Postal Services in Scotland - Scottish Affairs Committee Contents

Examination of Witnesses (Question Numbers 319-393)

Edward Davey and Mike Whitehead

15 December 2010

  Q319 Chair: Good afternoon, Comrade Minister.

  Mr Davey: Good afternoon, Commissioner Davidson.

  Chair: Commissar, I think. We notice that you have come with far fewer supporting staff than the regulators. We think that is an interesting point for us to be aware of. You're obviously confident enough not to need that degree of supporting staff.

  As you know, we are looking at the Postal Services Bill as the Scottish Affairs Committee, so we are particularly interested in the delivery of the Universal Service Obligation in Scotland and also the network of post offices; questions of ownership, pensions and so on we see as being UK responsibilities and not really our focus. The two particular areas that we are interested in are the universal service and post offices, which are what we will probably want to pursue most of all with you.

  Our concern first of all about the universal service is that although we see it set down in clause 30, clause 29(4) states that it is to be reviewed within 18 months. As you can imagine, that causes us some anxiety. Assuming the worst—usually a realistic position to take, because then you are not disappointed—we would envisage perhaps that Ofcom or someone else would then change that downwards. We have just had reassurance from the regulators that any change to the universal provision would need to come back to Parliament and be passed by both Houses as legislation. First of all, is that your understanding of the position?

  Mr Davey: Yes.

  Q320 Chair: Why is it necessary to have it reviewed after 18 months?

  Mr Davey: If it may help the Committee, let me explain the universal service requirements, their genesis and how they are structured. Hopefully, I will then be able to answer your question as clearly as possible.

  The universal service has three tiers. As you will be delighted to know, there is a European postal directive, which lists minimum requirements that universal service providers in member states have to provide. Those requirements are significantly less than we have in clause 30. Under the European postal directive, you only have to deliver five days a week, and there is no requirement for uniformity. As the previous Government did, and as has been the case in Britain for many years, we have gold-plated the European directive, so clause 30 sets out in law the minimum requirements that the UK Government have decided, which go beyond the postal directive.

  On top of that there is something called the Universal Postal Service Order. The order-making power is detailed in clause 29(1). The order mirrors the current framework from the 2000 Postal Services Act, which I think was referred to by Tim Brown. Under the 2000 Act, Royal Mail has a licence with Postcomm, and the conditions that would be in the Universal Postal Service Order are similar to the conditions in the current legislation for the Royal Mail licence from Postcomm. When you read "Universal Postal Service Order" in clause 29, you have to see a higher level of universal postal service regulation, which links into the current framework with the licence. To change the postal directive, there would have to be a new postal directive in Europe; and to change the minimum service requirements set out in clause 30 there would have to be measures in Parliament.

  Q321 Chair: When you say "measures", what do you mean by that? That wouldn't be just an order, would it?

  Mr Davey: Let me take you through that. Clause 33, entitled "Review of minimum requirements", basically sets out three safeguards. The first is that Ofcom would have to do a review of users' needs and make recommendations. The Secretary of State would have to accept those recommendations and decide that he wants to change the minimum service requirements. The Secretary of State would then have to come to Parliament with an order, which would have to be agreed by both Houses. But that order, if a Secretary of State were so minded after an Ofcom review, would not be allowed to change the uniformity of price and service. So unless there was another Act of Parliament, under clause 33, even if an order was made, which I don't think is likely, it couldn't change the universal service in respect of the uniformity of price and service.

  Chair: So—

  Mr Davey: I haven't quite finished. This is a long answer, but it is a complicated subject and I am glad that I have a chance to set it out in a clear way.

  The Universal Postal Service Order, which links to the licence at the moment, sets a higher level for universal service. That can be changed by Ofcom, it is true, but the reason we put in the 18-month review is not so much that we want Ofcom to change it, but that, although Ofcom is going to be pretty busy as it takes over from Postcomm during the transition, at some stage it has to set a Universal Postal Service Order and, in effect, renew the Royal Mail licence as in the previous statutory regime. By doing it after 18 months, it is actually more likely to keep the arrangements in the Royal Mail licence at the moment. That's deliberate. In no way is it a threat to the conditions of the Royal Mail licence; in a way it is the best way of doing it.

  Q322 Chair: You can understand our anxieties, which reflect those of people who have been to see us. If I may, I will run through some of those things, just to be absolutely clear. To change from collecting letters six days a week, with one price for everywhere, the clause specifies that the matter has to come back to Parliament and has to be the subject of an order that is voted upon in both Houses, so there is no way of slipping out of that.

  Mr Davey: Yes.

  Chair: That is very helpful.

  Mr Davey: Can I just add that that is much stronger than the current position and the provisions of the previous Government's 2009 Postal Service Bill? When I looked at this and asked how the minimum service requirements can be changed, I was eventually told, "Under the European Communities Act 1972, where a member state has requirements that are above the European directive, a Secretary of State can, by negative resolution, reduce those minimum service requirements down to the European level." In other words, the safeguards prior to this clause were less, so the clause has increased the safeguards for the minimum service requirement. It has increased the safeguards for the universal postal service.

  Q323 Chair: I think we are probably, on balance, not against that, in as much as I understand it.

  Can I clarify again our understanding of clause 32(2)(b), which Alan picked up in a previous session? It refers to waiving the requirements of the USO if it considers geographical or other conditions to be exceptional. We are seeking assurances that it is not intended for, and will never be applied to, an area like exceptional Argyll—a whole area of the country. We accept completely that there will be some circumstances where a particular house cannot be serviced under these terms—we're not unreasonable. What we want are assurances that it will never be the intention that part of the country, either for geographical reasons or, particularly, for economic reasons, will have a different standard applied to it.

  Mr Davey: I can give you those total assurances. I can also reference how we discussed this in the Bill Committee, when a parliamentary colleague tabled an amendment to delete that subsection. I described his amendment as the Milk Tray amendment, because Royal Mail postmen and women would have to act like the man in the Milk Tray advert who swings down from a helicopter.

  Chair: That is quite an old one actually.

  Mr Davey: It is quite an old one, but I thought you would remember it.

  Chair: We didn't have a television then, but I heard about it.

  Mr Davey: Touché. Imagine severe conditions that would put postmen and women in danger. There clearly have to be exceptions. There are exceptions when someone decides that they want to have a dangerous dog loose in their garden, making it very difficult for the postman to go up and down the path. There are also exceptions in a number of places based on geography: for example, if an island has only a once-a-week ferry, there is no way you can ask the universal service provider to charter a ferry especially to provide a daily delivery. This subsection in clause 32 reflects that. It uses language that comes directly from the postal services directive and is identical to what was in the Postal Services Bill 2009. It also reflects the current situation. It is not some sort of get-out clause; it is for exceptions only for health and safety, geography and weather.

