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My complaint is as follows. I can guess exactly what the Minister will say. He will say, “You’re asking for the moon. You’re asking me to talk about some of the difficulties in the negotiations which will arise when we talk to A, B, C, D and E”. I appreciate that point, but we must be able by Committee stage to know something more about the Government’s intentions on some of these points and how they are going to resolve these commercial difficulties. They could at least open them up for future discussion; it would not preclude the path of any negotiations. If you read Part 1, you find absolutely nothing, not even a definition of the type of person who is to be brought in or even the 30 per cent. My plea is for more information.

4.30 pm

Lord Haskel: My Lords, I, too, pay tribute to Lord Dearing. He was a good friend.

I thank the Minister for explaining this Bill, but I am not sure whether I should congratulate or commiserate with him. This is a difficult time to introduce a Bill to reorganise the Royal Mail. The noble Lord, Lord Hunt, spoke of uncertainty in the Labour Party, but he is wrong; the uncertainty is everywhere, even on the noble Lord’s Benches. These are difficult times. All our principles are being tested—economic, social and political—but this is no reason why we should not get on with reorganising the Royal Mail. The Hooper review is right, and I agree with the Minister that, in accepting it, the Government can get on with the job in spite of all the turmoil. But the turmoil cannot be ignored, and neither must the lessons learnt from it be ignored.

One thing that precipitated my decision to speak in this debate is the amendment of my noble friend Lord Clarke. I listened to him with a great deal of care and

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respect, because his long experience in the industry demands that. We are all products of our experience; I probably started work at about the same time as my noble friend. I started in the textile industry, which is another industry with a history of traditions and pride. When I started work there, we did not have a monopoly like the Royal Mail, but we had import quotas and a lot of energy went into keeping them. Inevitably, some of the new blood thought that their energy would be better directed towards style and design, new technology and good management, clever marketing and slick service—towards providing what the customers wanted. Of course, you know who survived and you know who disappeared. It is because of that experience that the Hooper report rings true to me; it chimes with my experience.

Let us look at what is proposed—a universal service in the public sector, enshrined in law and regulated by Ofcom, and a public service with a private sector company to provide modernising management, with the owner taking a back seat. That is the kind of mixed economy solution that we used to discuss in the 1980s, but important lessons have been learnt since then.

One political lesson coming loud and clear is the need for good governance—the noble Lord, Lord O’Neill, touched on this. Good governance is hard to pin down; in the recent past, we have favoured self-regulation in business because the alternative has been box-ticking and because too much regulation puts a brake on enterprise and initiative. The answer lies in transparency. The Bill will need to insist on ways of offering even greater transparency—better information, broader knowledge and more and deeper explanation—to avoid the secrecy made acceptable in recent years by hedge funds and other financial operators. With transparency, agreement on accounting standards is also important.

The current banking crisis is teaching us other lessons. If an organisation is not to be allowed to fail, regarding it as a commercial operation may be politically right but commercially wrong. You have to deal with what others have referred to as the ambiguity of authority. It seems to me that the way to do this in the Postal Services Bill is to lay down that the first objective is not to maximise shareholder value—a concept that is probably now discredited—but to operate entirely without government support. Until that happens, the interests of the shareholders must be secondary and employee shareholding would have to be delayed. In that way you also remove the Royal Mail from the casino of share trading while it is renewed and reformed.

Next, you have to insist on good behaviour in the environment. That is becoming an important part of public trust. For the Royal Mail, this will be tricky. Greener ways of distributing packages and mail are being introduced. To save carbon and delivery charges, customers are collecting goods ordered over the internet at local depots. Local contractors are billing and invoicing to avoid long journeys for the mail. The environmental challenge will reduce the need for some Royal Mail services. I am sure that the Government will have to insist on other community values, which may affect the Royal Mail business.

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On the other hand, I would be a little sceptical of the dire warnings about the disappearance of paper mail. The Minister spoke about this. He will remember a time when the big question was what we were going to do with all our leisure when the new technology did all the work. The belief that all our shopping, reading, communication and leisure would take place over the internet led to the dotcom bubble. In reality, the internet has enabled a lot of these things to grow as well as to change.

Fairly soon my noble friend will have to react politically to some fairly tricky economic decisions. You cannot legislate for the energy and the creativity that economic renewal demands. However, it seems to me that we can and should deal with these governance and political matters now while we are preparing the Bill. If we do not, they will cause only ambiguity and difficulty when the reorganisation of the Royal Mail is taking place. Many of the old orthodoxies are now being questioned and nobody is sure where we are going. When there is more certainty, these matters of corporate governance will be clearly laid down. Meanwhile, they should be in the Bill as an indication of the kind of economy that we want when this crisis is behind us.

