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Lord McIntosh of Haringey: My Lords, I wish to express gratitude to the noble Lord, Lord Redesdale, who first suggested it, and to the noble Baroness, Lady Rawlings, who agreed to it, and beg to move that the Bill be committed to a Grand Committee.

Moved, That the Bill be committed to a Grand Committee.--(Lord McIntosh of Haringey.)

On Question, Bill committed to a Grand Committee.

Lord Hunt of Kings Heath: My Lords, before we move to the Statement on the Post Office I should like to take this opportunity to remind the House that the Companion indicates that discussion on a Statement should be confined to brief comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.

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The Post Office

4.41 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, with permission, I wish to repeat a Statement on the future of the Post Office. The Statement is as follows:

    "It has long been recognised that the postal sector worldwide has entered a new and turbulent age. Competition for business will be fierce. With greater uncertainty will come opportunities for expansion. Change is absolutely necessary if the Post Office is not to fall behind.

    "Globalisation of postal services, the growth of electronic mail and the Internet, changing customer demands and greater liberalisation of markets are the key drivers of change worldwide. The main uncertainty is not whether markets will become more competitive, but how far and how fast.

    "Other post offices are gearing up for this revolution, seeking greater commercial freedom to do so. Within Europe, for example, the Dutch and German post offices have been investing in substantial acquisitions; Sweden and Finland are free to acquire and invest in other companies and Denmark has already entered a number of strategic alliances. France also enjoys considerable commercial freedom and has a wide spread of joint ventures and acquisitions. In Australia, New Zealand and the Nordic countries, their post offices have become independent PLCs. Germany has announced its intention to privatise and the Netherlands and Singapore have moved to partial privatisation.

    "Not surprisingly, the British Post Office has been demanding changes to its own organisation for years but without anyone in government, until now, prepared to act. In the face of market pressures from other public post offices, from private postal operators outside the monopoly area, other communications media and distribution organisations, the Post Office was to be in a position to deliver a wider range of faster, more reliable postal services, differentiated products and prices which meet individual customers' requirements.

    "Notwithstanding its successful attempts to adapt and its current profitability, the Post Office cannot meet these challenging times in its present condition. It must change or find, increasingly, it is confined to a diminishing high volume, low mark-up sector of the postal market with all the consequences of falling value and shrinking profits and employment base that this would involve.

    "The Government are not prepared to sit back and allow this to happen. The Post Office plays too important a part in our national life--contributing vitally to our economic prosperity and social cohesion--and we have therefore decided to embark on the most radical set of reforms since the modern Post Office was created in 1969. In future, the Post Office will be driven by a combination of effective

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    market disciplines and commercial freedoms which will transform its performance and its ability to do business.

    "Our starting point is that the relationship between the Post Office and Government has to change. I should make it clear that we certainly do not rule out the possibility of introducing private shareholding into the Post Office--for example through the sale of a minority stake in it--at a later stage. But at present wholesale privatisation--favoured by the Conservative Opposition--would not be a realistic option. It would cause massive uncertainty and diminish the chance of immediate reform now, which would be the worst outcome of all--as the management made clear to us.

    "Instead, a radical, new form of public sector enterprise, operating at arm's length from government, needs to be created. This new framework will contain the following features: the Government's role in the Post Office will be restricted to the strategic level, both on matters of commercial direction and on setting social objectives. The Post Office Board will become clearly accountable for its success or failure in running the business; an independent regulator will be established to protect consumer interests, including standards of service; to regulate prices, to ensure the Post Office is able to meet its universal service obligations, and to ensure fair competition; once adequate regulatory provisions are in place to oversee fair competition the Post Office will be able to form joint ventures, enter into partnerships and make acquisitions within the UK beyond the present limit of £20 million per annum; the regulator will have a duty to promote competition by a careful and phased liberalisation of the monopoly postal area, whilst maintaining the universal service obligation; we will require the Post Office to present a rolling five-year strategic plan each year for approval by government. This is essential to protect taxpayers' interests.

    "On the basis of that plan, the Government will agree a profit target for the Post Office and the equivalent of a dividend to government, as shareholder, in line with normal commercial dividend practice. This will mean, in effect, more than halving the rate at which profits are removed from the business. The external financing limit (EFL) for the Post Office for the year 1999-2000 will immediately be reduced to £207 million from the provisional figure of £335 million; in future years the EFL will be on a more commercial footing. The Government will expect a dividend of 40 per cent. in contrast to the recent average of 80 per cent.

    "This increase in retained profits will enable the Post Office to finance an increased level of investment in the maintenance of its existing business. However, the Government recognise that larger growth investment including acquisitions and joint ventures may require prudent borrowing if the Post Office is to grow successfully with new products, partners and markets. The Government will approve normal Post Office requests for borrowing for investment cases which are commercially robust.

