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3.19 pm

Lord De Mauley: My Lords, I thank the Secretary of State for his Statement and for giving me sight of it a few minutes ago. We welcome Richard Hooper’s report, which confirms what everyone has known for a long time: Royal Mail’s working practices are inefficient, competition is intensifying, industrial relations are poor and sorting machinery is outdated, while the fixed price of a stamp and a huge pension deficit seriously limit room for manoeuvre. All this has been clear for a decade, but for all that time the Government have done nothing to curtail a precipitous decline in Royal Mail’s fortunes.

Today we learn that the Government are trying to strike a desperate deal to see them through the next election. They are trying to look like the saviour of Royal Mail but are doing so in a barely disguised breach of their election manifesto. Even though his own party will not do so, we broadly welcome the Secretary of State’s intention to introduce a new commercial partner. It is a step in the right direction, although the details remain unclear.

Will the Secretary of State confirm the status and details of the plan? What exactly are private partners being offered in exchange for their investment? Will he insist on a commitment from them to invest in new sorting technology? Can he confirm whether the opportunity to buy a stake in Royal Mail will be put out for competitive tender? Has he already been assured that a deal would comply with EU state aid rules? By what commercial method might he sell a stake? Can he guarantee that the revenues from any sale will accrue to Royal Mail and not to the Government?

The Government have had over 10 years to deal with the problems that Hooper identifies but have completely failed to do so. In 1998, in his first attempt in this role, the Secretary of State said that the Government’s policies would,

He said:

“Everyone stands to be a winner”.—[Official Report, Commons, 7/12/98; cols. 24 and 36.]

Since then, almost 40 per cent of all post offices have closed. Rather than creating innovative solutions to the problems facing the business, the Government have concentrated on managing its decline.

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During those 10 years, the Government could have cut costs, done deals, forged partnerships or part-privatised the business, but they have singularly failed to do so. They have failed to drive through efficiencies in Royal Mail management. They have failed to invest in new technology. They have failed to deal with the pensions deficit. Just as the Government have wasted 10 years mismanaging the country, they have wasted 10 years mismanaging Royal Mail.

Having read Hooper, will Secretary of State decide to keep the pension fund intact, with the deficit made good by the Government, or does he intend that Royal Mail should dispose of the fund to the Government, with the Government assuming ongoing responsibility for pension payments? In other words, will the Government resort to raiding the pension fund in order to try to plug a black hole in the public finances, dumping the cost of a multibillion mortgage on future generations? The seizure of £22 billion from Royal Mail’s pension fund might make the Government’s woeful borrowing figures look a little better, but it would saddle future generations with an almost open-ended bill. The whole process would look as if it had been engineered to make a quick buck for the Prime Minister, kill the issue until after the next election and pass the biggest financial problem on to the next Government and many that will follow them. It would be nothing short of an asset-stripping scam.

What does the Secretary of State estimate that the long-term pensions liability to the taxpayer will be? Will the Royal Mail’s pension liability be included in the Government’s borrowing figures? If the Government take over the pension fund, what will happen to the Royal Mail’s agreement with the trustees to make up the pension deficit over 17 years? Will it still have to pay several hundred million pounds a year to the Government?

The other elephant in the room is the unions. As we know, Royal Mail workers are already planning strikes. What does the Secretary of State expect will be their reaction to today’s proposals? We believe that any restructured ownership package must include the full involvement and incentivisation of the staff. What will the pension terms and conditions be for future joiners and for agency workers? Thousands of post offices have already closed; large-scale sorting-office closures would be a further blow to the workforce. What is his estimate of job losses resulting from any deal? What is his estimate of the effect of a reconstituted Royal Mail on post office income? Can he rule out any weakening of the universal service obligation?

Proposals for serious reform of the Royal Mail are welcome. Private capital to fund improvements in services is welcome. After a decade of missed opportunities, however, the Government’s last-ditch attempt to dangle the prospect of part-privatisation must not distract us from the real worry—a cheap accounting trick that would dump a huge bill on every family in the country for generations to come. That would steal the funds that would have paid most of the pensions and place a new obligation on future generations to pay the bills that those funds would have covered. Yet again, the Government would be stealing everyone’s tomorrow for their own today. For future generations, we fear that the bill is in the post and that it has the Prime Minister’s stamp all over it.