I turn to the pension scheme. The chairman of the pension fund trustees points out that Royal Mail is unlikely to be able to afford the deficit to provide full value benefits. As my noble friend reminded us, sadly many pension fund trustees fail to take account of the fact that we are living longer and that managers can and do perform badly.

The Minister says that if the taxpayer is going to pay for the pension fund deficit, in return the taxpayer has to get an improved letters service. I am afraid that I find this interrelationship less than convincing. If the Government are going to fund the pension scheme deficit, they should do so because it is morally right because of responsibility and because of undertakings given in the past. I should like to see a clear line drawn to show that instead of funding the mistakes of the past, we are a party that invests in the future and we keep our promises.

Generally, therefore, I support my noble friend’s Bill. There is certainly a need for it and the Minister deserves our support for tackling it at this testing time. I have tried to point out some of the lessons that these testing times are teaching us, lessons that should be incorporated into the Bill and debated when we get to Committee stage.

4.40 pm

Lord Sawyer: My Lords, the Second Reading debate gives me the opportunity of sharing some of my experience in working with the Royal Mail and the CWU over several years. There is no doubt that this is a difficult business with some huge challenges, but also some significant achievements that, because of the rhetoric and political posturing that has taken place around the Hooper report and the Bill, are often not fully appreciated and sometimes overlooked altogether.

The Hooper report could have been a bit more generous to the existing management. In the past five years, Alan Leighton and Alan Crozier have achieved

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things on behalf of the customer, as have Billy Hayes and David Ward of the CWU achieved things on behalf of their members. Of course, there is always an absolute need for constant change and improvement, but there is also recognition of the need to accept and give proper credit for what has been achieved.

In 2001-02, the business was bedevilled by unofficial strike action, losing more than £1 million a day and failing every single quality standard. In six years, that loss has turned into a profit of £255 million in the first nine months of this year. The business is on track, as the noble Lord, Lord Clarke, has already said, to stay in profit. Customer quality of service is the highest in a decade. Negotiated agreements between the business and the union have improved efficiency remarkably. It is almost impossible to comprehend 50,000 people having left the business through voluntary redundancy and natural wastage; that is an alarming figure. Parcelforce itself went from having 11,500 employees to 5,000 in one year; that is one hell of an achievement.

The pay and technology modernisation procedures, always arising from the union agreements, have also been implemented—not completely, but in the main. There is now another £2 billion of investment in new technology by 2011, and another £1.2 billion, a government loan, will be invested by 2011. This all serves to balance the impression given by commentators and newspapers that nothing has been achieved. That is not true. The present regime has made considerable achievements that would be explained further if time permitted. They could have been enhanced if industrial relations had been conducted through channels of greater co-operation and involvement instead of the general command-and-control and confrontation that have existed for such a long time in the business.

I understand that the CWU is sometimes difficult to deal with; I know that it is. However, the problem was essentially that Adam Leighton failed to see the union as a potential partner. From the beginning, he did not use his considerable talent and energy to forge a strong and productive relationship with it. He believed that he could do it all himself: he had a flagship programme to change the culture of the business called “A Great Place to Work”. He did not talk to the unions about it; he did it himself. He implemented all the strategy’s strands and the union, right from the beginning, felt sidelined. That does not exonerate the union and say that it was blameless, or that it was not difficult to work with; sometimes it is. However, the lead must come strongly from the top. If the chief executive and the chairman will not hold a hand out to the trade unions, then you cannot really expect to get to where you want to be.

Going forward, there needs to be a change. The new leadership of the business needs to genuinely reach out to the CWU, and the union must respond in a positive way. It needs to come into line with established trade union practices, particularly moving away from annual executive elections to a term of office that gives more stability to the national executive and, consequently, more comfort to the business in dealing with it on an ongoing basis. Also going forward, the legislation’s proposal to move the pension deficit from the company to government is a significant benefit for both the

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business and the union, and should be recognised as such—although, as has already been pointed out in the debate, the details and further questions need to be worked out.

On the crucial and controversial issue of part-privatisation, I would have preferred the Government to say, “Yes, we made the Warwick agreement on a wholly owned public service in good faith, but in our opinion circumstances have changed and we now feel that a private stake is essential”. That is a credible position. People have to say that they have changed their mind and explain why they have done so.