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    Separate fast-track arrangements will be put in place for considering the largest strategic investments. It will now be possible for the internal boundaries, for example, between the Royal Mail and Parcelforce, to be rationalised, if the Post Office Board so decides, while ensuring that undue cross-subsidy does not occur from monopoly to non-monopoly areas--approved and transparent accounting structures must therefore be put in place.

    "The Post Office Users National Council will be given a more central role and its powers increased.

    "A uniform public tariff will be maintained for those activities which fall within the obligation on the Post Office to provide a universal service. The Post Office will, however, be given the freedom to price flexibly for volume users and, within the monopoly area, the regulator will restrict prices to make sure the Post Office is not making excess monopoly profits. This will be a real spur to efficiency and ensure the general public is paying no more than it should for normal postal deliveries.

    "We intend to provide statutorily for the newly appointed independent regulator carrying out these duties as part of the implementation of the European Union Postal Office Directive next year. I will therefore be bringing forward measures under Section 2.2 of the European Communities Act to put this framework in place.

    "The Government remain firmly committed to a network of post offices across the country. The sub-post office in particular plays a valuable role in local communities and offers real service, particularly to the less mobile. We will set a social objective for the Post Office and for the regulator of maintaining an effective network. The individual businessmen and women who run the post office cum village shop often have to be very enterprising to keep them afloat. With the best will in the world, the Post Office cannot sustain a network if it is not used, nor can the Government. But we intend to ensure reasonable access nationwide to those who need post office service on an electronic basis or face to face with the sub-postmaster or mistress.

    "Because the Post Office will be at a strategic arm's length from government, we will therefore set criteria for public access to the services of Post Office Counters which will be policed by the regulator.

    "There has been a moratorium on the Crown office conversion programme. I have now agreed with the Post Office a strategy, which reflects proposals put by the Post Office to the trades unions, of retaining a core of directly owned and managed Crown offices which account for a significant value of the business done at post office counters. But the strategy also recognises that some further conversions will be beneficial to customers and the business. This is a sensible way forward, and I am therefore lifting the moratorium.

    "If the Post Office is to operate on a commercial basis, it must be able to reward staff for their efforts, taking account of the success of their business, but cutting the cloth to fit in difficult periods. The

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    Government therefore intend as part of this staged process of reform to invite the Post Office Board to come forward with proposals which will, within the necessary context of public sector pay policy, enable more flexible means of reflecting performance within the various parts of the business. It is important that, where appropriate, the Post Office should be able to reward success.

    "Events will, no doubt, continue to move rapidly in this constantly changing commercial environment and further structural changes might be required to enable the Post Office to grow and to meet customer needs and which are in the best interests of the Post Office and its staff. As I said earlier, we do not rule out the possibility of making further changes to equip the Post Office for success, such as a minority share sale or an exchange of equity with other businesses. These options will be kept under review. We will need legislation in due course, in any case, to reflect the long-term nature of the reform package we are putting in place, including turning the Post Office into a PLC to underline the commercialisation of the business.

    "The reform programme I have outlined will provide a balanced package of freedoms and disciplines for the Post Office. It is, I believe, the best possible package of reforms available to the Post Office, which to date has been left starved of resources to invest in growth and unable to step up to new market challenges in the way that other European postal services have done.

    "Over the past year we have appointed a dynamic new chairman and have refreshed the board with new non-executives with wide and complementary business skills. They have a vision of a British Post Office which is world class and which aims to be among the most successful in the world. We must give the Post Office the opportunity to bring this about.

    "Considerable benefits to the consumer will be the result in terms of choice, price and quality of service.

    "We are ushering in the start of a confident, bright new dawn for the Post Office, and are looking to its management and workforce to seize the opportunities, putting right the neglect of the past.

    "Everyone stands to be a winner from our reforms which will be set out in more detail in a White Paper early in the new year. In the meantime, I commend them to the House".

My Lords, that concludes the Statement.

4.54 p.m.

Baroness Miller of Hendon: My Lords, I thank the Minister for repeating the Statement made in the other place. I apologise to him for the fact that I was not able to accede to his request that the Statement should be taken after six o'clock. I am sure that, on reflection, the Minister will agree that it is necessary for your Lordships to hear such news here first, in the Chamber, rather than on the news later. It would not be appropriate to marginalise either House of Parliament in that way.

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As it appears that the Treasury was in favour of the sale of at least a substantial minority share of the business, and the Secretary of State for Trade and Industry seems to have won that particular argument, may we know how the capital receipts estimated at £2 billion, on which the Treasury was presumably relying in its forecasts, will be made up?

Although the Government claim that they will be giving more commercial freedom to the Post Office, it is not clear how that will be achieved. We all remember how the telephone service was starved of funds before it was privatised, freed of Treasury shackles and the constraints of the PSBR.