  Chair: I open the floor to my colleagues on the discussion of the Universal Service Obligation, rather than going over a number of other areas.

  Q324 Mr Reid: I have a general question. How has Royal Mail performed during the recent bad weather in Scotland in terms of letters, parcels and cash delivery to post offices?

  Mr Davey: It has actually done really well. When there is extreme weather, it is not able, as we have discussed, to necessarily guarantee its usual high performance, but it is investing £20 million especially to ensure that its delivery services, which have been hit by some of the severest weather for 30 years, can be maintained. If you compare them on, say, delivery of parcels with some of the private operators, which are having some real problems, Royal Mail with its Parcelforce partner is really trying to deliver a high-quality service despite the conditions. I would like to put on record my thanks to Royal Mail and particularly its staff who, under very difficult conditions, are delivering for people.

  Q325 Mr Reid: Are you satisfied that once the Bill goes through and Royal Mail is, say, in private hands, it will still be in a position to deliver the same high level of service?

  Mr Davey: Yes, because the service quality comes down to the regulation. The regulation in part 3 of the Bill, which is similar to part 3 of the 2009 Bill, is strong. If anything, we have made it stronger in this Bill, compared with the previous one. If a private universal service provider—which I presume is a private Royal Mail—were to fail to meet its regulatory obligations, it would be liable for fines.

  Mr Reid: On post offices—

  Chair: Let's stick with the Universal Service Provision, because I see that a number of other people want to come in on the USOs.

  Mr Reid: It is to do with the USOs.

  Chair: Okay.

  Q326 Mr Reid: Clause 30 refers to the Universal Postal Service requirement to collect six days a week from access points. Clause 28(5) defines an access point, which means a post box or a post office. Clause 28(4) states that Ofcom has to "secure the provision of sufficient access points to meet the reasonable needs of users". What assurances can you give us that that definition of "reasonable needs of users" will allow small rural post offices to stay open?

  Mr Davey: Ofcom has a number of duties to consumers that come from the Communications Act 2003. When one reads the duties that Ofcom has in the current Bill, one has to read the 2003 Act side by side. In section 3 of that, I think, there is a whole series of duties to consumers, to which Ofcom must have regard when it is carrying out its duties as a regulator. They include duties to the elderly—there are a number of vulnerable categories, including the disabled. It has to consider the needs of ethnic minority communities, the needs of rural and urban communities, and the needs of people who are living in all parts of the country.

  The legal duties on Ofcom through the 2000 Act are very strong, and it will have to apply those duties to how it carries out its duties as the postal services regulator. I am strongly of the view that Ofcom, in thinking about how it goes about its duties under clause 28(4) in relation to access points, has some strong duties to which it must adhere.

  Q327 Mr Reid: An important part of the USO is this six-day collection. If a pillar box were to be removed or a post office were to be closed, it would dilute the USO. So would there be statutory procedures that must be gone through to close a post office, or to take away a pillar box?

  Mr Davey: They are not statutory procedures, but clearly if something such as the closure of a post office is going to happen, as we all know from the closure programmes of the previous Government, consultation is required. The consultation requirements and the framework for those are set out in a code of practice that has been agreed between Post Office Ltd and Consumer Focus, which is the independent watchdog of consumer needs.

  Fiona O'Donnell: Can I follow on from that?

  Chair: Can I take Eilidh's question now? A number of people want to come in directly on this.

  Q328 Dr Whiteford: Good afternoon. You will appreciate that there is a lot of anxiety in rural communities about the impact of these proposals on what are already eroded and depleted mail services in many areas. I am still looking for clarity—I've not had it yet—about whether the Universal Service Obligation in a privatised Royal Mail will ever be commercially viable in areas such as the one that I represent. It gives me particular concern that the Bill will allow parts of the USO to be broken up. I am afraid that the easy bits will be cherry-picked and the difficult bits, such as Argyll, Aberdeenshire, or the Highlands and Islands, will be left with poor services, which nobody wants and which will never be commercially viable on their own.   

  Mr Davey: Let me totally reassure you on this. The core policy objective behind the Bill and our overall policy is to protect the Universal Postal Service to make sure that it is financially viable. Without the Bill, the Universal Postal Service is under threat. Let's be absolutely clear and understand where Royal Mail is at the moment. Last year, it had a cash flow negative position of £500 million. Its pension deficit is £8.3 billion. Disastrous—that's the largest pension deficit of any UK organisation. Its letter volumes last year—its core business—fell by 7%. It is predicted that the letter volumes over the next five years will fall by between 25% and 40%. It is under-invested. It is inefficient. It needs to change.

  The current way of doing things is not bringing about that change. We need private capital to get that change dramatically. Look at what happened when Deutsche Post was privatised in 2001: taking account of exchange rate fluctuations, it has had investment equivalent to £11.6 billion. That would not happen if Royal Mail remained in state hands. That investment is needed to ensure that the universal service can be delivered in a digital age when the biggest competitor of Royal Mail is e-mail. That is the driver behind the Bill.

  Let me take your specific point about your concern that it could be broken up. I assume that you are referring to clause 34—"Designation of universal service providers". That makes it very clear that there are very limited circumstances in which there could be more than one universal service provider. There are two, which are set out under subsections (3) and (4). The first case is when Ofcom has done a review about whether the Universal Postal Service is an unfair burden on the universal service provider. If it is deemed to be an unfair burden, Ofcom can make recommendations to the Secretary of State about how that could be addressed. Unlike the previous Bill, which only had one option—the compensation fund—we put in three options. We think that's better as there is more than one option to deal with the unfair burden. The options are to look at the minimum service requirements, the compensation fund and the idea of a procurement of a service in the area where there is deemed to be an unfair burden on the universal service provider. It is unlikely that we will get to that situation—these are safety nets. To get to that situation, you will have had to have a major review by Ofcom. It will have to make recommendations and the Secretary of State will have to make a decision on how to go forward.

  Yes, there is the procurement option, but I don't think it would lead to the break-up of Royal Mail in the way that you envisage. Royal Mail could win the procurement. More important, the area where the unfair burden could happen—in the event that it happened—is likely to be small. If you talk to Royal Mail, it believes that being the universal service provider is its USP and a key part of its brand. My view is that a private owner would want to protect that, so I do not think that we would reach that situation.

