP will have to in the light of legal developments. 

In establishing the new public scheme, the Government must act in compliance with general law. If not, the new scheme will be open to challenge, just as it would be if it failed to meet the member protection requirements. In practice, we expect any legal issue to be identified and resolved before the transfer of liabilities, with full consultation, once again, with the RMPP trustees. I hope that the information that I have provided regarding the purpose of the subsection will persuade hon. Members not to press amendment 98. 

The hon. Lady made one or two other points, which I hope I can deal with. She wondered whether the clause needed to be amended so that it referred to both the RMPP and the new public scheme. Clause 19(3) makes it clear that the relevant pension provision covers both the RMPP and the new scheme, and I hope that that reassures her. 

The hon. Member for Middlesbrough South and East Cleveland was worried about ill-health early retirement and a deal with unions, and I hope that I reassured him about that in our discussion about the very broad definition. Members already have an entitlement to early retirement under the RMPP and they will continue to have that, whether on ill health or other grounds. To the extent that there are agreements with Royal Mail on redundancies, made perhaps with the CWU, that are not within RMPP rules, that will remain an issue for Royal Mail in negotiations with the CWU, as I am sure the hon. Gentleman would expect. If he would like me to, I am very happy to clarify that and any other worries or concerns that he might have. I can assure him that we are trying to mirror the protections and, indeed, strengthen them. 

I think that I have answered all Opposition Members’ questions, and I hope that they feel able not to press the amendments. 

Nia Griffith:  The key issue is ensuring that no one is disadvantaged. We take sincere note of the Minister’s words about the clause perhaps being broader and covering some of the people whom we include in our amendment. There is no way that we would want to leave any one out, or create a worse situation. I think that the Minister is putting on the record a commitment to ensuring that the categories in our amendment are not be left out, and saying that the clause is phrased broadly and therefore covers more contingencies. In that respect, I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Question proposed, That the clause stand part of the Bill. 

The Chair:  With this it will be convenient to discuss new clause 10—Protection for certain members and prospective members of the RMPP —  

‘(1) The Secretary of State may make regulations for the purpose of securing that— (a) no qualifying member of the RMPP is placed in a worse position by reason of—(i) any winding up, in whole or in part, of the RMPP; or(ii) any amendment of the RMPP which results in benefits under that scheme being reduced, or contributions by employees being increased, and is made otherwise than in such circumstances as may be prescribed;(b) no person who is an active member of the RMPP or who could be an active member of the RMPP upon the attainment of a specified age or upon election to be such a member is prevented from becoming entitled to or continuing to participate in or acquire pension rights under the RMPP by reason of any change of employer—(i) which does not affect his continuity of employment and is made otherwise than in such circumstances as may be prescribed; and(ii) where his new employer either is a participant in the RMPP or is wholly owned by one or more companies which, or each of which, is such a participant; and(c) no person is placed in a worse position by reason of any change of employer of that person which does not affect his continuity of employment but prevents him from continuing to participate in or acquire pension rights under the RMPP.’.

11.30 am 

Nia Griffith:  The clause as a whole is about protection against adverse treatment. I would like to explore a number of issues with the Minister, and perhaps he will be able to put some reassuring detail on the record. 

On pensioners and deferred pensioners, by and large the value of their transferred entitlements should not cause any great complications, because those entitlements are already determined at the point of their retirement or departure. One issue that needs to be considered is the basis on which pensions are increased. Will that be in line with the retail prices index or the consumer prices index? The Government have already said that other public service pensions will be indexed to the consumer prices index, not the retail prices index. 

The members’ guide for sections A and B of the Royal Mail pension plan states that pensions are increased in the same way as official pensions and when that switches to the CPI, the CPI will apply to those two parts. The guide to section C states that pension increases will be in line with the RPI, capped at 5%. Will the Minister clarify how exactly those pension increases will be dealt with? Clearly, people will ask that question and will want to know exactly how their pensions will be calculated in the future. A number of pensioners’ organisations are already concerned about the effect of that change from RPI to CPI, and they will be concerned for a number of years because the cumulative effect will be significant. Two systems are operating, and it would be helpful if the Minister gave us some clarity on the thinking on that and how it will be taken forward. 

When it comes to the active members, the calculations on entitlements are slightly more complicated. The entitlements for active members will be divided at the specified date, but it is not as simple as saying that everything earned up to a point is paid by the state and that everything after that is paid by the RMPP. At the specified date, the entitlements of active members will be calculated as if they were early leavers and left the

RMPP immediately before the split. The Government will pick up the early leaver entitlements and the RMPP will pay everything else. 

Provided that the package of benefits is the same, no value is lost. That means that part is paid by the Government and part is paid by the RMPP. Some enhanced benefits need to be based on all service, however, and all benefits need to be based on salary on the date of retirement or leaving. The detail of the division and the arrangements for ensuring that the overall package is the same will, no doubt, be spelled out in legislation and in the revised rules of the RMPP. 

What steps will the Minister take to ensure that the overall package is the same and what consultation procedures will he use? Does he envisage any particular areas of difficulty, where it might be necessary to make some compromises or changes? Will he ensure that the arrangements do not, in any way, leave anyone in a detrimental position? 

Mr Davey:  To ensure that I can be of assistance to the hon. Lady, would she repeat some of that? What exactly does she want consultation on? 

Nia Griffith:  Can the Minister explain to us what will happen for active members, where part of their pension entitlement will be paid by the Government and part will be paid by the Royal Mail pension plan? Some enhanced benefits need to be based on all of a member’s service—including previous service—but all benefits need to be based on their salary on the date of retirement or leaving. I assume that there will be more detail in the legislation and in the revised rules of the RMPP, but what steps is the Minister taking to ensure that the overall package will be the same—in other words, that somebody will not lose out because of the transfer or because their final salary is not taken into account? That is the key issue. Does he see any areas of difficulty or areas where that might not occur? 

The background to this is that most of the pension entitlements of RMPP members are based on their final pensionable salary. For deferred pensioners, that means their salary at their date of leaving, which is what the new Government scheme will pay. For example, if a member has 10 years of membership at the split and earns £25,000 now, his or her early leaver’s pension is 10 sixtieths of £25,000 and will be paid in about 30 years’ time. Between now and retirement, it will increase in line with inflation, capped at 5% for members of section C. 