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3.26 pm

Lord Razzall: My Lords, I am somewhat amazed by the contribution of the noble Lord, Lord De Mauley. I was under the impression that for the past 10 years Royal Mail had been under its own board of management. It would worry me if the Government had been responsible for management. I thought that that was Mr Crozier’s job.

We welcome the Statement. It is obviously, as the Minister admits, work in progress and much further work will be required before we get the Government’s detailed recommendations on how they will implement elements of the Hooper report. Noble Lords from all sides of this House welcome the Government’s firm commitment to the continuation of the universal service obligation. The Minister should stress that this is six, not five, days. We welcome the commitment to the obligation for six-day deliveries.

We were one of the first countries in the European Union to allow liberalisation and competition in the postal services. There are now 22 licensed operators competing with the Royal Mail in the UK. One of the problems that the Royal Mail has had is that almost all of them operate in an upstream manner vis- -vis the Royal Mail. They tend to be access providers targeting the large business mailers in order to build volume quickly. In 99 per cent of these cases, the access providers sort the post themselves and then pay the Royal Mail to deliver it, with the Royal Mail levying a charge. In those circumstances, does the Minister think it appropriate in the liberalisation and reform of the Royal Mail for those upstream providers to make a contribution towards the cost of the universal service obligation?

The noble Lord, Lord De Mauley, made great play of the pension deficit, but the Minister’s comments came straight from the Hooper report and the recommendation that the Government should take over the historic pensions liabilities in the Royal Mail. He very carefully said that this recommendation would be implemented only as part of a “coherent package”—I think that was the phrase he used—for the reform of Royal Mail. However, is he prepared to give a commitment today that, if a coherent package is implemented and agreed by all sides, the Treasury has consented to the Government taking on that pension deficit? That would clearly be a significant commitment by the Government, which he may not be prepared to make today.

Of course, the real fun in these recommendations comes from the third major area, which is what will happen to the future capitalisation of Royal Mail. Today, we read with interest in the newspapers, which are presumably getting their information from the normal sources in Whitehall, that the Government are contemplating the sell-off of a minority stake in Royal Mail. That, noticeably, was not mentioned in the Minister’s Statement. Indeed, there is no reference to it, despite the fact that the Hooper report states on page 13:

“By contrast, private capital is generally more flexible and more tolerant of necessary risk. It can be raised more easily, faster and for a wider range of purposes and does not come at the cost of competing public priorities”.

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Is the Minister prepared to indicate today whether the Government are contemplating private capital going into Royal Mail? If so, why is that not in the Statement? I wonder whether there is a clue in the noble Lord’s remarks on page 5 of the Statement:

“We will fulfil our manifesto commitment to ‘a publicly owned Royal Mail fully restored to good health, providing customers with an excellent service and its employees with rewarding employment’”.

That is from the 2005 Labour Party manifesto, but it is interesting that the first sentence of the manifesto commitment is not included. It states that,

Is the omission in the Statement of that sentence from the manifesto deliberate? Are we to believe what we read in the newspapers today and yesterday regarding government plans to privatise either a minority or all of Royal Mail? I should welcome the Minister’s comments on that point.

I turn to the Post Office. Since the Minister took up his new office, significant progress has clearly been made in the department on plans for the development of—or perhaps a better word would be “saving”—the post office network. Clearly, granting the card account to the Post Office was a significant development.

Finally, is the Minister prepared to answer the question that I put to him the last time that we discussed this matter in your Lordships’ House? Bearing in mind that a number of sub-postmasters and sub-postmistresses will be looking at whether to continue trading after the Christmas holiday or whether to close, can the noble Lord give them any comfort?

3.33 pm

Lord Mandelson: My Lords, I thank both noble Lords for their responses to the Statement. Despite the somewhat churlish and ungenerous nature of the remarks of the noble Lord, Lord De Mauley, I think that I am right in noting that he did not reject Hooper’s report or recommendations; nor do I think that he rejected the fact that in principle the Government accept the recommendations. Therefore, despite the harshness of language, we seem, broadly speaking, to be in the same place on Hooper—I think that he is indicating his agreement to that statement.