  The other case set out in clause 34(4) is that of postal administration. If we reach that, we are into calamity and total collapse. The business has effectively gone bankrupt. We really do not think that that will happen but, as in the case of the water industry when it was privatised and other utilities, one has to provide in legislation for what would happen in that circumstance. Part 4 of the Bill sets out how a postal administration order would work. If the Secretary of State were dealing with a collapse in the universal service provider and having to ensure, under the European legal obligations, that a universal service is still provided, we are allowing the Secretary of State to have more than one provider. I hope that I have shown, by taking you through those two subsections, that the chances of getting to a point where there is more than one universal service provider are very, very limited and very, very unlikely.

  Q329 Chair: In any event, even if you do end up with more than one service provider, they will still be bound by the same rules of Universal Service Provision.

  Mr Davey: Absolutely.

  Q330 Chair: Therefore, we need not be anxious about that road.

  Mr Davey: Exactly right.

  Q331 Chair: You were possibly trying to provoke us into a debate about privatisation earlier on. We have agreed that we are not going to discuss that, because the division in this Committee will probably reflect the division downstairs in the Chamber, so we haven't discussed any of that. What we are focusing on is outcomes, and what we are looking for is the best service for Scotland under almost any possible circumstances, which is why we are restricting ourselves in terms of what we are pursuing. Eilidh has flushed out that, no matter what happens, the universal service will remain the same and that exceptions like Argyll or anywhere else will not have a reduced service.

  Mr Davey: That's right. I promise that I'm not trying to provoke you despite your attempts to provoke me, Chairman. Don't feel wounded; it is meant in good spirit. The only point that I would pick you up on is that I understand you not wanting to take on the ownership question, and I'm not asking you to, but it is true to say that the policy logic of the Bill is that, if we didn't get private capital into Royal Mail, the universal service would really be under threat. That is why I talked about that, and I talked about the absolutely deep-seated challenges that Royal Mail has. It is has effectively, for a long time, been a labour-intensive industry. It is increasingly having to become a more capital-intensive industry in order to be efficient and to get costs down. Therefore, it has to invest in capital equipment.

  Chair: As I say, we're not going to go down that road.

  Q332 David Mowat: I just wanted to finally and totally pursue the point that you were just talking about with clause 34, because what you said was quite different to what the unions said to us yesterday. They were very concerned that part of what the Bill was doing was liberalising postal services as a second-tier effect to the privatisation. Just to be clear, that is not what the Bill does, and you've described clause 34 as having three levels to it. If it is deemed to be unfair—if somebody is going bust—there are three things that you can do: one is potentially to adjust the USO.

  Mr Davey: Yes.

  Q333 David Mowat: The second is to pay more subsidies. The third is to procure. It's almost like a nuclear option.

  Mr Davey: Yes. It is not as nuclear an option as administration, of course, but if it got to that point, the Bill wouldn't have achieved its main objective.

  Q334 David Mowat: Just to be even clearer then, there will not be a market in postal services with several providers unless clause 34 is triggered, and that would require the regulator to say that it is deemed to be unfair to the incumbent.

  Mr Davey: Let me try to answer that in as broad a way as I can to ensure that there is no misunderstanding. At the moment, there is competition in parts of the mail system. You have your upstream access—the collection of the mail. You have the transportation of the mail, the sorting of the mail and the delivery of the mail. There are already private competitors in the collection, the transportation and the sorting of the mail. There are almost no competitors at the delivery end. Royal Mail delivers 99 point whatever percent. of letters in this country.

  Under the current legislation—forget the Bill—it is possible for a company to set up, if they wanted to, to do delivery. There is nothing stopping them in the legislation. They could do, but they don't, because they can't do it as efficiently as Royal Mail, and they couldn't compete with Royal Mail. You have people who deliver unaddressed letters and pizza leaflets and that sort of thing, but you don't get them delivering addressed letter mail. The Bill doesn't change that. It doesn't ban end-to-end competitors. They could come in if they wanted to, but I don't think they will. Clause 34 would only see more than one universal service provider under these two unlikely scenarios.

  Q335 David Mowat: So let me ask the question a different way. If I set up a company in my constituency of Warrington, and I said that I wanted to deliver the mail in Warrington and that I would collect it from the sorting office, there is nothing to stop that happening either now or in the future.

  Mr Davey: No. You couldn't go and collect it from Royal Mail, because it's Royal Mail's mail to deliver.

  Q336 David Mowat: But if the regulator decided to liberalise it, you could.

  Mr Davey: What could happen now is that you can set up a company—Mowat plc—and you could market yourself and say, "I want to collect and deliver your mail anywhere in the country." You are able to do that; you'd be free to do that now. But you wouldn't do it because of the economics of it, as you'd lose loads of money. The Bill does not change that. We envisage that there will be a universal service provider as now, who will do the vast bulk of delivery. That is not changed by the Bill, and I can't see that changing going forward.

  Q337 David Mowat: Just to be totally clear, because the union said something different, you have the one aim of putting capital into the company for the reasons that you've explained, and you haven't got a second-tier aim with the Bill to liberalise the postal service.

  Mr Davey: No. We already have a very liberalised postal market. It's just that it's quite difficult in the economics of the postal industry to have competitors in the last mile.

  Q338 David Mowat: The specific evidence that we were given by the union was that the nature of this privatisation is different to, for example, what happened in Germany, where it was privatised wholesale and remained wholesale. You're saying that as far as you understand it, it is going to be privatised wholesale and remain wholesale, so it is not different in that regard.

  Mr Davey: No, not at all.

  Q339 Chair: For the avoidance of any doubt on this—I will not use the term "Warrington"; let's come to Glasgow—nobody would be able to say, "We will compete with Royal Mail for the delivery of the last mile in Glasgow", as they would not be able to access the flow of mail all the way through. They would, however, surely be able to set up a company that said, "If you are in Glasgow, and if you give mail to us, we will then be able to deliver it in Glasgow."

  Mr Davey: They can now.

  Q340 Chair: Ah, that's right. But they would not have access to any mail that had been fed into the Royal Mail system.

  Mr Davey: No.

  Q341 Chair: Fine. I just want to be clear, as you will understand. So coming back to the point, private sector companies collect it from banks, do a pre-sort, and then split it into the Royal Mail system. Once it is in the Royal Mail, it never comes out, so to speak.

  Mr Davey: That's right.

  Chair: Fine. I think that effectively clarifies it all.

  Q342 David Mowat: My final point is: am I right in saying that there is nothing in the legislation that would prevent the whole thing from being bought by Canada Post within a year if that is what it wanted to do?

  Mr Davey: We haven't put any restrictions on ownership in that way. What we have not set out in the Bill quite deliberately is how the transaction is going to happen, because we want to be as flexible as possible. We learnt from the problems that the last Government got themselves into, when they couldn't sell because they put a lot of restrictions on themselves. We want to make sure that we don't make that error, so we have not restricted when or how we sell, whether we sell through an IPO, through listing it, or go with a trade partner, have an auction process or get private equity in. You have to look at all those.