Where will the funds for commercial expansion come from? It is estimated that the Post Office needs £2.7 billion over the next few years. If the Treasury is still to cream off a substantial part of the profits after tax over and above what would be a normal shareholder's dividend, will not that continue to starve the Post Office of funds?

The Statement suggests that the 80 per cent. of profits that the Treasury currently takes will be reduced to 40 per cent., but that still seems to be a substantial proportion. Will the Post Office have to go into the market to borrow the extra funds to make up for what the Treasury takes away?

The Post Office currently pays £335 million per year to the Treasury over and above its corporation tax. If that money is no longer to be available to the Treasury, presumably the loss to the health budget and to the "education, education, education" budget will have to be found from some other source. Will that be by higher taxes or additional borrowing?

If the Post Office is to be a government-owned commercial corporation, how free will its directors be to enter into joint ventures with other companies here and abroad, to make takeover bids or even to enter into commercially risky transactions? The Statement mentioned only joint ventures here, but would that preclude joint ventures from abroad? Who would bail out the Post Office if anything went severely wrong with any of its enterprises? They may be somewhat risky. Would that be a matter for the taxpayers?

Although it is clear to us that the Government have yielded to pressure from "Old Labour" in the unions--the same unions that were so wrong in their opposition to the privatisation of British Telecom--are the Government aware that the members of the unions will now be deprived of the opportunity to acquire shares in the company for which they work? That is something that the Conservative Party has always encouraged, even before the party opposite discovered stakeholding.

As Germany and Holland have effectively denationalised their post office services and the new company will be in competition with them, how will the Government answer any allegations from the EC that the Post Office is being unfairly subsidised in breach of its rules? What changes in legislation will be needed to bring us into line with the European postal directive? The Minister referred to Section 2.2 of the European Communities Act.

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Finally, my final question to the Minister is a simple one on a point that I am not sure that I totally understand. On the one hand, the Post Office will be given more commercial freedom, but, on the other hand, it will be subject to more competition; and the Statement suggests that somewhere down the line there might be some sort of privatisation. I believe that a minority share sale was mentioned, but even total privatisation does not seem to have been ruled out. How does the Minister think that the new proposals will make the Post Office financially viable so that somebody will want to buy the shares in, say, two or three years?

5 p.m.

Lord Razzall: My Lords, on behalf of these Benches, I should like to share the welcome that the noble Baroness gave to the Statement. Those Members of your Lordships' House who have followed the developments of the past year will know that my noble friend Lord Ezra, occasionally aided and abetted by myself, has been somewhat like a Jack Russell snapping at the heels of the Government asking when we were to have this Statement. Indeed, for the past 12 months the Government have behaved a little like a spaniel--to take the canine analogy of the moment--but now we have the Statement before us.

My concern is obviously shared by the Government in the Statement; namely, the fear that the longer they delayed in giving the Post Office commercial freedom the more its global opportunities would diminish. Indeed, the recent acquisition by Deutsche Post of 50 per cent. of Securicor demonstrates our concern in the area.

I have three comments and/or questions for the Minister. First, we share the Government's rejection of privatisation. We feel that the privatisation that was heavily rumoured in press reports is not the solution which the Post Office requires, for the fundamental reason that we believe that the Post Office must have the global freedom to trade and invest but must also maintain the essential ethos of public service which it has had for so long. That is particularly reflected in our desire and our campaign to ensure that the thousands of sub-post offices which are now under threat should not suffer as a result of these proposals.

The Minister may well comment that the Statement indicates that a social objective will be given to the regulator and to the Post Office with regard to sub-post offices. However, I should be most grateful to receive confirmation that, wherever appropriate, other government action to protect sub-post offices will ensue. There are obvious government actions that can take place, such as resolving the difficulties between the Benefits Agency and Post Office Counters Limited over the computerisation of benefit payments where the Government have a role and can intervene to protect the interests of sub-post offices. Further, there is the ruling by the DVLA that only 3,000 out of 19,000 post offices can supply car tax discs. Indeed, that is another area where the Government could intervene. It is not just a question of social objectives. If possible, I should be

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most grateful if the Minister could confirm that, wherever appropriate, action by the Government to help post offices and sub-post offices will ensue.

I have two further points to raise. First, in rejecting privatisation, the Government have clearly been persuaded by much of the argument for an independent, publicly-owned corporation which has been put forward both by the Union of Communication Workers and the Communication Managers Association. Many of the proposals put forward in the Statement reflect the recommendations from the independent report commissioned by those two bodies.

