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I greatly appreciate the relationship my company has had with the Royal Mail over the past 100 years, although I have not been in charge for all that time. I very much wish this relationship to continue, as the Royal Mail has done a very good job but, in order for it to continue, the time has come when the Royal Mail must change, and it should do so broadly as recommended in the Hooper report.

I agree with the noble Lord, Lord Hunt, and my noble friend Lord Razzall that it is important that the management and the workforce should have the opportunity to participate as shareholders. Unless the Government know more than the House has been told, there is no agreement yet on the table for the purchase of the minority shareholding, and therefore we do not know when it might happen—in a month, six months, a year, two years or whenever. In the mean time, we should not let the Royal Mail continue to decline, as will surely happen if uncertainty about its future continues. So if there is a deal, it should happen as soon as possible.

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While waiting for a suitable partner, the Royal Mail should allow more discretion to its management at a local level so that it can operate like a normal business. For example, a sharper decline is likely if, as Postcomm has suggested, a 5.5 per cent increase is implemented in April on Mailsort 3, which has an annual turnover of £700 million. This increase is to help competitors to develop their business entry into the market against the interests of Royal Mail and its customers. Have you ever heard such a nonsense? It is pushing up prices in order to let competitors in. This 5.5 per cent increase is a mistake. My company has done some research and has found that if Royal Mail were to reduce its price by 5.5 per cent rather than increase it, it would increase its turnover by £100 million a year very profitably.

There has been a lot of trade union bashing, indicating that, but for the trade unions, everything in the garden would be rosy. For more than 50 years, I have employed tens of thousands of people and I have worked with the trade unions. I have had hardly any unrest or strikes. The secret is simple; I always took them into my confidence and told them exactly what I was doing and why I was doing it. I have never been let down and I have always had their support. The workforce in the United Kingdom is the salt of the earth, and this great asset should be appreciated.

5.37 pm

Lord Lea of Crondall: My Lords, I welcome some aspects of the Bill, notably what it does to protect pensions and to reform the regulations to make the universal service obligations the objective rather than competition, which would leave, as it does at the moment, Royal Mail carrying high-cost items and the competitors having no such obligation.

Considerable progress has been made by Royal Mail recently according to what I have read in advance of this debate, but the central question that I wish to raise is whether the 30 per cent equity route will work better than other possible routes in achieving the same objective. I do not wish to be misunderstood: I think that innovation to raise capital and innovation in ideas from around the world are important, but I have some questions about how this will work in practice and whether there is a different way of doing it.

How is it intended that a company such as TNT—I mention TNT because it is the only company mentioned by Hooper, although I could mention hypothetically DHL or anyone else—will be able to, as it were, ignore a conflict of interests if it was reorganising Royal Mail at the same time as competing with it? How does it avoid a restraint of trade in some sense? In asking these questions, I am not trying to be clever and think that I know the answers. It is also obvious that there can be a situation where there is no love lost between Royal Mail and TNT—just look at yesterday’s Financial Times.

Under this 30 per cent arrangement there are one or two things that have to be looked at, if we can avoid for one moment saying that the Hooper report is sacrosanct in every detail. In fact I would ask why that should be so; after all, it is not a normal process of government to buy an independent report lock, stock and barrel. I do not know whether my noble friend the

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Secretary of State is aware that a Minister in the House of Commons said that not only was it a package but it was a package that you could not pick and choose from at all. That is slightly pre-emptive; I still want to see how the partnership agreement would work.

For example—I shall think aloud—how many people are we talking about TNT bringing into the employment of Royal Mail? You cannot very well transform management without being part of the employment set-up, unless I have misunderstood company law. Are five, 50 or 500 people needed to deal with a workforce of 200,000? We have always agreed that just one man at the top cannot transform a culture. No doubt we have some geniuses at the top in British industry, but they cannot do it on their own.

If TNT took over the Royal Mail, it would bring a swathe of people with it and go through the Royal Mail like a dose of salts—or not, as the case might be. However, I would like to think about the injection of capital, the transformation of management and relations with the workforce, all of which are elided in several sentences in the Hooper report and the White Paper as if they all flow naturally together. My noble friend might want to comment on one or two elements of the following logic. Hooper refers to the way in which the equity injection would help to transform industrial relations. It is interesting that today’s note from the Royal Mail says that the benefit of a strategic partnership will be access to timely and flexible capital and added value in the longer term through combining their strength to develop new commercial opportunities and revenue streams that will support the universal service obligation in the UK. There is not a word in that rationale about the benefit somehow arising from the capability of TNT or anyone else to transform industrial relations or efficiency, and not because the Royal Mail has somehow overlooked an important point. A lot hangs on this assumption, though. I would like to spend a couple of minutes thinking about what hangs on what, and what does not necessarily hang on what, in the elision between these various functions.