  Q343 David Mowat: So after you've sold it, will it be a quoted plc, so anybody could buy it? Or would that depend?

  Mr Davey: It might not be a quoted plc.

  Q344 Jim McGovern: Just again on the subject of ownership, I made this analogy yesterday. The buses in Dundee used to be run by Dundee Corporation, which became Dundee City Council, but it was still totally publicly owned and publicly run. Eventually it was privatised, and now the bus company is saying that certain routes are not profitable, and so it will not run buses on them. What is to say that if Royal Mail is privatised, it will not eventually say that it is not profitable to go to Argyll and Bute or the Western Isles?

  Mr Davey: It is very simple, Mr McGovern. There is no regulator of bus transport services in Dundee, but there is a regulator of the market here. The regulator has legal powers, so that if the privatised universal service provider doesn't meet its legal obligations, it can be fined.

  Jim McGovern: It can be fined?

  Mr Davey: Yes.

  Q345 Jim McGovern: What difference is that going to make to it, if it's making millions of pounds a year?

  Mr Davey: Well, 10% of turnover is quite a big fine. If Royal Mail were fined 10% of turnover, it would have to pay about £635 million. That figure is from memory and might not be absolutely correct.

  Jim McGovern: I'm taking a note of it, even as you speak.

  Mr Davey: I'm sure that we can get the exact figure if you want it. The potential ability for the regulator to fine the universal service provider if it is not meeting its legal obligations is an asset.[4]

  Q346 Jim McGovern: I'm intrigued. I never realised that there was nothing to regulate transport in that fashion, that they can just do what they want, withdrawing buses and scrapping routes.

  Mr Davey: I'm not au fait with the situation in Dundee; I've got to be absolutely clear about that. My understanding is that presumably there is someone who franchises out the routes, and if someone's not prepared to run that route for that franchise, unless the local or transport authority puts in more subsidy—

  Q347 Jim McGovern: It's absolutely impossible for that to happen with the Bill as proposed.

  Mr Davey: Yes, because of Ofcom.

  Chair: We'll move on. Given that you haven't bothered to brief yourself on the transport situation in Dundee, we'll not labour that—[Laughter.]

  Q348 Cathy Jamieson: I'll resist the temptation to be mischievous by welcoming your support for better regulation of transport in Scotland.

  I'm looking for a further bit of clarification in relation to clauses 34 and 43. I questioned Ofcom on clause 34, and I think that you have now gone some way towards explaining that it would be only in exceptional circumstances—when things keeled over, essentially—that there could be more than one provider of Universal Postal Services, and that perhaps if we got to that stage a different type of service would be being supplied. However, Ofcom said that clause 43 was a protection in relation to that. The CWU in particular has raised some concerns that clause 43 could also be linked to the carrying out of reviews under clause 33. I am looking for clarification on that. Does clause 43 and the ability to change the Universal Service Obligation relate only to the provisions in clause 34? Sorry for being so technical about it, but it's so important.

  Mr Davey: No, no, no. That's a very good question. Some of you should have been on the Postal Services Bill Committee, and given me a hard time.

  Cathy Jamieson: Flattery will get you nowhere: I just need an answer please.

  Mr Davey: Actually, in this world we say, "Philately will get you everywhere." Anyway, in clause 43(8) it does say that the "recommended action"—a recommendation that Ofcom would make—"may consist of one or more of the following—(a) the carrying out of a review under section 33 (review of minimum requirements)". That is one of the three things that could happen if Ofcom had done a review and found that the financial burden on a universal service provider in a particular part of carrying out that duty was unfair. But the decision would be made by the Secretary of State.

  Q349 Cathy Jamieson: Can I just clarify that? If, in a situation before Royal Mail or whoever keeled over, Ofcom did a review and found that the financial situation was precarious or that it had concerns about it, it could make recommendations to the Secretary of State that there be more than one provider or that the Universal Service Obligation be changed, potentially.

  Mr Davey: Yes. If it does the review and finds that there is an unfair burden it can make recommendations to the Secretary of State, but the Secretary of State then has to decide what he wants to do. So, say that we chose a review under section 33, he would have to go and look at the review and then come to Parliament if he wanted to reduce the minimum service requirements. Parliament would still have the say-so.

  Cathy Jamieson: Okay. That's helpful. Thank you.

  Q350 Chair: Could I perhaps turn to the question of the post office network, which is the other main issue that concerns us? A higher percentage of Scottish post offices are in rural areas than in the UK as a whole, and we would, therefore, generally take the view that Scottish post offices are more likely to be at risk. You're nodding, so I presume that you accept that.

  Mr Davey: No, not the "at risk" bit. You're right that—

  Q351 Chair: Okay, well it's very helpful if you don't think that any of them are at risk, but my understanding is that so far this year 22 of them have closed in Scotland, and a number of others are on long-term temporary closures, which seems to be a euphemism for closure. There are also 57 of them up for sale. In that context, things are fluid all the time and as you possibly heard us discussing earlier on, we have issues about access. As I understand it, the rules on access to which the regulators are working are the rules that are in the BIS outline that we had earlier on about 90%—you'll know the figures better than I do.

  My understanding is that those figures determine that there would be 7,000-odd access points, whereas in fact at the moment there are around 11,000. There is therefore a potential fall of 4,000-odd before the criteria on access are met. Obviously we would reckon that a disproportionate number of those would be in Scotland, because of the rurality and so on and so forth. What assurance can you give us that if you stick to these access criteria, that does not become a maximum figure that is provided and all the rest simply go?

  Mr Davey: Let's be clear. The policy of the Government is "no closure programme for post offices". There can be, of course, because it is outside our control and outside POL's control, occasions when a post office closes because a sub-postmaster retires or decides they don't want to go on any more and they have not been able to find anyone to take over their business. Remember, 97% of post offices are privately owned or privately run. In that situation, POL will see whether it can find someone else to reopen it and will have to make a decision on that. Our policy of no programme of closures—which is a very strong policy and I will deal with some of the details behind that in a second—can't prevent an individual post office from closing or a postmaster from trying to sell it. It is impossible to do that.

  Q352 Fiona O'Donnell: Would it not be possible to do that by setting a minimum number of post offices in the Bill?

  Mr Davey: The problem if you do that is this. Imagine there were 11,500 post offices—it is slightly over that, as it happens—and you said, "Right, there must be 11,500. Put it in legislation." If a private individual decided that they wanted to retire or they died, suddenly there would be a legal obligation. You would have broken the law and it wasn't your fault. So you wouldn't want to put a legal obligation in the statute which you couldn't control. That would be a rather unfair thing to do, I'd have thought.

