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Consignia
4.15 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, with the leave of the House, I shall now repeat a Statement made by my right honourable friend the Secretary of State for Trade and Industry in another place. The Statement is as follows:
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"I should like to draw the attention of the House to the declaration of interests contained in the Register.
"I would like to make a Statement on the announcement Consignia made this morning about its restructuring plan for Parcelforce and the outcome of its review of its distribution systems.
"This announcement, although it is a blow to many hard-working employees and their families, is the first of several necessary steps that will lead to the renewal of postal services in Britain.
"As is well known, Consignia plc—the company running the post office network, the Royal Mail and Parcelforce—has been losing money. Its costs have risen at a time when the rate of growth in mail volumes has slowed, with competition from fax, e-mail and the Internet affecting demand. The company is losing more than £1.5 million every day and Parcelforce Worldwide alone is losing £15 million per month.
"In the 10 years of its existence, Parcelforce has never made a profit and has now amassed losses of close to £400 million. Parcelforce's business model has failed and repeated attempts to make it work over the past 10 years have not succeeded. The losses on parcels have drained investment from the rest of the Post Office. For the sake of the company as a whole Parcelforce now needs to be restructured and restored to profitability.
"It is important to consider how the company got into this position. The British Post Office used to be admired across Europe for its high standards of performance. But in the 1980s and 1990s, other postal services across Europe began to modernise and invest so that they could deliver better services in a rapidly changing market. But successive Conservative governments did not care about improving delivery. They allowed the Post Office to stagnate and starved it of investment. While new technologies and changing markets were transforming the communications sector, our postal services were allowed to drift and decline.
"Since 1997, this Government have given the Post Office the greater commercial freedom to meet these challenges that management and unions had long called for. Greater freedom within the public sector has meant freedom for the company to make more commercial choices. But with freedom comes responsibility—responsibility to control costs, to organise the company to meet the demands of customers and to modernise the way it works.
"Government have a responsibility too—to ensure that the company has the best possible management and the resources needed for investment. This way we ensure that the public and business customers will get the best quality service.
"We have already taken several steps to strengthen the management. Today I have announced that Allan Leighton has been appointed the new chair of Consignia, a role that he has been
- playing on an interim basis since January. He will be responsible for getting a grip on this situation: to stem the losses; reform the company's industrial relations; and to develop a new vision and strategy for the future.
"Allan Leighton has a proven track record of success in business. I believe he has the determination, drive and energy needed to transform the Post Office's performance. As the interim chair and a non-executive director of the company, he has seen at first hand both the problems that exist in the company but also the tremendous potential it has. He has already spent a considerable amount of time in sorting offices, post offices and delivery offices around the country. He was out there again this morning, talking to some of the workforce about the changes the company announced today.
"These changes are: first, the integration of the universal parcels service into the Royal Mail itself. Under the universal service obligation, which we have enshrined in legislation, the company is responsible for delivering parcels up to 20kg to every part of the country. By giving this responsibility to the Royal Mail the company will create a more efficient service, safeguarding the 30 million parcels sent by the general public every year. This means people will still be able to send parcels from their local post office, just as they do now.
"Secondly, there will be a radical reshaping of the remaining Parcelforce business, which will in future concentrate on high value, time-guaranteed express services.
"Thirdly, there will be changes to the mail distribution system. The existing network of road, rail and air has developed on a piecemeal basis. It has been causing delays, imposing excessive costs and reducing the quality of service to customers. The necessary rationalisation will increase the volume of mail carried by rail. Although the practice of sorting mail on trains will be phased out, bulk mail will now be carried by rail during the day. The total number of road journeys undertaken by Royal Mail will be reduced, as will the number of vehicles used, cutting pollution as well as costs.
"Fourthly, the company is stripping out layers of management and jobs in its operations and support services that are no longer needed as a result of the other changes.
"The company expects that together these changes will mean the loss of 13,000 jobs over the next three years with a further 2,000 jobs going through natural wastage. The company has also made it clear there will be further unavoidable job losses over the next three years, and I will of course continue to inform the House as the restructuring of the company is taken forward.
"I can also announce today, as a contribution to supporting the company as it restructures, that the Government will forgo a dividend for this financial year.
"I understand the deep disappointment that postal workers will be feeling at this news today. This is not a decision the company has taken easily or lightly. But it is one that is unavoidable if we are to create a high quality postal service, offering good and secure jobs. I know that the whole House will welcome the fact that the company will offer as many of those affected as possible the option of continued employment with a different part of the business or a voluntary redundancy package. The company is of course in discussion with the trade unions. And we will do everything we can through the Employment Service, and other agencies, to provide support, assistance and new opportunities to those losing their jobs.