It is important to compare apples with apples. I know a little about DHL; I was recently in Leipzig on a rail freight visit, and there was the DHL European hub, in a totally transformed old airport. Wilmington, Delaware and Hong Kong are the other two world hubs. All the planes are in around Europe by midnight. Totally automated machinery gets all the parcels into 50 aeroplanes that are ready to leave by four o’clock in the morning and there is a dedicated rail freight line to Frankfurt airport. That is all wonderful and I hope that Royal Mail International can do more of it. But what has that got to do with Bristol, Bradford and Much-Binding-in-the-Marsh? There is an apples-and-apples problem in what we are talking about. The relevant expertise is in greenfield sites. Capital injection has to be thought through, relative to how management would work.

I have a point about industrial relations and how that aspect of the partnership agreement would work. When we write memoranda, it is easy unwittingly to use the word “partnership” in two totally different,

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though not incompatible, ways. One is a partnership such as Star Alliance—that is, between an international airline and some airline in Australia, South America or something. That is a commercial alliance. There certainly could be a partnership in that sense between Royal Mail and all sorts of people.

If it is an equity stake, however, people sometimes say, “This could help partnership in industrial relations”. I shall say a word about that and about whether companies such as TNT are best able to achieve it. It would be pushing it a bit to say that TNT was the obvious first choice as the organisation to bring in smooth but radical change for the better in industrial relations. In that connection, will the Minister look seriously at a number of different ways in which worker participation could be linked in with this modernisation? The CWU and Unite—that is, the management grades—have not turned their face against this; after all, they are used to bodies in the public sector, albeit smaller ones, such as NATS, which my noble friend Lord Brooke of Alverthorpe knows about, and defence procurement agencies being scaled up.

I see no reason why you cannot have three stakeholders including workers’ representatives in the collective bargaining structure. I am old enough to remember the Bullock report; I was on it, and my noble friend the Secretary of State remembers it well as he worked at the TUC at the time. I am not advocating that he says, “Oh yes, that’s the answer—Bullock!”, but there is a union member on the board of these public sector bodies, working with private companies and the state. What has that got to do with the price of tomatoes? What has it got to do with TNT and so on? I simply say that, if you began from that end, you would probably say that if TNT was the answer it must have been a pretty silly question. You just would not begin from there.

I shall leave these thoughts and hope that in Committee my noble friend can think about some government amendments that would ensure that alternatives to the private equity stake were not ruled out by the Bill, even if the alternative that might tick more of the boxes is not yet ready to be ruled in.

5.48 pm

Lord Hoyle: My Lords, I join in with the tributes that have been paid to the late Lord Dearing. I have no doubt that if he were still with us he would be entering into this debate and I know that he would have been making a positive and useful contribution. We all miss him in that respect.

I had better declare an interest: I am a member of Unite, which represents the management in the Royal Mail. Having said that, it is not often that my noble friend and I disagree but we do on this aspect, particularly in relation to the 30 per cent stake. My noble friend Lord Lea asked a lot of the questions that I might have asked with regard to how this is supposed to work or increase efficiency.

The point has been made that all sections of the Royal Mail are now in profit; it made £255 million in the last eight months of last year, as has been remarked, and it is hoping to double that in the coming financial year, so it is moving into profit. I notice that all the

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debates so far have been about efficiency, not about cost. When people talk about a letter or parcel, they want it to be delivered efficiently but at the same time they want to pay a reasonable price for that service. We ought to compare costs. My noble friend Lord Clarke touched on this. As I understand it, having a first-class letter delivered by TNT costs nearly three times as much as it costs for a letter to be delivered here. For letters weighing 50 grams, where it has a complete monopoly of service, it still costs twice as much.

The point has been made that we liberalised the service far too early. TNT does not face liberalisation until next month; we ought to bear that in mind when comparing costs. For Deutsche Post to deliver a 100 gram first-class letter costs more than three times as much as it does here, while delivering a second-class letter costs more than twice as much. We should bear these costs in mind when we are comparing so-called efficiency. It has been argued that the Hooper report does not compare like with like in examining the services provided. We must bear that in mind.

It is amazing that we are talking about an outdated privatisation of this sector when we are nationalising banks. It seems crazy to me that we are going from one to the other, while still saying that if it is private it is good and if it is public it is bad. I do not think that that is the case. The French privatisation of postal services has been put on hold, while Denmark is already taking back the section—roughly 30 per cent—which was privatised. So other countries are seeing the reverse of what will happen here.