  Q353 Chair: Can I be clear then about the status of the access criteria?

  Mr Davey: I'm coming to those. We basically borrowed what the last Government had for the access criteria. There is no change in them. We have not downgraded them. They are exactly the same. In our business contract with Post Office Ltd, where we are handing over £1.34 billion over the next four years—the life of the spending review—we've said, "One of the conditions of this money is that you must keep open 11,500 post offices." Post Office Ltd has to keep open 11,500 post offices, or it breaks its legal contract with us.

  Q354 Chair: I find some difficulty in understanding how that ties in with the point that Fiona was making, to which you responded that if somebody dies you don't want to be tied to a particular number.

  Mr Davey: There is a big difference between a legal contract where they can come to us and say, "We are trying to find someone else to put back in there. They've died. It was unforeseen. We are doing our best to replace them." and a statutory duty where they break the law.

  Q355 Chair: This is perhaps slightly too subtle for me.

  Fiona O'Donnell: I'm confused too.

  Mr Davey: If you break an Act of Parliament, you commit an offence and you can be fined. That is rather different from you, in carrying out a legal agreement with your partner, saying, "We're trying to meet that but give us a few months to find a replacement." This is such a strong commitment that we have made in this Government, far, far stronger, I have to say, than the last Government when 7,000 post offices closed.

  Q356 Chair: You're trying to provoke us.

  Mr Davey: No, I'm not. I'm just saying that the policy of the last Government, which had the same access criteria, led to 7,000 post offices closing. Under ours we have made a commitment, funded by £1.34 billion and a whole set of policies that are set out in this document, to say that we want 11,500 post offices for you to deliver. I think it is a pretty strong statement, backed up by serious money.

  Q357 Chair: Can I come back again to the discrepancy between the numbers that will be provided for under the access criteria, which I believe to be some 7,500, and the 11,500 figure that you are mentioning now? I do not understand how those two come together. Am I making myself clear?

  Mr Davey: I understand.

  Q358 Chair: The figures that I have—the access criteria in the BIS document—could be met by 7,500, yet there are 11,500. If 11,500 is the legal agreement, what is the specification about where those should be? If you have 7,500 being met by the criteria, you obviously do not need the rest.

  Mr Davey: I think you're getting there. If you did not have the access criteria—I am taking it to the extreme—you could have 11,500 post offices in London and no post offices anywhere else. The access criteria ensure the geographical dispersion, so that communities, including remote, rural communities in Scotland, have to have post offices that meet those access criteria. That is why the two work together. We have a legal agreement. We want 11,500 and we have given them the money, but they need to make sure that the post offices are geographically dispersed, to meet the access criteria.

  Q359 Fiona O'Donnell: Just to clarify, what are the access criteria in a rural part of Scotland? How near to your home do you have to be able to access services?

  Mr Davey: I'm going to have to check, if that is all right.

  Q360 Chair: I've got it. The BIS document, "Securing the Post Office Network in the digital age" says: "99% of the UK population will be within three miles of their nearest post office outlet; 90% of the population to be within one mile of their nearest post office outlet; 99% of the total population in deprived urban areas across the UK will be within one mile of their nearest post office outlet; 95% of the total urban population across the UK to be within one mile of their nearest post office outlet; 95% of the total rural population across the UK to be within three miles of their nearest post office outlet." It also says: "In addition, the following criterion applies at a local level to ensure a minimum level of access for customers living in remote rural areas: 95% of the population of every postcode district to be within six miles of their nearest post office outlet."

  Mr Davey: That's exactly right.

  Q361 Fiona O'Donnell: That's the postcode down to how many letters?

  Chair: I don't know. The Minister knows that.

  Mike Whitehead: The first three or four characters.

  Q362 Fiona O'Donnell: The first three. For example, EH16?

  Mike Whitehead: There are 2,800 postcode districts across the UK as a whole.

  Q363 Fiona O'Donnell: We have established what the access criteria are. If a post office is going to close, because someone dies or wants to retire, which then means that the access criteria cannot be met, how is the service provided?

  Mr Davey: Then Post Office Ltd has to ensure that those access criteria are met. It would have to find another person to run a post office to enable it to meet the criteria. The fact is that now, those criteria are more than met. We are not on the cusp. If we have 11,500, which are guaranteed over the next four years because of our legal contract and the money, I cannot envisage a situation where we will breach the access criteria.

  Q364 Fiona O'Donnell: I am confused as to why you say you cannot enshrine it in law. Why can't you enshrine that in law? That seems to be what you are saying to me. You are saying that Ofcom has to provide the service.

  Mr Davey: I think we have much better protection here in our system. I will compare it with other countries in a minute, because that was raised in the Standing Committee. We have protections in the Bill, which we referred to earlier—I think it was my hon. Friend the Member for Argyll and Bute. Under clause 28(4) it states: "OFCOM's duty under subsection (1) includes a duty to carry out their functions in relation to postal services in a way that they consider will secure the provision of sufficient access points to meet the reasonable needs of users of the universal postal service." That is the statutory protection, which the regulator, Ofcom, has to ensure is met. Over and above that we have the access criteria, which is the overall agreement with Post Office Ltd. And above that we have the legal contract. We have three sets of protection. In the Postal Services Bill Committee, the argument was made that we should adopt the German option. The Germans have enshrined it in legislation. Do you know what the German legislation says about the protection for the access criteria?

    Fiona O'Donnell: You won't be surprised to hear that I do not know.

  Mr Davey: No—exactly. [Laughter.] Regarding the access points in rural areas in Germany, there should be a post office every 80 sq km. If we enshrined the German rule in our law, you would see a lot of post offices closing across Scotland. The point about Germany has been made by some Members of the Committee. Really, they should have looked at what the Germans had enshrined in legislation, because it is not a good model.

  Q365 Chair: To be fair, there's nothing wrong with the model. It is the figures that you are criticising, isn't it?

  Mr Davey: I guess what I'm saying is that you can put things in law, or in contracts, and so on, but ultimately the reason why post offices will stay open is that they are commercially viable, either because they are getting subsidies or they are getting business. The whole of our strategy is to try to ensure that we get more business through the post office network. Ultimately, businesses do not survive because Parliament has legislated that they will survive; businesses survive because they are doing business.

  Q366 Fiona O'Donnell: We have an assurance about the access criteria—that Ofcom will have to deliver that service. The number is guaranteed at 11,500 post offices?