I have friends in the business who think that a private stake would be beneficial, but I have, understandably, more friends in the union and PLP who are strongly opposed to that. Obviously, in a democracy both positions are legitimate. I am interested in the Hooper report’s concept of access to corporate experience. However, the weakness of the report’s arguments, and possibly of the concept, lies in the fact that—noble Lords have indicated this—if it is to be taken forward, we need to know a lot more about it and we need to be convinced that it could make a difference. The risk in that respect is quite high.

In recent times Royal Mail appointed a New Zealander, Mr Elmer Toime, to lead the letters business—that is the business we are all talking about—who was said to have an outstanding track record in industrial relations. I think that Mr Toime lasted about 12 months. I do not think that he really wanted to understand the existing culture of the business; he just wanted to change it, and that is not good enough. By its culture, I mean essentially the way in which the management, unions and the workforce interact and work together, or do not work together, as is sometimes the case. That cultural change is massively important and must take place from the top down. The command-and-control culture that is locked in 50 years of history has produced conflict and adversity. The business needs to move on from that to a culture where the management and unions work together and do things jointly and openly, and, above all, build trust with each other. The word “trust” is so simple to say but so difficult, and important, to achieve. Sadly, it is often lacking. The chairman or chief executive officer who really believes in making the union a partner and working with it and the workforce, and who believes in building trust, will be the person—from whatever sector he or she may come—who will finally succeed. Will this change come about through access to corporate experience? I do not know. I have worked on this culture aspect for some time. The leaders of Royal Mail’s HR department understood pretty much what needed to be done, but, sadly, it was not always understood or supported by those at the top of the business. That needs to change.

The Prime Minister has put his authority behind the Bill. My noble friend the Secretary of State is a genuine believer in the need for change. These things need to be heavily weighed when people make their final decisions. This is a critical time in our history, when the previous seemingly unassailable role of the private sector, with its profit-driven shareholder culture and overpaid managers, is under very serious threat. I do not know whether this is the time to promote that

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culture in a public business. Perhaps it is; perhaps it is not. I hope that our debates on the further stages of the Bill will reflect people’s concerns about the shape and direction of the wider economy. In particular, we need to work out the best position for this business to be in within that wider mix.

4.48 pm

Lord Fowler: My Lords, I agree with what the noble Lord has just said about the recent improvement in the Royal Mail business. That needs to be underlined. One thing is certain about this debate: had John Major proposed the solution in this Bill in the 1990s, he would have met with total opposition from the Labour Party in the House of Commons. Frankly, no one would have argued the case against these proposals more smoothly or more persuasively than the noble Lord, Lord Mandelson. He would have enthusiastically put many of the points now being put against him, such as back-door privatisation, the indignity of having a foreign operator sort out the Royal Mail and the clashing evidence regarding the efficiency of the Royal Mail. Frankly, the Government have only got themselves to blame if they have stirred up a hornets’ nest of protest on their own Back Benches. If you had read the past speeches and heard the language, you would not have come to the conclusion that a Labour Government were going to sell 30 per cent of the Royal Mail.

It is tempting for an opposition politician such as me to congratulate the Government on their change of heart, thus increasing their embarrassment, and simply leave it at that. My reaction to these proposals is rather different. Above all, it is a feeling that over the past 20 years we have lost an enormous opportunity for the Royal Mail. When it could have been developing new markets at home and overseas and when it could have been seeking new opportunities that other companies have taken, it has remained far too confined to the traditional but declining letters market, while its so-called supporters have been far more interested in fighting a defensive battle on the public sector status of the Royal Mail. Privatisation is set out as if it were some enormous threat to the business and all who work there.

A few years ago, when I was transport Minister, the 1979 Conservative manifesto had only two pledges on privatisation, both of which were mine, on the National Freight Corporation and the British Transport Docks Board. The NFC has most lessons to be learnt from it. The NFC had a range of interests, the most important of which was what would now be called logistics. When we announced our intention to privatise it, the senior management were alarmed. Why? They thought that it meant we were going to sell the company to TNT. That was their concern at the time. It was then an Australian company, not Dutch. The management proposed a staff buy-out; not a management buy-out but a staff buy-out. I was very interested, in parentheses, to hear what the Secretary of State said about staff shareholding. Obviously, we shall want to pursue that.

Perhaps predictably, the staff buy-out measure was opposed by the unions, particularly the T&G, which advised its members not to buy shares. That must rank

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as one of the worst pieces of investment advice ever given by anyone, rather like the Foreign Office when it resisted the BBC World Service proposal for investment in the internet on the grounds that it would never catch on. I am glad to say that the advice was very widely ignored. When the NFC had its AGMs, they were not hidden away in some secret city hall but were attended by some 2,000 or 3,000 shareholders. The chairman was quizzed not just on the prospects of the business but on the intricacy of drivers’ hours.