There has been a transformation with the Post Office and Royal Mail. There has been a turnaround. It is not quite true that no investment has been made in modernisation. Investment is taking place—the orders have already been pledged. The machinery does not come as quickly as all that; nevertheless, it is there. It is estimated that by 2012 or 2013 we will have completely reorganised the way in which we deliver the post in this country. The 80 per cent to 90 per cent that my noble friend mentioned that applies in Holland—the way in which post is delivered and the walking route taken by postmen—will be implemented in this country. Money has already been spent on modernisation, and some of it is coming in. There has been a reduction in the number of sorting centres, which will continue as new machinery is introduced, and there have been changes in the way in which postmen go about their job. To say that nothing has been done is not completely true.

The noble Lord, Lord Fowler, was right that, if you go for 30 per cent part-privatisation, you will end up, at some time, with full privatisation. That will follow. One of the dangers is that we are opening the door to that. It does not necessarily need to happen in the way that is being proposed here. There are other means of bringing in people; there are other means of doing these things. Co-operation has been mentioned. These are things that we need to examine when we debate the Bill. In addition, a new generation of intelligent sorting machines will be introduced by Royal Mail.

Why do we say that British management is bad but bringing in imported management is bound to be good? I disagree with that. We should tell the full story, not half the story: modernisation is now taking place.

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Let us look at another aspect. Why, in the access agreement under the old Postcomm arrangements, does Royal Mail lose 2p on every item that it delivers? It loses £100 million a year, and that must be wrong. There are proposals in the Bill to look at this. If Royal Mail put up the price by 4p or 5p, instead of losing £100 million a year, it would make something like £300 million, £400 million or even £500 million a year. The Post Office would be very profitable.

We are a leader in one of the developing areas that comes from the use of e-mails and the rest. We are at the forefront of parcel organisation. There have already been rumours in the press about disagreements. TNT has been accused of poaching. It has been said that TNT has stated that it will take over the parcel side of the postal service, run by General Logistics Systems, one of the service’s most profitable aspects. Is that true or not? As I understand the Bill, the parcel side would remain with Royal Mail. We need clear answers to the questions that are being raised on these matters.

We must get away from thinking that everything is bad—a lot of the story is very good indeed. We ought to be building on that service rather than taking part of it away. I hope that my noble friend will put my fears to rest on some of the matters that I have raised, particularly regarding the parcel service.

My noble friend Lord Lea asked how a competitor can come in and still compete while at the same time trying to co-operate with the Royal Mail. We need an answer. Does it mean that the two companies will be merged if it is TNT? Will it remain a competitor, receiving a subsidy from the public sector? All these issues need to be examined and answers need to be given. If TNT comes in as a partner, will it favour its own existing company or Royal Mail?

We need to examine the Bill carefully. I am extremely concerned about the 30 per cent part-privatisation and ask my noble friend, even at this stage, to reconsider that proposal. We will certainly return to this when we discuss the Bill in Committee and beyond. What the Royal Mail needs is confidence; it needs our support to become one of the best services in the world. I believe that we can achieve that but not by giving up 30 per cent.

5.57 pm

Lord Brooke of Alverthorpe: My Lords, I welcome the Bill. That will come as no surprise to colleagues on these Benches as I have previously advocated a public/private partnership as the way forward for Royal Mail—preferably one which extends some element of ownership and greater involvement to its staff. The last time we had a major debate on this there was no prospect of a PPP in sight. So I am pleasantly surprised that we now have the opportunity and prospect of the injection of some more much needed capital and potentially a different management structure which will be able to deal with these dogged problems that have been around for decades.

I congratulate the Minister on his guts in embracing change and his frankness in acknowledging that we should have done this earlier. I regret that there are still no proposals for the greater involvement and participation of the staff in the ownership of the

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venture, but, like others, I hope that there may still be some opportunity, before the Bill finishes its proceedings, to explore this aspect more fully.

A measure of employee ownership in Royal Mail could help transform the company’s employee relations for the better. A co-owned Royal Mail would be anything but unique. The co-owned business sector—companies where staff own anything from a significant to a majority stake in the business they work for—now accounts for more than £25 billion in a combined annual turnover, and is growing. The sector includes not merely highly successful national enterprises such as John Lewis and Waitrose but equally formidable companies competing in truly global markets, such as Arup, Unipart, Mott MacDonald and PA Consulting. Happily, it is reported that the management of Royal Mail has favoured the creation of a 20 per cent staff stake in the company. The BERR paper, as I read it, has produced no argument against that or a similar option. I hear from the contributions of other colleagues today that there may even be a prospect of the two unions changing their attitude to staff involvement and share ownership.

