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6.08 pm

Lord Bradshaw: My Lords, in preparation for this debate—this goes back to the point raised by the noble Lord, Lord Neill of Bladen—I referred to Herbert Morrison’s book of 1933, Socialisation and Transport, in which he addressed the subject of how to run big corporations. He said that the boards of such bodies should be composed of people of competence, ability and public spirit. Public spirit is in some short supply today and, like society, is rather denigrated as a concept—and has been by successive Governments—having been replaced by self-interest. However, these qualities were represented by people whom I knew and worked with, such as my noble friend Lord Ezra, the late Sir Peter Parker and the late Lord Dearing, to whom several noble Lords have referred. Why did the system not work properly, with good people operating in the public interest? I think that it was because there was a lack of clear, consistent and financable objectives, which should direct a board and guide the actions of a regulator. I am not convinced that the description in Part 3 of the actions of the regulator is adequate; it should be much clearer about what his job should be.

Most Governments bring a lot of political pressures on boards, from the so-called lunchtime directive, with the constant interference in matters such as industrial relations, fares and charging. That swiftly turns into a bureaucracy and procrastination, along with a growth of econometrics, modelling as a substitute for common sense and decision making. Then there is the cynical attitude of the press and the ever-present problem of how you provide loss-making services. Once appointed—and I believe that the Government should address the issues raised by the noble Lord, Lord Neill of Bladen—a board should not be subject to constant political pressure. It should be overseen by an independent regulator.

To paraphrase Herbert Morrison again, if Ministers are immersed in a large amount of detail, they will depart from their wider ranges of responsibility. We all recognise the fact that there is nothing better than getting your hands on the detail so that you do not have to take the hard decisions that you are paid to

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take. Nor should such a board be subjected to the unreasonable pressures of the trade union movement—the noble Lord, Lord Sawyer, spoke about that. A reorganised Royal Mail along public interest lines should include in its terms of reference that trade unions should go to arbitration before they subject consumers to disputes. This is not the 19th century, and I really do not believe that very many workers are subject to the levels of exploitation they were subject to 150 years ago.

Salaries of board members should not be fixed by the Treasury, shareholders or non-executive directors, but should be chiefly determined by such things as,

However, I do not believe that they should include within their number representatives of any special interest group—and they should be free from the modern curse of the bonus culture. I still see it reflected in organisations, such as Network Rail, which have been set up by the present Government but are largely driven at the top by that dreadful culture.

I refuse to believe that such public-spirited people do not exist. When thinking of the post office, my experience teaches me that it should be the epitome of public service—particularly, as many noble Lords have mentioned, the universal service obligation. Experience tells us that people want a local post office. A regulator must recognise the costs of maintaining the universal service obligation and the final delivery of bulk-posted mail. Efficiency must continue to improve, as has been said by very many people, particularly in the previous speech.

The historic pension deficits remain a problem but, interestingly, in today’s Times, I read that the Royal Bank of Scotland is to use £800 million of taxpayers’ money to shore up its gold-plated staff pension scheme, including the £703,000 payout pledged to Sir Fred Goodwin. That I find thoroughly objectionable—that taxpayers’ money can be poured into the top pension scheme of an organisation that has failed, whereas postmen, who have given years and years of service, should have their pensions put into jeopardy.

I turn to items raised in the debate. I was very interested in the fact that the noble Lord, Lord Fowler, raised the question of the National Freight Corporation. I should have liked to ask him what happened to all those shares, and the people who held them. Are they all raking in the dividends from the German company that has taken them over? Any employee shareholding should be invested in some sort of public interest trust so that, if people leave the industry, they must sell the shares back to the trust and there is no scope for those shares to get out into the market, where they will be used to lever up the percentage owned privately, and possibly by somebody who becomes the majority stakeholder. The evidence from Welsh Water, for example, tells us that public interest boards can work. It appears to be working well and is as much in the interests of consumers of water and water services in Wales as it is in those of the various companies that are running our water services here, many of which are foreign companies.

I noted that the noble Lord, Lord Hunt of Wirral, talked about the rushed choice that Government were making, having taken seven years to reach a decision about the Post Office. If he were in his place, I would

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remind him of what was done when he was part of a Government who nationalised the railways, and what a terrible, expensive mess they made of it. I received a letter this morning—and this is quite genuine—from someone who was a bridge engineer who used to work for me in Bristol. He says:

“With privatisation practically all experienced engineers were sold to contractors or consultants and many others retired. Railtrack was left seeking advice from a procession of consultants who were generally inexperienced in railway work, were not part of a network of railway professionals and did not have the ‘good of the railway’ as part of their ethos. Railtrack lacked people who could assess what was best for the railway and had to depend on hiring consultants (or contractors) who needed to ensure their ‘professional indemnity’ was not at risk when giving advice and had little interest in achieving the most economic design solution, even if they had the information (eg possession and disruption costs) to do so. Unnecessary work was carried out, inappropriate designs adopted, additional unplanned disruption caused and huge extra costs incurred”.

Whatever the Government are planning to do with the Post Office, it should not allow the person who holds whatever is the minority stake to move away from the ethos of an efficient public service, because that is what we want.

6.18 pm

Lord Whitty: My Lords, first, I declare an interest as chair of Consumer Focus, which has inherited the responsibilities of Postwatch in looking after the interests of consumers in the postal markets.