At retirement, however, that member’s pay will have increased in line with pay inflation and not with retail price inflation. Given people’s usual progress in their job and taking promotions into account, pay inflation is often reckoned to run about one percentage point ahead of prices. In other words, a member’s pay inflation is likely to be higher than price inflation, and there is a common argument that we have heard about on whether final salary schemes are affordable. 

The growing gap between the value of the deferred pension, which increases in line with prices, and the pension that would have been paid, which increases in line with salary, is called the salary link. The previous Government gave the assurance that the cost of the salary link would be met by the RMPP and not by the Government. Of course, there could be a very

different scenario, under which the salary link would go altogether, so that pensions at the date of the division are effectively frozen and receive only the minimum statutory increases that have to be given to deferred pensions. 

The Minister will see why I am raising this concern, and I would be grateful if he enlightened us about his thinking so far. What does he understand the plan is in this respect? Will there be a commitment to the programme that we envisaged in government, or has it been left as a blank space on which different ideas might be brought forward? I hope that he will give us some reassurance on that point and put his answer on the record. 

On the situation about enhancements paid in ill health and redundancy cases, such enhancements are payable to active members, but not to early leavers. Early leavers receive an immediate pension if they have to retire on ill health grounds, but they receive no additional service credits. Therefore, if members are made redundant or retire early on ill health grounds in the future, the pension that they will receive from the Government for service before the date on which the pension scheme is divided will not be enhanced. 

The previous Government stated that such additional benefits—for members who retire on redundancy or ill health grounds—would also be paid by the RMPP, meaning that service accrued before the date of the split would be counted when calculating additional service credit. What reassurances will the Minister give us that all service will be counted when calculating additional service credits in ill health and redundancy cases? In other words, will the fact that people have worked for many years be taken into account, or will it be thrown to the wind? 

Those are the questions that people will be asking about the split-up of the pensions. Will everything that they have done until now be safeguarded, or will there be a little clause that they will not know about or will not understand? It never occurs to people to look at such things until they are hit by ill health or something similar, or until they look at the detail of their final salary scheme. Many people will be transferred, and we need assurances that they will not miss out. I would be grateful if the Minister gave some guidance in response to those questions. 

I will spare you the ordeal, Miss Begg, of listening to me read new clause 10 aloud. Members of the Committee can read it at the end of the amendment paper. The Bill provides for the transfer of past service liabilities to the state where they are effectively guaranteed, but future service rights are not protected in any way. The Government could not realistically allow Royal Mail to go bust, so, at present, future service rights are protected. Following privatisation, however, they will be at risk in two ways. First, the new private employer could go bust or run into financial difficulties. Secondly, if the service rights are transferred, or transfer voluntarily, from one Royal Mail company to another, they could lose out financially. 

Under the current RMPP, if a member transfers their pension scheme membership, it can be counted as continuous and there should be no change whatever to their benefits. Under a post-privatisation transfer, when the RMPP will be sectionalised or bits of it will be floated off to form another scheme, a member’s accrued

rights will be converted into a notional capital value—called a cash equivalent transfer value—which will be paid to the trustees of the new employer’s scheme, and it may be used to pay money purchase benefits or may be converted back into a period of years and days of notional service in the new scheme. 

Either way, the member is likely to lose out, because the money purchased benefits are not necessarily as good, and the period of notional service is, as a result of assumptions made about the salary in the process of conversion and back again, almost always smaller than the actual service in the first scheme. Those are considerable and genuine concerns. The splitting up of subsequent transfers is of as much concern as the initial division. We have discussed the potential for Royal Mail to be split up and sold in different parcels, and that could happen during the initial sale or later on. 

The new clause is modelled on the protection given to employees in the railway and electricity industries when they were privatised. Their pension schemes were sectionalised in the same way as that proposed for the RMPP, with one section for each employer. They were given two protected person rights, and the new clause seeks to achieve the same protection for RMPP members. 

First, they were given an unrestricted right to remain in their existing scheme or an equivalent one if they transferred from one electricity or railway employer with no break in continuity of employment. Secondly, they were given protection so that their future service rights would be at least as good as the benefits provided by the pre-privatisation of the electricity supply and British Rail schemes. The new clause would not protect new entrants to the industry. Only members who were in the RMPP, or who were in a waiting period before they could join the RMPP, would be covered. 

11.45 am 

Proposed new subsection (1)(a) says that qualifying members of the RMPP—to all intents and purposes, active members of the RMPP at the time of privatisation—cannot have their future benefits worsened if their section of the RMPP is wound up. What that has meant in the railway and electricity industries is that people were transferred to another company in the same industry with their accrued benefits intact. In other words, it is as if they had not had to make that transfer. Proposed new subsection (1)(a) also says that no amendment that would reduce members’ right to acquire benefits in the future or increase their contributions may be made to the RMPP. 

Proposed new subsection (1)(b) says that active members of the RMPP and Royal Mail employees who are in a waiting period, or who have an unrestricted right to join, must, provided that their continuity of employment is unbroken, be given the right to retain their RMPP membership if their employment transfers to another participating employer. Proposed new subsection (1)(c) says that if their employment is transferred to another employer that is associated with the first employer without breaking continuity, and the new employer does not participate in the RMPP, they must be provided with benefits that are no worse than the benefits under the RMPP. 

Lord Clarke tabled a similar new clause in the debate on the previous Bill. The then Government said that the

clause was unnecessary because people would remain members of the same scheme—the RMPP—unlike what happened with the railway industry, where the old scheme was scrapped and a new scheme created. Lord McKenzie said that protection against winding up or worsening future service benefits was not necessary because the RMPP would not have been able to be wound up or worsened without trustee consent. In a part-privatised industry, those arguments have some force, as the state would still be able to dictate pension scheme membership and dictate that employees remain members of the RMPP. However, with total privatisation, an employer could go bust or be in such a precarious position that the trustee would have to agree to amendments to worsen benefits. There is also nothing to prevent new employers from opting out of the RMPP altogether. 

Under the previous Bill, the employer would remain the same, and all the employers would remain at least partly owned by the state, whereas in the case of the railways, employees were transferred to new employers. Under the current Bill, employees may have new employers, and there is no guarantee that the new employers will remain associated with, or still be in, the RMPP. Nor will there be any provision to ensure that members who transfer, or who are transferred, within the industry will be able to transfer pension rights without loss of benefit. 