My interest in Royal Mail goes back many years, but I first got involved in 2000, when I chaired a House of Lords EU Sub-Committee which examined the Royal Mail’s preparedness for coping with EU postal liberalisation proposals. We found that it was ill prepared then. Services were in decline, which it freely acknowledged, and it was bedevilled with old-fashioned practices, machinery and structures. I remind the noble Lord, Lord Hunt, as he is so keen on embracing change, and he was a little critical of what we have done since we came to power, that John Roberts, the CEO of Royal Mail, said in his evidence to us that the Royal Mail had faced a lost decade during the 1990s under the then Conservative Government. Not only did it have to deal with the pension contribution holiday that had been insisted on by the then Government; it had also been required to deliver £350 million a year to the Treasury for four consecutive years during which time there was no money whatever left over for investment. Let us therefore not start blaming each other. If any blame is to be apportioned, it should go both to us for being slow and to the previous Administration for the problems that were left over.

As the noble Lord, Lord Clarke, said, in 2000, with the advent of the Postal Services Act 2000, there were hopes that there would be opportunities not only for creating the limit of public corporation status for the Royal Mail, in 2001, but for greater freedom from government control, and perhaps to introduce different services for the public and to bring in the additional capital needed to facilitate those changes. Incidentally, a PPP was created for NATS that year. I shall—as the noble Lord, Lord Lea, mentioned—say something about that, because I was fortunate enough to be a government partnership director of NATS for five years. So I am one of the few people in the Chamber to have worked alongside the private sector, the unions and the staff representatives to see how we could make a PPP work. As paragraph 4.11 on page 12 of BERR’s document of February 2009 states, NATS has been an outstanding success. It has raised its efficiency; it has

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high levels of investment; it has improved its safety record; it has long-term modernisation programmes, to which it adheres; and, importantly, staff have been better rewarded than they were when NATS was entirely publicly funded.

If we look at what has happened in the Royal Mail over the same period, we find quite different results on the fundamentals. It is true that some quite different factors are at work within the Royal Mail. NATS had the prospect of growth in the airline industry; unfortunately, there has been annual contraction, particularly in letters, within the Royal Mail’s activities. Regrettably, if we look to the future, that loss of mail will increase in many respects. My own post comes primarily from other public service operations such as Her Majesty's Revenue and Customs, the NHS, the Department for Work and Pensions, local authorities and the utilities. When those organisations are shaken up, as most certainly they will be with the economic difficulties that we face, they will have to improve substantially in many public service operations. Many of those letters and communications will disappear as they shift to different and more modern methods of communicating with us. Those difficulties are on the horizon and we cannot ignore them.

However, some factors are common between NATS and the Royal Mail and, indeed, any other operation, including the one mentioned by the noble Lord, Lord Alliance. There are industrial relations in all workplaces. We must be frank and say that the Royal Mail has performed badly in this area—we should not dodge that issue. Industrial relations in the Royal Mail continue to be poor. Even though substantial investment has been made available for modernisation programmes, they have been painfully slow. I declare an interest as an adviser to Accenture, because people keep saying, “Well, let’s have the facts”. I have not worked with Accenture on the Royal Mail for a good many years, but I know that it did some work on it five years ago with a lot of other consultants who had been going there constantly. It went into a sorting centre and without any problem identified 36 per cent savings, which is what it recommended. Nothing happened. It was bumped backwards and forwards between local and national officials and between central and local management. That is what has been going on for all these years.

I have not heard anyone argue convincingly yet that that is all in the past and unlikely to be repeated. I say to my noble friend Lord Hoyle that we cannot run away. We have before us the Hooper report, which points to quite frightening consequences not just for the Royal Mail and its employees but for the public at large if action is not taken to stop the decline that we have witnessed. The universal service will be undermined. No one has the right to put that at risk. It must be avoided. I am sure that all the parties involved, including the unions and the Royal Mail management, do not want that. However, it is likely to happen unless there is change. In the light of the experience that we have had, how many people honestly believe that it will be delivered by the status quo in the timescale needed?

Among all the propaganda that I have received against the proposals and in everything that I have heard today, I am struggling to find any evidence that

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anything will change without radical change along the lines suggested in the Bill. I ask my noble friend the Minister: how much longer will the last stage of the mail sorting process be done by hand? When did the Royal Mail set about modernising the process? How many sorting centres have been modernised? How many remain to be tackled. Finally—I return to my first question—when will the last be done?

I have had a briefing session with the Royal Mail in which I was given quite different figures from those which have just been quoted by my noble friend Lord Hoyle. Where are we going on that? If the Government find a suitable strategic partner, it should similarly be required to sign up to deliver this kind of modernisation programme with an exacting timetable. Of equal, if not greater, importance, I ask the Minister to give an assurance of the Government’s commitment to back such measures as are needed for a modernisation programme, which in turn should safeguard the universal service for the people of this country.

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