I should like to take the opportunity again to rule out any weakening of the universal service obligation. The whole point of what we are doing here is to secure the Royal Mail’s future to enable it to see off the pressures and challenges that the Hooper report has described and to give it a viable future so that that universal service, which the country has grown used to and depends on, will be sustained indefinitely in the future. We cannot do that without accepting the recommendations and carrying out the actions that Hooper and his colleagues are recommending. That includes taking over the historic pension fund liabilities.

It is not fair to the Government to say that we have not helped the Royal Mail over the past 10 years or so. We have not exactly been hiding our chequebook or sitting on our hands doing nothing. Back in 2001, we made available £500 million in loans to purchase companies comprisingaGerman parcel company and the Royal Mail’s European logistics and parcels arm.

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A little over a year later, we provided debt facilities of over a billion pounds, but these were not taken up and used by the Royal Mail. They were then effectively rolled over into debt facilities that we renewed in 2007, which amounted to £1.2 billion to assist the Royal Mail’s modernisation plans, plus the use, incidentally, of £850 million additional reserves on the Royal Mail balance sheet to support the pension fund. So we have not exactly been doing nothing.

The harsh truth is that—and this goes to the heart of the issue—despite these debt facilities that the Government have made available, Royal Mail has drawn down only £85 million. By March this year, Royal Mail had spent only approximately one-third of what it had intended to spend in its original master modernisation plan. This highlights the need to make progress with modernisation to meet the challenges of the market. It is not the Government who have been at fault. We have not held back. We have been willing partners up to the extent of our ability and capacity to be so. It is more a failure of drive, confidence and unity within the Royal Mail, which have meant that the facilities and resources that have been made available to the Royal Mail have not been taken up in order to bring about the modernisation and efficiency raising for which they were originally intended.

I will not go into greater detail about the discussions that we will have with private and other postal operators that may be coming forward to indicate an interest in taking a stake in the Royal Mail. I have only just received the first indication from the Dutch company and I have to meet the management to discuss this. We will take this forward in the coming weeks. I will of course report back to the House on the detail that is emerging.

The noble Lord, Lord Razzall, may not have properly understood what I said in my Statement. When I referred to our manifesto commitment, I went on to say:

“Bringing in a partner through a minority stake in the Royal Mail’s postal business will help us to deliver that goal”—

as set out in our manifesto.

“It will bring the Royal Mail fresh investment and new opportunities to grow in Europe and internationally”.

There is no secret about what we are intending to do. We are intending to accept the recommendation of Hooper, to find another postal operator to come in and partner the Royal Mail, and to take a minority stake, thus leaving the Royal Mail within the public sector on a continuing basis but using that investment, expertise and experience, as well as that fresh confidence and vigour in the company, to bring about that very modernisation that in our view has been lacking for so long.

The Lord President of the Council (Baroness Royall of Blaisdon): My Lords, the next 20 minutes is a period for questions and answers and not for long statements.

3.40 pm

Lord Clarke of Hampstead: My Lords, I have questions, but I declare my interest as a former postman. Six years ago, this House had an opportunity, which it rejected—the

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Government rejected it—to take steps in regard to the Post Office, but today the final nail is being driven into the coffin of a once-great public service. What I said all those years ago has sadly been proved correct. Once, my Government, the Labour Government, decided to destroy the Post Office by the introduction of a biased regulator, as was said at the time—that is not hindsight—that sealed its fate and resulted in them getting rid of a great public service.

I ask my friend—I have got that wrong—I ask the Minister whether he agrees that if our Government, and for that matter the previous Government, had had the courage to allow our postal service to charge something like the postal rates charged in other parts of Europe, we would be in a much better position than we are today. Did not this and the previous Government interfere with the tariff and pricing policies of the Royal Mail, which is part of the Post Office? We are subsidising the competitors. Will my noble friend—I suppose he is my noble friend and I have to say that because of the customs of this House—even at this late stage, with a strike looming in the north-west, bring in some meaningful negotiations, get rid of the man who has cost the Post Office and Royal Mail £8 million in six years and get on with running the business as it should be run?

Lord Mandelson: My Lords, I note what my noble friend—actually my old friend, as it happens—has to say about the regulator. Some will share his view that in his commitment to introducing greater liberalisation to the market and to ensuring the continuation of the universal service obligation, the regulator paid too much attention to the former and not sufficient to the latter. Whether or not that is the case, he will be pleased to hear the Government’s decision to transfer responsibilities to Ofcom from Postcom. I hope that that regulation of the Royal Mail will be more to his satisfaction in the future.