Mr Davey:  I am listening to the hon. Lady intently, and I think that she is making a mistake in assuming that somehow the state owns the RMPP. The RMPP is a trust where the employer, Royal Mail, puts in money for its employees, and negotiations happen between the company and the trustees. The Government do not control or own those schemes, which is why we are having to have the provisions in the Bill. 

Nia Griffith:  As the RMPP is essentially a scheme that was paid into by, and benefited, people who are employed in an industry in which the Government had a large stake, the assumption is that there would be some guarantee and backing, in the same way as that pension deficit coming over to the Government. Again, there is a feeling that that would be backed. 

When things are completely privatised and we see fragmentation and fractionalisation, it will be a much more tricky situation. The options that have been made available for those working in the railways and the electricity companies could be looked at very carefully and perhaps something similar could be drawn up for Royal Mail. 

Mr Davey:  We are talking about the legal position here. The legal position is that the RMPP is not owned by the state. It is a separate trust operated by the trustees. The hon. Lady is missing that legal point. 

Nia Griffith:  I accept what the Minister says about the legal point, but the issue is to do with how things are funded. We are talking about a situation where there could be considerable pressure to cut down on pension costs. We have looked at the Government taking over pension costs, but we are looking at a situation here where reductions have to be made and there may be a temptation to make less favourable conditions apply. That is the situation. I am not saying that it is legally the

case; the Minister makes the legal case perfectly clear. That is perfectly acceptable. I am simply saying that in an industry with much larger public involvement, there may be a tendency to ensure that there is no pressure to make any detrimental changes. 

Mr Davey:  I want to make two points. We have to see the matter in the context of the wider policy point. First, we are leaving the scheme fully funded. That is why Jane Newell, the chairman of the RMPP trustees, made it clear that it was going to be a much smaller scheme that was much easier to manage and so much more affordable. Secondly, the hon. Lady suggests that there is the danger that, post-privatisation, the Royal Mail will somehow go bust. Because we are taking decisive and comprehensive action to secure Royal Mail’s future, the company will be sustained to ensure that the universal service is provided for the economy and that there are jobs in Royal Mail. 

Nia Griffith:  I am perhaps giving the benefit of the doubt in respect of that being the only circumstance in which such a thing would be done. But I did hint, rather gently, that there might be other reasons why there would be pressures to change the pension arrangements. 

It is important that some protection should be offered and it would be helpful to know whether there is a scheme that could assist if there were transfers into other companies, because that is one of the big worries. It may look rosy on the surface because the scheme is going over to the RMPP, and everything is put right and sorted at the beginning, but there may be subsequent changes and different groups may split off. 

There could be some detrimental effects. There could be all sorts of other pressures that may mean that people will want to alter the type of scheme that is available. That is the real point. Once this has transferred, what will happen if there are subsequent splits and people move from one scheme to another? On that note, I conclude my remarks. 

Mr Davey:  The hon. Lady has made a series of comments and I hope that I can address all of them in turn. Should I fail, I will write to her, but I may make quite a long contribution because there are a lot of important points. She has done a very good job in probing the Government on this area. 

I shall start with new clause 10, which is intended to provide security for the pension arrangements of current active members of the Royal Mail pension plan. As the hon. Lady said, it is identical to a new clause that was tabled in the other place by Lord Clarke during consideration of the 2009 Postal Services Bill. We think that this new clause goes well beyond the commitments that the Government have made to secure the accrued pensions rights of members of the RMPP and will provide its members with a new right that they do not currently have. 

Moreover, the new clause goes beyond the protections afforded to all employees of employers with occupational pension schemes; it is important that the Committee understands that it goes way beyond the norm. In particular, the new clause would allow the Secretary of State to make regulations that would, first, wholly protect members’ rights in the event of the RMPP partially or fully winding up; secondly, restrict the ability of the RMPP to reduce benefits, whether related to past

or future accruals, or to increase contributions paid by members; and, thirdly, restrict the effects that any transfer of employment might have on a member’s continuing pension arrangements. 

Our debates on the amendments to part 2 of the Bill have been well informed, and during those debates we have been united on many key principles—not least because this part reflects the equivalent part of the 2009 Bill. I shall reprise those principles. We have been united on the importance of timely and effective communication with members and of avoiding any inadvertent consequences when liabilities are transferred to the new public scheme. We have also been united on the fundamental role that trustees have in protecting members’ interests and the corresponding obligation on Government to working in partnership with the trustees to implement our proposed changes. Perhaps most importantly, we have been united in placing at the very heart of the pension solution the protection of existing rights, which members have worked so hard to build up. 

I cannot agree that it is right to constrain future pension arrangements agreed between a sponsoring employer and the trustees of the scheme. That is currently an operational matter for the Royal Mail board, and it must remain so in the future for the Royal Mail section of the plan. Post Office Ltd will, of course, become responsible for its own section of the plan. 

I hope that we can all agree that the provisions set out in part 2 of the Bill will put the RMPP in a vastly stronger position. First and foremost, the deficit of £8.4 billion will be assumed by the Government. Secondly, the new public scheme will take on the vast bulk of the historical liabilities, leaving Royal Mail with pension obligations that are proportionate to its size and fully funded. As a package of measures, those proposals not only safeguard the historical benefits that members have accrued, but significantly increase the viability of the scheme in the future. The scheme’s members will benefit from a stronger employer that is much better equipped to meet the costs of providing pension benefits for its employees. 

New clause 10 goes significantly beyond Government policy and constrains the employers from making changes to the scheme in the future. As I explained during debate on amendment 42, the details of future pension arrangements are not necessarily matters for employers, trustees and members. Constraints on any future changes that might be made to the RMPP would apply regardless of economic conditions and changing commercial circumstances. Such constraints would be a significant burden on the employer. 

I hope that hon. Members will bear in mind that there is already considerable protection for final-salary pensions. Labour Members can take pride in having introduced many of those safeguards: the statutory employer debt legislation that offers protection in the event of an employer’s withdrawing from a scheme; the pension protection fund that provides a safety net in the event of insolvency; and the pension regulator that exists to protect member benefits and maximise employer compliance. 

Those protections and benefits are, of course, widely available in the economy, but my point is that they will be available to members of the RMPP in the future.

Those bodies and those measures ensure that occupational pensions are protected in a proportionate way. In all that protection, it is recognised that employers need to be able to balance their future pension provision with other commercial concerns. 