My point is this: that form of privatisation was supported by the staff. It transformed the business. Middle management started to manage. New brands such as Exel developed. There was an obvious way forward for the NFC in an age when businesses and the public wanted organisations of a size that could look after all their needs: to come together with the Royal Mail and to put together a British company that could compete with the world. I agree with the noble Lord, Lord Clarke, on this; I do not buy the theory that Britain cannot manage to deliver letters and parcels efficiently without the aid of an outside group. The skills are there, and in the past few years that has been shown to be the case. Incidentally, I also do not buy the claim that companies such as TNT are a consistent byword for efficiency. A couple of weeks ago, a package addressed to me sent from Zurich by TNT special express took three and a half days to arrive at my home here. I do not buy all these claims.

Before the Minister writes off the NFC as a trip down memory lane, let me come to the final irony of the story. For in the end, the NFC, and Exel with it, did get together with a postal service. The only trouble was that it was with the German postal service—with Deutsche Post—with DHL. Although we had taken the lead, it was the Germans who capitalised on the advance. How similar that is to so many other things that have taken place in our business life.

Obviously, there were other opportunities for the Royal Mail, opportunities for diversification and for much greater international expansion; but for that, you needed private capital—privatisation similar to what happened in Germany and Holland. Why did that not happen? My noble friend Lord Hunt has given, in his excellent speech, the answer that, with a wafer-thin majority it was impossible to get any measure of privatisation in this area through, because we were met by the opposition of the Labour Party and the Liberal Democrats, and I have to say one or two Members on our Benches confused the Royal Mail with sub-post offices and, therefore, opposed the measure. It was simply “mission totally impossible”.

In this Bill we are presented with a not very attractive sales prospectus. It is neither one thing nor another. It leaves a range of questions unanswered. There are questions about where effective control resides. Of course, the Bill states that it resides in the public sector with the Royal Mail; but industrial partnerships of this kind are not problem-free. The noble Lord, Lord Neill, made this important point. The whole point of bringing in an outside operator is that its skill and experience should be implemented; otherwise the exercise is totally pointless and worthless. The idea that by definition this will be smooth is, frankly, nonsense.

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There are questions about future ownership. I agree with what the noble Lord, Lord Clarke, said about that. I do not believe for a moment that the 30 per cent limit will stay for ever, or that the bar of a new Bill will prevent change. It is clear that in the years ahead public spending will be under unprecedented pressure. The Treasury will be looking for receipts and it will not matter which Government are in power. If they can sell the remaining 70 per cent to the company that already has 30 per cent, they will certainly push for that. Make no mistake, the company that has 30 per cent is in the £1 seats when it comes to future ownership. That is a long way from the kind of privatisation of NFC that I advocated. It is basically the straightforward sale of a company.

There are questions about the new regulator, Ofcom. When we said that Ofcom should take over the whole regulation role in broadcasting, including the BBC, one of the defences put by Ministers was that there was a lack of capacity in Ofcom. However, it already had substantial broadcasting experience, and now we are suggesting that it should take over responsibility for all postal services, of which, to my knowledge, it has no experience whatsoever.

I am lukewarm about the Bill. Indeed, it is difficult to find any genuine enthusiasts for it, although it is easy to find many passionate opponents. On balance, I am persuaded by one measure—the plan to tackle the £6 billion pensions deficit. It is obviously massive, and it is difficult to see how the business can truly prosper and modernise with such a financial weight around its neck. On that basis, I shall support the Bill. I am not sure that I shall go arm-in-arm or shoulder-to-shoulder with the noble Lord, Lord Mandelson, through the Lobby, but I will, at any rate, support the Bill.

However, this will not be the end of the process. It is not a panacea for all the problems of the Royal Mail and, above all, it is not ideally what should have been done. Sadly, the Bill represents another lost opportunity for business in this country.

4.59 pm

Lord O'Neill of Clackmannan: My Lords, I support the Bill. I spent a sizeable number of the past 10 years in the House of Commons chairing the DTI Select Committee. We spent God knows how many hours taking evidence on the various forms of this logistics company. It started as the Post Office; it became Consignia and ended up as the Royal Mail. Always the story was the same. It seemed that there was a problem: it could be the management; it could be the unions; there was never enough money; if there was enough money, it was used for the wrong purpose; if we had to find partners among the international competition, we seemed to arrive too late to buy the good companies and ended up with ones that were perhaps not as good; and we regretted the fact that Royal Mail, or whatever it was called at a particular time, never became an internet service provider or had the kind of specialist delivery services that other companies had.

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