However, there are two areas where the Government appear not to have been prepared fully to bite the bullet of an independent, publicly-owned corporation. The first was touched upon by the noble Baroness, Lady Miller--namely, the freedom to borrow and invest. As the noble Baroness said, the Post Office management calculates that £2.7 billion over the next five years will be needed for expansion, automation and new services. The recommendation and the logic of an independent, publicly-owned corporation with its own commercial freedom is that it should be free to borrow that money in the capital markets, if it so requires, without Treasury consent and with the corollary that that would be without government guarantee; in other words, the corporation would be free to go into the commercial markets as any other corporation would do. That was the recommendation of the report produced by the Union of Communication Workers and the Communication Managers Association. The Government do not seem to be prepared to go that far. I should be most grateful if the Minister could expand on that aspect. I am concerned that this will constrict the apparent giving to the corporation of the commercial freedom to meet its financial objectives.

The second area relates to the same point but does so in another way. If the Post Office is to attempt to be one of the major players on an international basis, it will, as reflected in the Statement, need the ability to pay and "incentivise" its staff on an appropriate basis as if it were a private corporation. Again, the recommendation of the report to which I referred was that the corporation should be given that freedom. However, the Government have not been prepared to go that far in their Statement. Therefore, can the Minister confirm that a restraint will not be imposed by the Treasury with one hand in relation to what it appears to be giving with the other?

5.6 p.m.

Lord Sainsbury of Turville: My Lords, perhaps I may, first, say that I hope no disrespect was given to the House by my request that the repeating of the Statement should be delayed until six o'clock this evening. Having flown back from Japan yesterday in order to attend a meeting this afternoon of the Council of Science and Technology, I very much wanted to be able to attend.

I should begin by pointing out that the Treasury was not expecting to receive £2 billion, so there is no issue as to where this money has to be found. After a period

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of substantial starvation of the Post Office, there will be a significant change in the amount that it will be able to keep. Indeed, instead of having 80 per cent. of its after-tax profits taken away, it will have to give up only 40 per cent. That is a typical figure for any corporation to have to give in terms of a dividend.

As regards the question about joint ventures and partnerships abroad, the Post Office will be able to do that within the borrowing requirements that it has, subject of course--if it is a significant investment--to the approval of the Government. In fact, it will take very little to bring the affairs of the Post Office into line with the European directive. There will be a minor change on the level of the monopoly from, I believe, £1 to 92p, but that is rather a small change.

If in due course it is decided that shares should be sold to the public, I see no difficulty in making the corporation viable as it already makes considerable amounts of profit. I believe that both the management and the workforce of the Post Office will rise to the challenge which they now face. I am not able to enter into these animal analogies about the behaviour of the House. I found it quite difficult in Japan last week to explain what was happening in your Lordships' House; indeed, it was difficult enough without even going into the question of spaniels.

It was sensible to look at the problem carefully and not rush into decisions. The Post Office is part of our national assets and has an important social function. Therefore, it is important to get the exact balance between social and commercial objectives and between freedoms and disciplines. There will be a social objective and I can assure noble Lords that we will do everything that we can to help sub-post offices, especially in terms of systems and other procedures.

Although we are giving substantial freedom to the Post Office, as has already been said, the taxpayer will ultimately stand behind the corporation. It therefore seems to me appropriate that, for significant proposals of investment, the Government should have the ability to give the final word. As far as concerns pay and incentive, we want to change the situation so that members of the Post Office management and workforce can be "incentivised". But consideration must be given to public pay policy. The significant aspect of the proposals is that they combine both discipline and freedom. I believe that that is the way forward for the Post Office.

5.9 p.m.

Lord Skelmersdale: My Lords, I should, first, declare an interest as I am a director of a mail order company and from my point of view the Post Office should essentially be healthy, successful and efficient. In that connection I welcome the 40 per cent. dividend proposal as opposed to the ever escalating negative EFL, although I note that there is a holding exercise for the next 15 months or thereabouts during which negative EFLs will continue. Even so, I calculate that, as long as the Post Office is not allowed to borrow too much in the first year of the interim period, the Treasury will still receive the best part of £400 million--both from the

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40 per cent. dividend and from the corporation tax which any organisation has to pay--in the year 2000-2001. Does the Minister agree with that figure?

I am sure the noble Lord, with his experience, will agree that the success of a commercial organisation depends on management at every level. The top level is one of the vital ones. Will the Government continue to appoint directors of the Post Office or just the chairman? Will the chairman be given freedom to have his own men and women around him as executives or indeed as non-executive directors?

The Statement mentions new businesses. One such fairly recent one is Subscription Services Limited. Will such businesses be free from the prohibition in the Telecommunications Act which prevents them from using electronic mail out of their offices? Currently, they receive instructions and items for outward transmission by fax and e-mail but are not allowed to use their mailing lists and then split them out, as it were, to the various people on the mailings lists by electronic means. They have to do it by hard copy. Will such freedom be allowed to them?

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