As I said during our debate on amendment 42, implementing the provisions set out in part 2 of the Bill will not change the protections that RMPP members enjoy with regard to the winding up of the plan. The company has no power to wind up the scheme and would need the agreement of the trustees to do so. The Government’s intervention will not change that. 

12 noon 

I now come to the points made by the hon. Lady; I hope that I can reassure her. She made several comments about the recent move from the consumer prices index to the retail prices index in public sector plans, and she was concerned about the implications for the RMPP. 

First, the Government’s intention is that there should be no change for members in terms of indexation as a result of transferring from the existing RMPP. The rules of the older sections of the existing RMPP are closely related to the public sector schemes, to the extent that those sections automatically track the move to the CPI for public sector schemes. They will continue to do so after moving to the new Government-backed scheme. Wherever they are in the existing or new scheme, the changes will have occurred anyway. 

Some of the rules of the RMPP provide expressly for increases to be applied in line with the RPI, but capped at 5% in certain circumstances. They will continue to be applied after the transfer to the new scheme. The recent changes around the RPI are therefore unrelated to the Postal Services Bill, and the trustees made that clear in a recent newsletter to the scheme’s beneficiaries. The hon. Lady referred to the different parts of the pension plan—sections A, B and C. Sections A and B will broadly shift to the CPI. She knows show complicated this is. Section C would remain linked to the RPI, because it is expressly subject to the 5% cap. I hope that that reassures the hon. Lady. In no way does the Bill make any changes to that. 

The hon. Lady was worried overall about the split and its implications. She asked how we will ensure that active members receive their full entitlement, because of the splits and complications. I have to go back to clause 19(2). I have done so on several occasions during our exchanges. Clause 19(2) includes salary growth for active members, so it requires us to ensure that members do not lose out on the salary link. It sometimes looks as if our proposals are quite complex and technical, but they are relatively simple compared with the way in which many occupational pension schemes are administered. 

Many schemes have changed the way in which benefits accrue over time—for example, by changing accrual rates or evaluation measures—and many have an underpinning arrangement relating to the guaranteed minimum pension. That means that in many such schemes, there are multiple blocks of separate benefits that need to be calculated and aggregated before payment. That is effectively how we intend the process to work for active members of the RMPP. 

We intend that members will receive one cheque, albeit in respect of separate blocks of benefit. Indeed, that already happens in the RMPP—for example, when members have a block of service accrued on a final-salary basis and a block of service accrued on a career-average basis. The scheme administrators calculate two separate benefits that are added together before payment. There are complexities, but administrators take care of it in a way that assists scheme members. 

The hon. Lady asked specifically about the salary link and how it relates to pay inflation. The March 2009 RMPP valuation made an assumption on future salary growth above inflation. That is a requirement of a triennial valuation—a number of assumptions are made about future salary growth. It equates in value to about £1.5 billion of liabilities. As I have said on a few occasions in the past, the plan is to leave assets to match that liability. Of course, when we go forward, decisions on actual salary growth will be a matter for Royal Mail, as it is now. The Government can ensure only that the scheme is fully funded at the point of transfer. It would be odd for the Government to take on liabilities for salary decisions to be made for a future Royal Mail. The previous Labour Government did not take that view and nor do we. 

The hon. Lady made a number of points about what happens if an employee leaves Royal Mail and goes to another employer, and how that will affect the pension. As discussed, creating a separate section for POL employees is covered by clause 19, so she can rest assured about them. In future, a member of the RMPP wanting to transfer between POL and Royal Mail would be an operational matter for the two companies. A member leaving the RMPP when moving to another employer is a matter for the individual employee, as it is now; there is no change. The rights in RMPP accrued by the employee until the transfer of employment are protected. That is the normal way in which occupational pension schemes operate. 

The hon. Lady asked specifically about taking account of service when someone is ill and has to retire on grounds of ill health. That, again, is protected by subsection (2), which is probably the part of the Bill that I refer to most, because it is so important. 

The hon. Lady referred back to how the railways pension plan was constructed when the railways were privatised. She wanted to know whether there could be similar protections in the Bill. The two processes, however, are quite different. The proposed Government support for the Royal Mail pension plan is pretty unique—we can all agree on that—and is not comparable with how previous Governments supported pension schemes such as the railway one that was mentioned. 

The protection provided to employees of the railway industry at privatisation, back in 1994, was in different circumstances. The historic British Rail pension scheme was abolished and replaced, as I think the hon. Lady said, with a new industry-wide scheme. In addition, employees were transferred from British Rail to a new employer, one of the newly created private-sector rail companies. Neither of those changes applies now. 

The Government are not proposing any changes to the RMPP, apart from making it smaller. Royal Mail will continue to be the sponsoring employer of the scheme, together with Post Office Ltd, and that is a big difference. In 1994, too, pensions legislation contained

limited protection for members in the event of a winding up of their pension scheme. Far greater protection has been put in place since then, in particular by the Pensions Acts of 1995 and 2004. The hon. Lady’s example, therefore, although important for the debate, should not change how we approach the issue, because of the different circumstances. 

I think that I have covered all the points made by the hon. Lady; I certainly see no other pieces of confetti before me, so the inspiration that a Minister can receive on such occasions must no longer be required. I hope that we have covered all the detailed points. As I said clearly, if she wants to come back on anything of substance, now or afterwards, I will be happy to put things on the record or to clarify them in writing. However, I hope that she will withdraw new clause 10 and that clause 19 will stand part of the Bill. 

Nia Griffith:  The Minister has certainly allayed some worries. It is a momentous time for people, and they will be particularly concerned about how having the two parts of their pension in two different places will work. They will be worried about what might happen further down the line—there might be more than one event or privatisation and other fractionalisations and different arrangements might come along, or there might be different types of organisations. Certainly, some things need to be considered, and the Minister has made a number of helpful points. However, I have reservations, and some areas are still difficult to cover, perhaps because, as the Minister has pointed out, it might not be easy to indicate what one private scheme can do with another private scheme further down the line. There are some difficulties. 

On that note, we have had a very full debate, and I will therefore not the press the matter. 

Question put and agreed to.  

Clause 19 accordingly ordered to stand part of the Bill.  

Clauses 20 and 21 ordered to stand part of the Bill.  