  Mr Davey: Post Office Ltd has to deliver a post office network over the four years of our contract with them that is at least 11,500.

  Q367 Fiona O'Donnell: Right. And you were critical of the Government closing 7,000 post offices. If you believe those post offices should have stayed open, why haven't you made it a higher number?

  Mr Davey: That is a very good question. We have inherited an incredibly difficult situation. I explained that we inherited Royal Mail, which has a pension deficit of £8.3 billion, and that it is losing money. Post Office Ltd is losing money and has to have a big subsidy that is growing and growing and growing. We have to turn that situation around. I am afraid that we cannot do it all in the first year, but I believe that the strategy that we are putting together—whether it is the Bill, the spending review, or the particular policies that we will no doubt come to—will enable us to turn that around.

  Q368 Chair: Can I just be clear though? What you are stating as the Government's policy does not in itself stop the closure of particular sub-post offices. You could still have the network minimum being met, which I think is met by 7,500, and you could have some closing in one part of the country, some opening in another part of the country, and that remains the 11,500 figure. There is not a guarantee to anybody out there that their particular post office will remain open, because life is fluid and there will be changes.

  Mr Davey: I think you're seeing it in a different way. Your idea that some would be closed down in one part of the UK and open elsewhere would suggest that there was a proactive closure programme being run by Post Office Ltd, which the Government had presumably asked it to implement, as we saw in the last Parliament. That is not happening.

  Chair: I understand that.

  Mr Davey: What could happen is that an individual sub-postmaster could die, or they could hand in their keys and retire, or they could sell their business. You mentioned that a certain number of post offices are up for sale at the moment. To be honest, post offices have always been on the market—that is the usual thing. That shows that there is still a healthy market in sub-post offices.

  Q369 Chair: I understand that, but I just want to be in a position where we are not going out of here telling people that all their post offices are safe, because there will be some situations, say in Argyll, where there are two post offices within an area that meet the criteria, as it were. One of those could close and that would not necessarily require action by Royal Mail to reopen another one. I understand your point about the 11,500 post offices, and I am not suggesting that you would move them from there to here, but given that you have a target and that there will be new towns developing, population shifts and all the rest of it, that target can possibly be met by places—

  Mr Davey: There is no upper target. If they want to expand the network, they can go ahead and expand the network.

  Chair: Fine. Fiona, you wanted to come in.

  Q370 Fiona Bruce: Thank you. I wanted to ask about Outreach post offices and where they fit into the criteria of access points. I am interested generally in how you see Outreach post offices working in the future. In addition, however, playing devil's advocate I will point out that 39 of them are mobile in Scotland. Are we saying that if a post office van tours around various postal code areas it constitutes an access point, or how will that work?

  Mr Davey: We've used exactly the same definition for what counts as a post office as the last Government. We have not tried to change definitions or anything like that, and my understanding of the definitions used by the last Government, which I presume colleagues would support, is that if you're producing an Outreach service, that will count as an access point.

  Q371 Fiona Bruce: What about mobile services, where they are providing a service at some point during a week?

  Mr Davey: That's a good point. I think if there's one mobile service, that is one access point. The fact that it opens up for one day here, one day there and one day somewhere else does not mean that it amounts to three access points. That's my understanding. If I'm wrong on that, I'll get back to you, but my understanding is that if there's one Outreach service, that is one access point. [Interruption.] Yes.

  Q372 Chair: Sorry, what was the yes to? We'll talk among ourselves for a moment.

  Mr Davey: I have clarification. Apparently, these are the definitions from the last Government, so I reiterate that we haven't changed those, but if a mobile service stops at more than one place, those different access points count towards the access criteria.

  Q373 Chair: So a van that stops once a day at five different points counts as five access points?

  Mr Davey: Yes, it does, but I still go back to the fact—this is why it's so important—that this Government put in the £1.34 billion to secure the 11,500 post offices.

  Q374 Dr Whiteford: I have real concerns about that, because although there has been some really good innovation around providing services in rural areas, I keep getting very mixed messages about the mobile services. It seems to me that people who are sitting in offices assessing them have a very positive view of them. People who have to stand outside them cold, damp and wet have a very poor view of them. They're concerned about the technical problems with them. They're concerned about the very limited access they get for two hours a week, or whatever. Generally speaking, they feel that the service is very inadequate. I'm concerned that it's actually driving people away because they find other ways to transact their business, so it's driving business away from the post office, rather than towards it. That, for me, is a very serious issue that doesn't seem to be being heard by the people managing the service.

  Mr Davey: There may well be mixed views about it, but a lot of people and a lot of communities really value the Outreach service. I've seen very positive evidence of that. Our strategy isn't built on turning the Post Office Network into one big Outreach service. Let's be absolutely clear about it. Our core strategy is around Post Office Locals, sometimes known as Post Office Essentials—

  Q375 Chair: But we're interested particularly in rural issues and difficulties in rural areas. [Interruption.] We now have a Division in the House.

  Mr Davey: Am I allowed to come back? How are we doing on time for you?

  Chair: We're fine, thanks. I don't have to be anywhere until 10 o'clock tonight, so as far as I'm concerned, we're fine.

  Mr Davey: I have a meeting at half-past 5, but I'm very—

  Chair: I'm sure a member of your staff can change that for you. I think it's a question of priorities. Meeting a Select Committee is obviously one of them.

  Mr Davey: Of course it is. Can I say that you'll be finished with me by 6?

  Chair: I'm in the hands of my colleagues. I certainly hope so.

  Mr Davey: Okay.

5.28 pm

  Sitting suspended.

5.37 pm

  On resuming—  

  Q376 Chair: Can I pick up the questioning about the access points while we're waiting for other people to come back? This is genuinely new to us. I had not appreciated that a minibus travelling around the country with some first-class stamps and second-class stamps in the back and stopping at 25 different places during the course of the week could be considered to be visiting 25 access points. This seems to me a potential means by which the provision in rural areas could be drastically undermined.

  Mr Davey: Let me reassure you, because that's not what the 11,500 contract is about. That's about making sure we have at least 11,500 post offices. You should be welcoming that, because that's a high level of guarantee of the number of post offices funded. On these mobile post offices, let's be clear, our policy is not about massively expanding this service. In almost every circumstance—it is our intention to follow the previous Government's policy—it's the last resort. When a sub-postmaster dies or retires in a village or a hamlet and there's no one else to provide that service, in such circumstances our experience is that communities welcome the fact that at least there is this model that provides some services.