"These are difficult times for the company as management and workforce grapple with their legacy of under-investment, poor industrial relations and undertake the changes that are necessary to face the competitive postal markets of the 21st century.
"I have made it clear to the new chairman that there needs to be an effective partnership relationship between the management and the workforce if we are to deliver this. This was recommended by the noble Lord, Lord Sawyer, in his report published last year and he believes that there is a genuine commitment to change from all sides within Royal Mall to achieve this.
"The benefits of such a relationship have been demonstrated since the report was published: 1,352 days were lost to unofficial action in the three months from October to December compared to 43, 198 between April and June. This is a tremendous improvement and the whole House will want to see it maintained.
"I am confident, however, that the path we are pursuing is the right one: greater commercial freedom, strengthened management and universal service enshrined in primary legislation. In other words, a delivery to every address in every part of the country—something that strongly underpins today's announcement.
"Today marks a turning point for the company. In the words of the new chairman, the measures announced today,
'will ensure that real progress is made in the first year of a three year strategy to restore profitability, deliver positive cash flow, improve services and make the business a better place in which to work'.
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"Central to Allan Leighton and the company's task will be the relationship with the regulator. As honourable and right honourable Members will know, the postal regulator recently announced an extension of the consultation period, a welcome response, in no small part, to the concerns expressed in this House. In the coming weeks, Allan Leighton, the company and the regulator must have further talks and reach a shared analysis of both the company's financial position and the postal services market.
"We know that today's news will come as a blow to many workers. But these changes, however painful, are unavoidable. Today must be the first step towards renewal, creating a postal service that justifies the pride, and lives up to the expectations of the millions of people in Britain who depend upon it every day".
4.24 p.m.
Baroness Miller of Hendon: My Lords, I thank the Minister for repeating the Statement made in another place. I feel sure that he is as saddened at having to make a Statement of that kind as I am to have to hear it. The current crisis in the Post Office, in my belief, is another public service failure of this Labour Government. It is a direct consequence of the Government's failure to allow the company to modernise in the way that it should and to give it the commercial freedom to deal properly.
Less than two years ago when the Postal Services Bill went through both Houses the then Secretary of State said in the other place of that Bill:
- "It will ensure a strong Post Office that is better able to serve all its customers in all parts of the country".
There is nothing in the Statement to say why that has happened other than it is the result of years of Conservative government. What has happened has been an absolute disaster. The arrangement was, in the words of the Chancellor's then spin doctor, "a dog's breakfast". I shall not call it that; it was, however, a kind of hybrid animal. The company was not given full commercial freedom so that it was able to compete on a level playing field. Neither was it fully in the public sector and protected against competition. During the same period, companies in Holland and Germany, its main competitors, have become global, world market leaders: all we have is this terrible Statement.
Can the Minister tell the House something about the 10,000 urban post offices that will close? Will Her Majesty's Government compensate the postmasters who will suffer from these closures that now appear inevitable? Sub- postmasters in rural and urban areas run private businesses. They have invested their money. Now it appears they will face worse situations. Will the Government tackle the company's underlying financial problems instead of saying, as they have done, that it is a matter for Consignia? The Government have constrained Consignia from doing things the company felt it needed to do.
The Statement says nothing about the proposals of the regulator to introduce competition in the delivery of postal services. Since the Statement does not say anything, can the Minister say whether Her Majesty's Government support the regulator? They cannot pretend that they have no responsibility in this matter. This is crucial to the future of the Post Office. Is the
timetable set by the regulator realistic? Will the universal service obligation remain a first requirement of the Post Office with an affordable, universal tariff?The Statement also speaks of 13,000 job losses and a further 2,000 job losses through natural wastage. It also states that there will be further unavoidable job losses in the next few years. What are we talking about? Newspapers are writing about 40,000 job losses, but nothing about job losses to that extent appears in the Statement, simply a reference to further, unavoidable job losses.
The Evening Standard comments on 40,000 job losses being am attempt to stem the £l.5 million that the Post Office is losing every day. Could the figure be worse than 40,000? I shall be grateful to hear what the Minister has to say.
Can the Minister say what the cost of rebranding Consignia back to Royal Mail is going to be? Will he confirm that this whole enterprise was an expensive and ludicrous mistake with no advantage whatever to anybody? Given that Parcelforce itself has lost so much money and the Statement says that it is to be integrated with the Royal Mail, is the Minister certain that it will not cause severe problems for the Royal Mail when it has to take on Parcelforce as part of its operation?