Clause 22 

Taxation 

Nia Griffith:  I beg to move amendment 100, in clause 22, page 12, line 18, at end insert— 

‘(5A) Regulations shall be made under this section that shall ensure that, for the purpose of any relevant tax, benefits payable or prospectively payable under—(a) the RMPP and(b) a new public schemeare treated as benefits payable under a single pension scheme.’.

As this issue is neither long nor complicated, I hope that the Minister will be able to deal with it in a straightforward manner and that we will all agree on it. It is a technical issue, but it is, I hope, not controversial. 

Members of a registered pension scheme are entitled to convert part of their pension into a tax-free lump sum, through a process called commutation. In broad terms, the amount that can be converted is about 25% of the total value of the member’s benefits. The maths might be more complex than that in a final salary scheme, and I will not go into the detail here. If a member has benefits under two registered pension schemes, they can convert only 25% of the benefits held in each and, because of how the maths works out, that can be less than 25% of the total benefits. What can the Minister do to ensure that a new public sector scheme and the

RMPP are treated as a single scheme for the purposes of commutation, so that the total lump sum is greater than if the schemes are treated separately? He might simply tell me that the Bill allows tax rules to be adjusted to fit the circumstances of the RMPP and a new public scheme, which is true, but we want to ensure that the commutation issue is not missed. 

I would be grateful if the Minister considered the amendment and spelled out the assurances that people want on such an extremely important issue. The lump sum is of immense importance, and people are concerned that all the years that they have put towards accumulating their pension are not wasted, and that they do not end up with less than they had hoped for because the amount is suddenly diminished because of the split between two schemes. We want an assurance about how the rules will apply and about what people will be able to do in order not to be disadvantaged when they look to convert part of their pension into a tax-free lump sum. 

Tom Blenkinsop:  Given that the total gained by an individual from the two pension schemes can be affected in that way, people will be pushed towards the option of a smaller lump sum and greater monthly pay-outs. That can affect people who have ill health, because if their life is limited, they are prevented from getting a better lump sum, compared with other people who can retire in their 50s or early 60s and take a smaller lump sum for a larger monthly payment. 

12.15 pm 

Nia Griffith:  Everybody’s personal circumstances are different, and there are significant decisions that need to be made on pensions and lump sums. As my hon. Friend has pointed out, that can be poignant for some people, because they may not live that long and may have to make appropriate arrangements for their situation. Those are the issues that people will worry about, and they will want some reassurance. I hope that the Minister will give that reassurance, because we do not want anybody to be disadvantaged by the enactment of the Bill, which splits up the two pension schemes. 

Mr Davey:  Again, I thank the hon. Lady for creating this debate, because it enables the Government to reassure her and the members of the scheme by putting on record the protections that we are putting in place. What we have done on this problem is an improvement on the 2009 Bill, because we learned from the debates during that Bill’s consideration in the other place. 

Amendment 100 would require the Treasury to make regulations to ensure that, for tax purposes, benefits paid out of the RMPP and the new public scheme are treated as if they were paid out of the same pension scheme. The hon. Lady has explained why she feels that that is important, but I assure her that the amendment is unnecessary. During the debate on the 2009 Bill, similar concerns were raised that splitting benefits between the new public scheme and the RMPP would mean that some members would not be able to take as much of their additional voluntary contributions in a cash lump sum, which would have been the case had all their rights remained in the RMPP. In response, we have added a

provision to the Bill to ensure that members will still be able to take as much of their AVCs in cash as they can today, despite having the benefits in two separate schemes. I refer Members to clause 16, which states: 

“A new public scheme may…include provision for the transfer of money purchase benefits under the RMPP into the scheme (whether or not the contributions to which those benefits are attributable are made before or after the qualifying time) and the conversion of those benefits into benefits under the scheme.” 

To put that in a different language, it allows for the transfer of money purchase benefits from the RMPP into the new public scheme. That is designed to allow RMPP members who have made additional money purchase of AVCs to transfer a portion into the new Government scheme immediately prior to retirement to ensure that all relevant rights are contained in the same pot for tax purposes. The Government prefer the flexible approach of clause 16 to the rigid requirements of the amendment, which would oblige the Treasury to make regulations to treat the benefits as payable under a single registered pension scheme, whether or not those regulations were the best way to resolve the issue. 

The amendment has the additional drawback of attempting to create the illusion that the benefits of the two schemes are paid out of the same registered pension scheme for tax purposes. As each registered pension scheme has to appoint a person responsible for its tax issues, the amendment would introduce unnecessary confusion on who is responsible for payment, without providing any additional advantage over the provisions in clause 16. The Government think that clause 16 is the best way in which to deal with the tax consequences for members who have entitlement under two pension schemes as a result of the new organisation planned under part 2. I hope that I have reassured the hon. Lady. Once again, we are attempting to protect members’ benefits in as comprehensive a way as possible, so I invite her to withdraw the amendment. 

Nia Griffith:  I have listened to what the Minister had to say and have taken on board what he said is included in the measure. I am still to be convinced that things will run all right on the day, but if clause 16 includes the necessary provisions, rather than introducing a complicated additional taxation clause, I accept his comments. I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Clause 22 ordered to stand part of the Bill.  

Clauses 23 to 26 ordered to stand part of the Bill  

Clause 27 

General authorisation to provide postal services 

Nia Griffith:  I beg to move amendment 71, in clause 27, page 14, line 30, leave out ‘may’ and insert ‘will’. 

The Chair:  With this it will be convenient to discuss the following: Amendment 72, in clause 27, page 14, line 31, leave out ‘may’ and insert ‘will’. 

Amendment 85, in clause 34, page 19, line 17, leave out paragraph (b). 

Amendment 51, in clause 35, page 19, line 35, leave out ‘may impose a designated USP condition on a

universal service provider’ and insert ‘must impose a designated USP condition on all designated universal service providers’. 

Amendment 52, in clause 35, page 20, line 9, leave out ‘may’ and insert ‘must’. 

Amendment 53, in clause 35, page 20, line 9, leave out ‘only’. 

Amendment 54, in clause 35, page 20, line 23, leave out ‘may’ and insert ‘must’. 

Amendment 70, in clause 38, page 22, line 33, leave out ‘may’ and insert ‘must’. 

Amendment 62, in clause 46, page 28, line 36, leave out ‘may’ and insert ‘must’. 