  Q377 Chair: I do understand that. I understand why communities in some circumstances would prefer that to nothing at all. I completely understand that. However, you can see how, if there are financial pressures on post offices—they become financially unviable and close—the service is replaced by a peripatetic van, which meanders and does a tremendous amount of mileage, actually. Is there a minimum criterion for how long an access point has to be open? It could be open for an hour, so in a day the van could possibly do five different stops. You could end up having a single van doing 25 access points a week.

  Mr Davey: I will get back to you with the criteria that the previous Government used. We are not doing anything different from the previous Government in the access criteria with respect to these Outreach services.[5]

  Q378 Chair: With respect, the previous Government were not privatising it.

  Mr Davey: We're not privatising Post Office Network.

  Q379 Chair: We're potentially in a different situation.

  Mr Davey: We're in a much better situation; this is the whole point. I understand the direction of your questions, but it totally misses the fact that post offices have a much brighter future, not least because we have given this guarantee of a no-closure programme. We have found the money. We have a set of policies in here that you haven't yet discussed, which set out to make sure that business, such as Government services and financial services, is going through the Post Office Network. This is the point that it's really critical to think about, because this is why the National Federation of SubPostmasters came out in favour of the Bill. It has been so positive about our policy—it wasn't about the previous Government's—because the policy set out in here gives a real prospect of real business being done over the Post Office Network. That is how we are going to make sure that we get a sustainable and financially viable network.

  Q380 Chair: I understand that. Can I just clarify with you about the range of services that will be offered by the peripatetic van? Presumably, it will not be offering the whole range of services. Can you clarify whether things such as paying bills, paying by cheque, applying for passports and driving licences, sending larger parcels and international mail will all be dealt with by the wandering van?

  Mr Davey: I am very happy to get you the detailed breakdown of all the services that are provided by the wandering van. I presume the same level of service is provided by the wandering van as in the previous Government's policy. Because it relates to this, and because our policy isn't about extending these Outreach services in some sort of dramatic way until we somehow meet our access criteria by the back door, our focus is on trying to get the post offices in set locations that people use and recognise as post offices to be more viable. They have to have more business going through them, and we have to change the underlying structure. That's why we are focusing in this document on Post Office Local.

  I know you had an exchange with Postcomm over that and they weren't able to help you so let me help you, because it relates directly to this point about the services. From our pilots—there are about 52 across the country, including some in Scotland—we believe that about 86% of the services that you currently get in a main post office will be accessible through the Post Office Local. When one looks at the number of transactions that that involves, 97% of transactions at a main post office will be available through the Post Office Local.

  All the research we have done on this Post Office Local model—we are piloting it to make sure we deal with the teething problems—shows really high levels of customer satisfaction and really high levels of operator satisfaction. Some of the research—the headlines of it—is put out in this paper. That's why we think this model is extremely positive. We think it will deal with the underlying problems of the Post Office Network in terms of its underlying economics, and turn that around. That's why I am so confident to be able to come to this Committee and say, "If we can develop these policies, if we can get Post Office Local and if we can get the Government services, the Post Office Network has a really, really positive and prosperous future."

  Q381 Chair: I understand much of that, and I think we are supportive of moves that would provide a service as distinct from no service. Can I just clarify whether the wandering van to which I referred would be providing the same service that you outlined there as being provided by Post Office Local? There is not a tier of provision whereby the wandering van would actually have further reduced services compared with the Post Office Local, is there? I had previously understood, perhaps erroneously, that Post Office Local was going to be in a single location.

  Mr Davey: It is, yes.

  Chair: So the wandering vans are something different.

  Mr Davey: Oh yes, totally.

  Chair: Sorry. So you are going to clarify for us later on the percentage of services—

  Mr Davey: From the wandering van.

  Chair: Fine.[6]

  Q382 Lindsay Roy: You talked about new business streams. How confident are you, and what are the key things that are going to deliver in terms of bonuses to the Post Office Network? Why did you reject the Post Office Bank?

  Mr Davey: There are two issues—the Government services and the financial services. First, on the Government services, we have already announced in this policy paper one or two of the pilots that we now want to push forward. There is, for example, the processing of pension credit applications that the DWP wants to pilot. There is also the print on demand of Government forms, which you can print at your local post office before completing them and handing them over. Those are some of the pilots and one or two others are mentioned in this paper.

  The key way that we are dealing with this is that we are going across Whitehall and we are talking to local authorities. I had a meeting today with Sheffield City Council, Post Office Ltd and the LGA to try to get that engagement at the local level as well. What we are doing is saying, "There are three generic applications that we think are potentially helpful for you, the Government Department, and you, the local authority, in doing your business which will save you money and allow you to transfer your service to the Post Office."

  The first is the identity verification application, which is already being used by the DVLA. It is working very well with a technology infrastructure. We think it should be really appealing to the Home Office. We think it should be really appealing for other applications to the DVLA and to the DWP, particularly in relation to fraud. So we think that this identify verification application is a potential winner for getting big streams of income into the Post Office Network. Clearly, we need some more pilots. Of course, there will be a tender by the Department or the local authority, but we think that the Post Office Network will be in a very good place to win on that.

  The second application is what we call in this document, "processing," which is about trying to ensure that citizens who want to hand in a form or some sort of Government document can be assured that, when they do, they have filled it in correctly and that it will get through as quickly as possible. It is a bit like the check and send service that you have with passports at the moment. We think that can be extended far more. The pension credit pilot speaks to that, but there are many other applications for both local and national Government where they can make savings and revenue can flow to the sub-postmaster.

  The final application is called "pay-out." There are a number of forms of working it, but the main one is when the individual is sent a letter with a barcode on it. They take the barcode to the Post Office and it is scanned there. That is then the authority for the sub-postmaster to pay out money. That's had a number of applications, including with credit unions. I know you have a credit union in Pollok in your constituency, Mr Chairman.

  Those are the three applications and we think that, as we engage with Government Departments and local authorities, we are getting huge interest. That is why I think we can deliver on the Government services. Clearly, the proof of the pudding will be in the eating, but we are making some real headway, and I hope we will be able to announce in due course some more pilots.

  Q383 Lindsay Roy: It will be available in Post Office Local and beyond, but we are not sure about the exact nature of services in the wandering van. Can you clarify that?

  Mr Davey: I'm told, and I have inspiration here, that mobiles provide a full range of core services—of bill payments, benefit payments and mail services. We can, of course, write with a detailed list, but I hope that reassures you that core services are available from the wandering vans.

  Q384 Chair: Ideally they would do everything all the time in locations. That's very helpful, but it would be helpful if you wrote to us.

  Can I be clear about this question of picking up Government business? As I understand it, the Government are putting work out to tender with, for example, the green giros. The Post Office might not win that contract. Isn't there an issue here about joined-up government and whether particular Departments like the DWP will go for the lowest tender in all circumstances and maybe pay something through PayPal, or whether there will be a coherent Government policy about trying to direct stuff through post offices? How is this being tackled?