The Statement also mentions changing the distribution service to making far more rail deliveries. Is the Minister confident that the mail can be delivered safely and speedily by rail, given the Government's track record? My final point is that we know that Allan Leighton has a fine business record. Because we wish the Royal Mail—as will be its new name—well, we hope that he succeeds.
4.30 p.m.
Lord Razzall: My Lords, I thank the Minister for repeating the Statement made in another place, but, like the noble Baroness, Lady Miller, we cannot help but consider the background and history of the Post Office, or Consignia. I must say that my recollection differs somewhat from that of the noble Baroness.
It was not this Government that year after year refused to give the Post Office the commercial freedom it wanted; it was the Conservative government. Hansard should record that, because it would be misleading to those who study Hansard if a wrong impression of history were given. As we all remember, what happened was that during that government's period of office, the Post Office was significantly profitable and the Treasury received significant revenues from it. In the run-up to the 1997 election, the Conservative government were extremely reluctant to allow the Post Office the commercial freedom that it wanted because they wanted to keep the revenue to secure the Treasury's finances.
So we should take no lectures from the Conservative Party about what has happened. The problem was that by the time the present Government gave in to the Post Office's pressure for commercial freedom—presumably the Treasury was overruled at
that stage—deregulation had occurred and the Post Office proved to be in an insufficiently strong position to withstand the significant worldwide competition. That is what happened and that is why the Statement is being made today.The Conservative Opposition cannot have it both ways. Either the Post Office has now been given the commercial freedom that the noble Baroness says that it ought to have had, but which her government never gave it, in which case the criticism is of Consignia, not of the Government, or it has not. As I understand it, the Post Office now has that commercial freedom, which is why the proposals have been brought forward today. Of course, bearing in mind their significance to the United Kingdom economy, it is entirely appropriate that the Minister should make a statement on the proposals, but if the Post Office has that commercial freedom it is not for us to suggest to the Government what they ought to be doing about it. That is a matter for Consignia. Our comments should be limited to what the Government can do. I have two or three suggestions.
First, as an aside, I share the view of the noble Baroness. I am delighted that Allan Leighton has accepted the permanent appointment as chairman of the Post Office. If the Post Office has such commercial freedom, someone of his track record is manifestly well qualified to act as chairman of the company, and the Government are to be congratulated on the arm-twisting that led him to take the job permanently. I must say—although this is a matter not for the Government but for Consignia—that I hope that not all the job losses will be among the poor bloody infantry, to coin a phrase, but that some officers will also bear their share of the costs of necessary restructuring.
I should like to press the Government on one or two matters. First, as they have rightly said—the noble Lord, Lord Sawyer, is to be commended on the work that he has done in this area—there have been significant labour relations issues in the Post Office. Those of us who live in certain areas of the country will know that for a long time unofficial action has affected the delivery of the service. I am especially pleased that the Government bring that fact out in the open in the Statement and that the Minister has had conversations with Consignia emphasising the importance of improving employee-employer relationships. There is no doubt that a long- standing, serious problem has affected not only the workforce but the public.
My second point is also within the framework of what the Government can do something about and relates to a fact that still puzzles me about the Post Office. In response to a debate initiated by a Conservative Member earlier this month, the Minister said that the Government were committed to ensuring the maintenance of the universal service obligation. If the regulator determines that there is to be significant deregulation and competition in postal services, how will the Government maintain the universal service obligation? Will they impose a subsidy requirement on companies licensed to compete with the Post Office or will the Government themselves subsidise the
universal service obligation? The Minister will be aware that there is significant concern that that decision has not yet been taken. In the light of the commitment that he gave in a recent debate, this may be the opportunity for him to explain how it is to be achieved.4.37 p.m.
Lord Sainsbury of Turville: My Lords, I, too, am saddened to have to make the Statement, but I must agree with the noble Lord, Lord Razzall, that it is necessary not because we have denied the Post Office commercial freedom. The Post Office may have made mistakes and not controlled its costs or increased productivity, but we cannot say that it has not had the freedom to take commercial decisions both in this country and in becoming a global player—if that was its strategy. It has had commercial freedom and has made decisions, and it is on the basis of those decisions that it must be judged.
As for the urban network, which is a separate issue, reorganisation is taking place, as it should, which will involve compensation. Despite her statements on commercial freedom, the noble Baroness, Lady Miller, also wants us immediately to interfere with Postcomm's proposals. The whole point of having an independent regulator is that he is independent and that the Government do not intervene on the issues that he considers.
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