Amendment 50, in clause 47, page 29, line 22, leave out ‘may’ and insert ‘must’. 

Amendment 63, in clause 49, page 30, line 33, leave out ‘may’ and insert ‘must’. 

Amendment 65, in clause 50, page 31, line 35, leave out ‘may’ and insert ‘must’. 

Amendment 66, in clause 50, page 31, line 45, leave out ‘may’ and insert ‘must’. 

Amendment 55, page 90, line 21 [Schedule 8], leave out ‘may’ and insert ‘must’. 

Nia Griffith:  I want to discuss this large group of amendments—some of the amendments relate to other clauses. My explanation of the amendments will be complicated, but I hope that we shall be able to make some progress. Part 3 of the Bill is important. We recognise the role that regulation will play in respect of a privatised Royal Mail, and we want to ensure that this part of the Bill will be as robust as possible. We heard representations in our evidence session with Consumer Focus about its concerns and how it considers that the word “must” should be used in several provisions, not the word “may”. Opposition Members share that feeling, and suggest that there is great fluidity and rather too much wriggle room as a result of which Ofcom could decide to put several issues to one side and not necessarily be indulgent in following each one through. 

A phrase including the words “may be” means that issues will be followed up only if regulators have the time, if they want to do certain things and if they have the resources, but that it not good enough, because we want the provision to mean “must do”. As a result, no matter the resources, the time or personnel constraints, there has to be a priority and a way in which to ensure that the provisions are then carried through. Otherwise, regulators will be able to wriggle off the hook and say that the legislation stated that they only “may” do such and such, and that they were under no compulsion to carry out such tasks. In particular, if pressure came from a privatised monopoly, which, in some instances, is what they would be dealing with, there could be considerable pressure to drop certain requirements, because the company did not want to deal with them itself. 

From the evidence sessions and the Hooper report, we understand that there is a definite reason for the move to Ofcom and that that should prove to be a much more successful relationship than that with Postcomm. Being a small regulator dealing with one company, Postcomm experienced difficulties, which was unsatisfactory. Ofcom, however, has assured us that, with its broader outlook of effective regulation of other great and good

organisations, it has more of an outside view, and it should, therefore, be stronger. 

Nevertheless, rather than leaving everything a little bit open and fluid, there are many amendments where a “must” would add some bite and give Ofcom the extra bit of oomph that it needs to be able to say, “We, as an organisation, have to do this. You have no choice, Royal Mail. We are going to tell you x, y and z.” 

I will begin by discussing amendments 71 and 72. Clause 27 enables a shift from a licensing regime, as established by the Postal Services Act 2000, to a new regulatory framework based on general authorisation, which is a significant difference and gives things a different feel. It means that providers will be able to provide postal services without applying to the regulator for a licence, but they 

“may be subject to regulatory conditions”. 

Those conditions are important, because it will not be a matter of having to pre-comply in order to get a licence; it will be a matter of complying with the conditions. 

In the light of that move away from a licensing scheme, the role of the regulator assumes greater importance. The regulator must have the necessary tools to do the job properly and to designate and impose appropriate regulatory conditions. The clause allows for conditions to be imposed on many areas, and several of our amendments seek to strengthen the requirement for regulation in those areas. As those areas are expanded upon elsewhere in the Bill, some of the amendments that have been selected for discussion refer to clauses further on in the Bill, and I will address some of those shortly. 

The types of conditions that can be imposed are: 

“(a) a designated USP condition (see sections 35 and 36),(b) a USP access condition (see section 37 and Schedule 3),(c) a USP accounting condition (see section 38),(d) a general universal service condition (see section 40),(e) an essential condition (see section 47),(f) a general access condition (see section 48 and Schedule 3), and(g) a consumer protection condition (see sections 49 and 50).”

In the light of the shift from licensing to general authorisation to provide postal services, our amendments to clause 27 are about strengthening the regulatory framework. It is apparent that if Ofcom is going to be able to do a thorough and meaningful job, it needs the strongest possible framework in which to work. Everyone—our witnesses, Hooper and the previous Government—agrees that the relationship with Postcomm was unsatisfactory. It has been noted that it was difficult for a regulator to regulate one provider. 

12.30 pm 

In an oral evidence session, Ofcom informed us that it had much greater breadth of experience, which enabled it to be a stronger regulator. It was able to take a broader view, bring in its experience in dealing with other service providers and maintain a greater distance from Royal Mail. Ed Richards told us that there were “Quite a number” of advantages to Ofcom taking over that work. He said: 

“I think that, over many years, experience tells you that single-company regulators find life really hard. It is not anybody’s fault; it just creates a situation that is very tough. We regulate a lot of very big and powerful companies, all of which you will be familiar with, so I will not name them all. One of the virtues of that is that

I can have a difficult conversation with, or we can make a difficult or uncomfortable decision for, certain corporate interests one day, but we move on to something else the day after. It just makes the whole environment more manageable, and I would envisage our relationship with Royal Mail and, indeed, any other postal operators being of that nature. That is the first reason. 

The second reason is that we have currently sufficient scale, as an organisation, and sufficient complexity and range of interesting issues to be able to attract very high quality people to work at Ofcom. That makes a huge difference when you are arguing detailed economic and legal issues with some of the most well-resourced companies not only in the UK and Europe, but in the world. If we cannot do that, and if any regulator cannot do that, you can forget it. 

The third reason is that we know about network industries, and this is a network industry. We know about telecoms. We know about broadcasting. They are obviously different, but there are similarities in how you think about the underlying economics in particular. 

The fourth reason why I hope we can bring something useful to the table is that, in all of the areas that we regulate at the moment, we have to blend and balance both economic regulatory objectives and social objectives.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 44-45, Q90.] 

Clearly, Ofcom is a more powerful organisation and is in a better position to deal with such regulation than Postcomm. Nevertheless, the first clause that covers the work that Ofcom will do includes the word “may,” which immediately weakens the strength that it would bring to such work. We have to get the framework absolutely right for it to do the job properly. We cannot expect it to do its job with its hands tied behind its back. That is why we have tabled amendments relating to the role of Ofcom, through which we seek to strengthen the language in the Bill. 