Lord Dearing: My Lords, I declare an interest as a former chairman of the Post Office and as someone who receives a Post Office pension. The Minister referred to a package; and a package has to be delivered by the partners. First, will the Minister confirm that the Government will be a partner to the delivery of that package? Secondly, does the other potential partner have the resource and the will to invest in the business? Thirdly, can he confirm that we need a viable, universal service? The public interest, important though it is, goes beyond that: we have a Royal Mail which is among the best in the world and it must work in the interests of all its shareholders—that is, the users and those who earn their living there.

I very much welcome the Minister’s offer of further debate in this House, where the interest is manifest. The future of this business is in our hands. Will there be legislation on the framework within which the new business will operate? It has been a problem. Will the Minister confirm that we need sensitive regulation on how to operate in a fast-moving market? It is not sensible to have a muzzle-loaded system which leaves the Royal Mail unable to compete effectively. I am very much in the debt of Hooper for opening the box and enabling us and the Government to get down to the fundamental issue.

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Lord Mandelson: My Lords, we are all in Mr Hooper’s debt because he has produced a first-rate report. The sort of minority partner we are seeking is someone with the will and resources to invest in Royal Mail—that is the principal condition—but I think the partner needs to bring more than that: experience, expertise and a proven track record not only in transforming a postal business of its own but also in working closely with the workforce and its union representatives in the process of doing so. Quite frankly, if we do not have that experience and attitude brought to the affairs of Royal Mail, we are unlikely to cure what I think is one of its most serious diseases, which is the poor relationship and lack of trust between the management and the workforce. That really does have to change.

I can confirm that legislation will need to be introduced, but I stress to noble Lords that we are not simply going to fix the regulation, lift the pension burden, and stop there. For us it will be all or nothing. The customer and the taxpayer demand something back out of these changes, and that will depend on all the Hooper recommendations being implemented, not being cherry-picked. The public are certainly not going to pick up the bill for what is going to be done without getting anything back. That is a very important principle.

Lord Eden of Winton: My Lords, I pay tribute to the postmen who deliver the mail to the door. I cannot recollect ever having met a postman who was not cheerful, helpful and enterprising, and I hope that whatever happens in the future, the contact between postmen and people in their homes all over this country will continue on the same friendly basis.

Would the noble Lord say a little more about what he has in mind in relation to modernisation? Is it not a fact that the Post Office has made many attempts to introduce new electronic sorting methods and other more modern approaches, but that on almost every occasion those innovations have been resisted by the postal union? More recently, has not the Post Office endured extremely damaging and costly strikes in its attempt to introduce new practices? Can the noble Lord offer any encouragement that the leadership of the postal union is taking a more enlightened approach?

Lord Mandelson: My Lords, I cannot speak on behalf of the principal union in the Royal Mail, but I hope very much that it will respond to the Hooper recommendations and the Government’s responses to them in an open-minded way. I hope, too, that it will see that Hooper’s motivation, like our own, is to secure the future of a publicly owned Royal Mail. We are not seeking to privatise the Royal Mail. It is not our desire to privatise, we do not intend to privatise, and we have no plans to change that intention. I hope, therefore, that that anxiety—or ideology, if you like—can be put to one side so that Hooper’s recommendations are considered on their merits.

The noble Lord is right to pay tribute to the men and women who deliver our post, but they need appropriate skills, investment in automation, and the management and regulation that will enable them to do their jobs even better in the future. The sad fact is that, when compared with postal operators elsewhere

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in western Europe, the Royal Mail’s introduction of automation is sadly lagging behind. There is a lot to catch up with, and we have to start afresh without further delay.

Lord O'Neill of Clackmannan: My Lords, does my noble friend agree that the past 10 years have not been wasted and that that is a caricature of the truth; that we have seen single delivery introduced remarkably peacefully; that we have seen significant but insufficient investment; and that part of the problem is that management by personality is not likely to change the culture of an organisation significantly? I therefore take his point that we need not only an injection of extra money but also an injection of additional forms of management expertise because for too long, regardless of what we have called the Post Office, it has behaved more like a government department than a modern logistics enterprise. It has fallen asleep on the job in relation to IT developments and the implications of the dramatic increase in e-mail which my noble friend described.

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