  Mr Davey: I can confirm that we are a joined-up Government; it is helpful to get that on record. But like the last Government, we still to have to abide by—you will be delighted about this—EU procurement rules.

  Chair: It is always useful to have my prejudices confirmed.

  Mr Davey: If Department X has a service and wants to put it out, it has to tender it. The real question is—this goes into the Local model—is the Post Office in a fit place? Is it being modernised so that it can win some of these tenders? There are a number of issues about that, such as cost structure, obviously, because cost is a big part in tenders, and also quality of service. What the trial with the Post Office Local model shows is that, on average, post offices are open an extra six hours a day. That has an impact on the people who can use them and on queues. So, overall, customer service is much better. If you are a Government Department or a local authority thinking, "Shall I contract with Post Office Ltd?", if they have a lot of sub-post offices that are now open for longer hours with shorter queues and a better customer experience, you are much more likely to go with that. Part of the strategy in the modernisation of the network is aimed at putting the Post Office Network in a position that is likelier to win contracts in the future.

  Q385 Fiona O'Donnell: Lindsay rightly identified that part of the security for the National Federation of SubPostmasters was about new work from the Government. The other part was about the IBA. Now we've had Moya Greene say that she is happy to sign one for 10 years. That's what the sub-postmasters are saying they want. Are you supportive of 10 years?

  Mr Davey: We have said very clearly that this is a matter for Post Office Ltd and Royal Mail, just as it has been in the past. In the past, the Government did not intervene in the negotiations, which can go into a huge amount of detail. I am told that the contract was well over 100 pages—but I haven't seen it, and I'm not allowed to—the last time Royal Mail and Post Office Ltd struck a contract. Post Office Ltd and Royal Mail, going forward, can enter into a new contract, but that is for them. We are putting nothing in the way. It is totally up to them to negotiate and agree on a contract.

  Q386 Fiona O'Donnell: But Ian McKay from Royal Mail said that it is unthinkable that the two of them could be separated.

  Mr Davey: No. If he was quoting Moya Greene, she didn't say it would be unthinkable that they could be separated, but that it would be unthinkable that Royal Mail wouldn't use the Post Office Network.

  Fiona O'Donnell: We will look back at the transcript. I remember thinking that it was kind of ironic that he said that when that was precisely what the Government were doing.

  David Mowat: I think that was the meaning of what he said.

  Q387 Fiona O'Donnell: Yes. In any case, Royal Mail is a public service, even though it is going into private ownership. I can hear that you're committed to maintaining that level of service, but how can you sit on the fence on the length of the IBA when the Federation of SubPostmasters is saying that that is core to the sustainability of the Post Office Network?

  Mr Davey: Because you don't write into law detailed, negotiated contracts between two independent companies. If you want to find me a legal precedent, which you won't be able to, I'd be interested.

  Q388 Fiona O'Donnell: I'm not asking you to put it into law. I'm just saying: can't you even express an opinion or tell us why it has not been signed yet? Why don't we have that agreement?

  Mr Davey: There is an agreement at the moment, and it runs for several more years. Let me express an opinion, as you invited me to. I was delighted when the chairman of Royal Mail Group, Donald Brydon, said in evidence to the Postal Services Bill Committee—I am not sure that this is a verbatim quote—that before separation, they would negotiate the longest legally permissible inter-business agreement. I thought that that would be very reassuring for people who are worried about this.

  Q389 Fiona O'Donnell: I think that the National Federation of SubPostmasters, in its letter to Iain Duncan Smith, is concerned about the new work stream and the IBA, but let's hope that all turns out well. May I ask about employee share ownership of Royal Mail? What is the percentage of shares?

  Mr Davey: The Bill makes it clear that it will be at least 10%.

  Q390 Fiona O'Donnell: At least 10%. Will those shares be protected? Will they remain in employee ownership, or is it possible that the employees will all sell the shares?

  Mr Davey: We've left how we deliver on the 10% flexible, and there is a reason for that. We want to ensure that Royal Mail employees, and future investors and so on, can be part of the discussion about how that is delivered, but it is fair to say that I, personally, and the Government are keen to ensure that there is longevity in employee share ownership.

  Fiona O'Donnell: Good.

  Mr Davey: I would be concerned if we did anything that resulted in employees not having a long-term interest through their shares in Royal Mail. That is what we want to deliver.

  Q391 Fiona O'Donnell: Have you considered the Post Office Network owning a percentage of the shares and protecting that for them in a similar way?

  Mr Davey: I think we've gone further with the Post Office Network to the extent that we've made it possible in the Bill, in clause 7, for there to be a mutual Post Office Network. Let me be clear about what that is, because it is sometimes confusing for people. Post Office Ltd is the national body, which has the franchises and hands them down to the individuals or groups. It has the intellectual property, the contracts and so on, and it earns money from things such as websites. That is currently in 100% Crown ownership. The individual post offices are individually owned by a private entrepreneur or, as agents—the Co-op has a range of them, as does WH Smith, and there are a few community-owned post offices. We are not changing their ownership. Mutualisation is about only the national mutual—the mother mutual, if you like.

  Q392 Fiona O'Donnell: Sorry, I don't think you've understood. I was asking about share ownership of Royal Mail by the Post Office-operated mutual.

  Mr Davey: It was a long way to answer you, so I apologise. It is important that people aren't confused about mutualisation. I was trying to say what we envisage from the mother mutual—Post Office Ltd. We are getting advice from Co-operatives UK and it will then go out to national consultation. We envisage that sub-postmasters will clearly have a very important share in that, and there can be others as well, possibly along the co-operative model. Your question is: could they buy shares in Royal Mail? If Royal Mail is floated and listed on the stock market, and those shares are traded, potentially they could.

  Q393 Fiona O'Donnell: Did you consider protecting share ownership for them given the importance of the relationship between the Post Office Network and Royal Mail?

  Mr Davey: Individual sub-postmasters could buy shares if they wanted to, and so could individuals—it is not just a mutual model. If it is listed and if it is through an IPO, they could choose to buy shares. I think that it would be odd for Government to say, in legislation, that people in another company should be given shares in Royal Mail. That would seem a little odd. They are not employees of Royal Mail, and our commitment, both in our manifesto and in the coalition agreement, is for employee shares and not for shares in another organisation.

  Chair: I think that we have just about thrashed everything to death. Are there any other questions? I thank you all for coming along. I will let you go just in time for your meeting at 6 o'clock. You have been very frank in your answers, and we have all appreciated it.

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