We fear that the use of “may” in many instances, including twice in the first relevant clause, gives a lot of wriggle room and might lead to important aspects of Ofcom’s role in regulating postal services being completely left to one side. There might be pressure from those it seeks to regulate—for example, they might say that they have difficulty in providing certain information. If the regulatory framework is only defined by the word “may,” it would be easy to put the requirements to one side and to persuade Ofcom that they are unnecessary. One can already hear the providers insisting that the requirements on them are far too great, and Ofcom would not be under any pressure to insist—it would be under no obligation to insist; it would simply have a framework under which it “may” intervene. 

That is why we have tabled amendments 71 and 72, which would change “may” to “will”, in which case clause 27(1) would read: “Persons may provide postal services without the need for any licence or authorisation, but the provision of those services by postal operators will be subject to regulatory conditions that OFCOM will impose on them under this Part.” That would mean that all of the subsequent paragraphs under clause 27(2) would have to be done, rather than being done if somebody felt like it. Establishing the role of Ofcom is an extremely important beginning to this part on regulation, which seems to be lacking in foresight. 

I want to address amendments 51 to 55 before moving on to the other amendments. The Bill suggests that the only requirement for a USP to publish information about its performance against specified standards comes from a designated universal service provider condition that Ofcom may impose. Amendments 51 to 55 would

ensure that Ofcom is required to impose a designated universal service provider condition on USPs and is required to designate one or more operators as USPs in order to ensure safeguards are in place in relation to access points. 

Damian Collins (Folkestone and Hythe) (Con):  I appreciate that those amendments relate to clause 27, but clause 28(1) states: 

“OFCOM must carry out their functions in relation to postal services in a way that they consider will secure the provision of a universal postal service.” 

Does the hon. Lady not believe that that “must” makes clear Ofcom’s obligations with regard to USPs? 

Nia Griffith:  We can further strengthen the Bill by ensuring that that provision is also in clause 27. If we want something to be done, it seems proper to be consistent. Clause 27 contains a number of provisions, some of which are not so strongly expressed as in clause 28(1), as the hon. Gentleman has rightly pointed out. All the provisions are important. They are part of a whole—they are part of a jigsaw—and it is for that reason that we want to make this Bill as strong as we possibly can. He is right that clause 28 provides a greater degree of strength. 

The purpose of the amendments is to ensure that Ofcom is required to impose a designated universal service provider condition on USPs and is required to designate one or more operators as USPs in order to ensure that safeguards are in place in relation to access points, standards of service and performance targets. The amendments would also ensure that Ofcom is provided with information from operators, which would allow it to monitor those crucial elements of service. Condition 4 of Royal Mail’s licence currently stipulates standards of service, monitoring and quarterly performance reporting of those service requirements to Postcomm and Consumer Focus—Royal Mail is also required to make those reports publicly available on a quarterly basis. In effect, we do not require something totally new; we require something that is currently provided—the information collecting is being done and the action is being taken. We want to ensure that that continues to happen, and that it is not put to one side. For example, the standards of service include statements that 93% of first class domestic mail should reach its destination on the next day, that 99.9% of delivery routes should be completed each day and that 99.9% of collection points should be served each day. We want such things to continue, and we want to ensure that the legislation is strong enough for that to happen. 

It is not only Ofcom that has a role here. Some of the legislation derives from EU legislation, and Ofcom will be using those directives in addition to any further requirements that we see fit to include. Articles 6, 16 and 19 of EU postal directive 97/67 relate to this matter. Article 6 stipulates: 

“Member States shall take steps to ensure that users are regularly given…information by the universal service provider(s) regarding the particular features of the universal services offered, with special reference to…prices and quality standard levels.” 

Such issues are important. We will return to the issue of price, because the recent news about a first class stamp going up to 46p has been a shock to some people who worry that privatisation might herald further increases.

They are particularly concerned because the requirements under the European legislation on uniform affordable prices are in fact, under European legislation, only on an affordable price. What exactly is “affordable”? Our users want a uniform price as well as an affordable one, so we will certainly return to that issue in more detail. 

To continue, article 16 of the EU directive states: 

“Independent performance monitoring shall be carried out at least once a year by external bodies having no links with the universal service providers”. 

Obviously, that is the framework in which we expect Ofcom to operate, and that monitoring 

“shall be the subject of reports published at least once a year.” 

The appropriate regulator should be able to assess how well universal service providers are meeting the standards of service requirements, in order to take steps to rectify any emerging problems, in advance of those problems escalating. In other words, we expect to have that information as well as proper reporting, so that the analysis can be made and the necessary steps taken, if it is found to be unsatisfactory. 

It is very important for consumers that there is transparency around what providers are doing and quality of service. It helps consumers see exactly what is going on—of course, that is not only for residential consumers, but for business consumers and their representatives, who should be able to access information about quality of service. Clearly, many businesses depend on a reliable postal service, and they want to know how the service is performing, what the universal service provider is doing rightly or wrongly and whether there are ways in which performance can be improved. Businesses will want to see those reports and have access to appropriate information, which Ofcom should be able to provide having received it from the universal service providers. 

12.45 pm 

The evidence that Consumer Focus provided to the Committee states: 

“Likewise, the only requirement for a USP to publish information about its performance in relation to specified standards comes from a designated USP condition. However, Ofcom is under no obligation to impose this condition, and indeed can only do so if it feels that it is necessary to do so to secure the universal service. Directive 97/67/EC [8] states that Member States shall ensure that users are given information, published in an appropriate manner, about the services offered, particularly prices and quality standards, by universal service provider(s). We believe that provision of information to consumers by the operators themselves is another basic safeguard that is sufficiently important to warrant inclusion as part of the minimum universal service requirement rather than being left to the discretion of postal operators.” 

Consumer Focus clearly sees this as a minimum universal service requirement and thinks that the provision of information to consumers is an important safeguard. 

Mr Davey:  The hon. Lady knows that I wrote to the Committee to reassure it over some of the points made by Consumer Focus. I want to make sure that things are as accurate as possible before discussing other clauses. For example, on the point that she is making, I refer to clause 36(1), which states: 

“A designated USP condition must include provision requiring the universal 

service provider concerned— 

(a) to publish information…and 

(b) to publish annually an independently audited performance report.” 

Those provisions will ensure that information is made available. 

Nia Griffith:  That is precisely why it seems strange to not have the provision in clause 27. There seems to be a number of other clauses where there is only the word “may”, and those are the ones where we have tabled amendments to suggest that the word should be “must”. As the Minister has pointed out, in clause 36, we have a “must”, which is also the case in clause 28 as the hon. Member for Folkestone and Hythe has pointed out. There are some “musts” there, but our point is that we would like to see clause 27 included, so that it is not a matter of, “We will have this, that and the other,” or “We will leave out some of the other bits, because they might be a bit more hard work, or cause a bit more aggro.” We want to have the full package, as laid out in clause 27, and we want to have the obligation on the regulator from the beginning. 

The situation is enhanced by later provisions, but there are some loopholes. That is why other amendments in this group relate to those clauses where there are loopholes. We would like to see much tighter legislation here, where we can get a clearer indication right from the beginning that the regulator is going to be powerful. The amendments that I have mentioned are important for the reasons that I have stated, and they preserve the vital levels of information that protect our service. The information may be lost if the amendments are not accepted by the Minister. If we have a “must” rather than simply a “may”, residential consumers, businesses and consumer watchdogs, which we hope will not be crushed up in the later stages of the Public Bodies Bill, will have their opportunity to see what is happening, in addition to the regulator of Royal Mail meeting the necessary statutory requirements and analysis. 

I am sure that the Minister agrees with me and my hon. Friends on the issue and that he understands the need for tighter regulation. He has rightly pointed out that there are already some “musts” elsewhere in the Bill, so he could quite happily accept one of the amendments to strengthen the Bill a little. 

Moving on to amendments 62, 63 and 50, amendment 50 is another “may” and “must” amendment, which relates to clause 47. It addresses the question of “Essential conditions” under clause 47. Clause 26 contains a list of conditions, but there has been some cherry-picking—some of the provisions later in the Bill have got “must”, while some only have “may”; we think that they should all have “must”. Amendment 50 changes the “may” to a “must” in clause 47. The essential conditions are imposed on postal operators in relation to mail integrity, and we feel that Ofcom should be required to impose essential conditions on postal operators. 

What do essential conditions do? They guarantee mail integrity—confidentiality, security and data protection. Many times we hear terrible stories about identity fraud and people’s details being stolen. One of the great things about Royal Mail at the moment is that tremendous integrity and security. People have great trust in Royal Mail, and we want to ensure that we have the strongest possible regulator input on essential conditions. Such things are an absolute minimum requirement for an operator providing a communications and logistics service. No one could possibly want to have anything to do with any service that was likely in any way to not have integrity, confidentiality and security on data protection. 

Condition 8 of the Royal Mail licence currently stipulates that all licence operators must comply with the Postcomm code of practice on protecting the integrity of the mail. The code of practice requires all operators to submit to Postcomm and Consumer Focus annual reports setting out the number of or, where precise numbers are not known, reasonable estimates of the number of code postal packets that were lost, stolen, damaged or interfered with, and details of any trends, patterns or other notable features, such as above-average incident levels at certain premises in relation to the loss or theft of, damage to or interference with code postal packets. All licence operators must also submit with each report a statement of the measures that they intend to take to remedy any failure or patterns of failure in order to achieve mail integrity objectives and to reduce the number of code postal packets that are lost, stolen, damaged or interfered with. 

That requirement is straightforward and basic, so for it not to be put in as a “must” is strange. We simply have: 

“OFCOM may impose an essential condition on…every postal operator”. 

Not to have so important a requirement seems peculiar, and I am reminded of that amazing, rather quirky and amusing little Norwegian film, which I am sure that the Minister has seen, about the postman who regularly takes his sack of mail and shoves it down a railway tunnel. If the Minister has not seen the film, I strongly recommend it—it has a real anti-hero feeling and is a sweet and irreverent piece. 

Mr Davey:  I hope that the hon. Lady will give the Committee a full reference to that film, because I am sure that we all want to watch it on YouTube or elsewhere. However, I am sure that she would not want to suggest that any Royal Mail employee would act in that way. 

Nia Griffith:  Absolutely not. I alluded a moment ago to the Royal Mail’s reputation and the tremendous confidence that people have in it. The film is particularly quirky, and I am sure that it is not representative in any way of the average Norwegian postman. The truth remains, however, that we are privileged in this country. We have an excellent Royal Mail service, and people are always amazed that packages with fragmented addresses arrive at their destination. There is an old joke about a Welsh village in which Dai the spy receives his package because the postman knows where he lives, but that example is on the other end of the scale. We respect our postmen and women, who do a fabulous job deciphering handwriting and so on. Their integrity and confidentiality are superb. 

We are entering a new phase with a privatised provider, and there is no reason why any provider that provides an excellent service should not want to boast about its good figures and how well it has done. In fact, nowadays, companies probably put things like “100%—nothing ever lost” on their websites and wave their flags. It is not extraordinary or unusual to ask Ofcom to look at the essential conditions. It is appropriate, and I hope that we will be able to convince the Minister that the essential conditions in clause 47 should become a “must” instead of a “may”. 

All licensed operators should submit with each report a statement of the measures that they intend to take to remedy any failure or patterns of failure to achieve their integrity objectives. That is the whole point of any sort of stock take, regulation or assessment. There is no point to it unless something is then done to put things right. It is similar to when Ofsted inspects a school—the action plan is what matters. That is what comes out of it and where one goes next, and that is exactly what we expect. The statement should say something like, “We didn’t do very well in a particular place and we have a problem in a particular depot, so we need to look at that and push on.” It is important that we receive the statement of measures of what the operators intend to do to remedy any failure, so that they will improve and not continue to perform at a low level. We want to know what they are going to do to reduce the number of company and personal packets that are lost, stolen, damaged or interfered with. We do not want complacency; we want to make things better. 

Article 5 of EU directive 97/67/EC on postal services stipulates that one of the requirements that the universal service provision should meet is 

“a service guaranteeing compliance with the essential requirements”. 

Residential and business consumers require that confidence in the integrity of the postal system or operator, and the EU requires it in its directive. It is therefore sensible that Ofcom should be obliged to do something about it rather than be asked to look at it if it is not too busy sorting out broadband or any of the other wonderful things that it does. We want a “must” that makes it an obligation. Leaving it to Ofcom to determine whether the essential conditions should be imposed on postal operators could lead to a significant unreported detriment and a lack of confidence in the postal system. We want to make sure that Ofcom “must” rather than “may” impose the requirement to produce that report. 

1 pm 

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

Adjourned till this day at Four o’clock.