I welcome very much a lot of the process through the Hooper report, the Government’s statements and the production of this Bill, along with the various statements made by my noble friend the Secretary of State. Most of the attention in this debate has focused on the issue of ownership—whether we like to call it privatisation or strategic partnership. There are other aspects of this package which I should like to draw out too, however. I hope that the issue of ownership, which is politically dynamite, does not overshadow some of the other measures here.

The Royal Mail faces a critical situation. It has falling volumes of physical mail, increasing competition from the electronic sector, technological backwardness, a history of failure of investment from successive Governments, whether it is the lost decade of the pensions holiday and slices off to the Treasury or the recent failure of this Government to turn their promise of a big investment into reality in a modernisation programme, with half of it being stuck in state aid activity in Brussels. In some respects, it has had poor industrial relations and poor management. As my noble friend Lord Sawyer said, it is not as bad as all that. Some progress has been made; it is now making a profit.

I take the point made by my noble friend Lord Hoyle. Comparisons with international equivalents or near-equivalents are somewhat misleading. You have to look at the revenue and the costs as well as the profit. In terms of the revenue, the price of postage is relatively low in this country, certainly on higher value packages and letters. That is of huge consumer benefit. It is a significant benefit to the people the Royal Mail rather disparagingly refer to as social consumers—you

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and me—and to business. I hope that in all this transformation we do not lose that benefit, which is positively thought of throughout society.

We need a serious change in structure. I believe that although it has had its problems, the unbundling of the Post Office Ltd from the Royal Mail structure, while keeping the holding company, will be beneficial. It needs spelling out and it needs to be made clear. I have yet to see a nice diagram from the department explaining the relationship between all the bodies, where they all fit together, quite how the governance will work and whether there are Chinese walls at various points in the organisation. In general, it is sensible to unbundle, but only if equal attention is given to the Post Office network that we are now giving to Royal Mail.

We have been through two swathes of post office closures. Postwatch has diligently tried to improve the local outcome of that, but it has been faced with a decision by the Post Office board and the department that a certain number of closures will take place. It is in an impossible position for a consumer organisation.

We want to turn that around and look at a creative solution for the use of post offices. They are the outposts of the state, both national and local, and many services, public and private, could operate through our post offices and sub-post offices. I welcome very much the initiatives made by my noble friend’s colleague Pat McFadden in getting other government departments together to look at their services, and the other ways in which the post office network could be a more positive representation of service to consumers, particularly in rural areas and the outer suburbs where they lack services of all kinds. That side of the structure of Royal Mail needs to be addressed in parallel with its logistics.

We need regulatory change. I welcome the transfer of the oversight of Royal Mail out of Postcomm into Ofcom. We in Consumer Focus have recently written a report on rating regulators. Postcomm did not come out very well in it. Ofcom came out reasonably well. Postcomm of course was in an impossible position. It was virtually a single company regulator in a market where the temptation for the regulator to micromanage was far too great, with the resulting strange mixture of incestuous relationship and serious fraction. The move into Ofcom will be beneficial.

The Bill is silent on Ofcom’s duties on the other side. Postcomm had a duty to look at the level and adequacy of the number of post offices. The Bill does not seem to mention that. Perhaps my noble friend the Secretary of State could address it.

We also need to clarify whether Postcomm’s whole range of responsibilities will be transferred to Ofcom with the mandate to improve and modernise the system of regulation, or whether it is left too vaguely, as the noble Lord, Lord Bradshaw, implied. I think that Ofcom needs to be left substantial elbow-room but not everything.

The Bill is also silent on consumer representation, relative to the regulator and to the industry. My organisation and I will need assurance that arrangements

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set up under the consumer Act 2006 will continue as well as strengthen the internal communications panel within Ofcom itself.

The provisions on the pensions burden are a good move. The Government in any case would probably have to take ultimate responsibility, but this is a clean break and a clear drawing of a line in the historic situation. Of course, I have to mention that the prospect of a reasonably decent pension was often used for the post office workers as an excuse for their relatively poor pay and other conditions. The Government should not lose sight of that.

We need a change in technology. As others have said, the level of automation is pathetic within Royal Mail. We need drastically to change that. That will mean changes in working patterns, some loss of jobs and a serious rationalisation of the whole logistical structure of Royal Mail. That leads into the whole HR situation and management competence. It is absolutely clear to me that the level of management in Royal Mail, although there are some very creative and dedicated people within it, requires a step-change improvement. Therefore, we need an injection of management expertise, particularly in modern logistics and the wider communications market.

We also need money. The crucial and controversial bit of how we get that money is where we are now going to focus, but these wider issues need to be addressed as well. It is not clear to me that the injection of capital and the injection of money need to come from the same place. Consumer Focus is pretty neutral on the question of ownership. Clearly, we have to judge the propositions in the light of what benefits they will bring to consumers, both business and individual, and we need to see more clearly what is proposed and how it will operate.

I have to say, and I now speak personally as against wearing my Consumer Focus hat, that I am currently on the sceptical side of neutral. I accept that some of my arguments are irrational and nostalgic. The noble Lord, Lord Bradshaw, mentioned the Secretary of State’s grandfather twice. I will mention my grandfather. He was a postman and a strong trade unionist. Because of the tradition he came from, he was also an ardent royalist. Therefore, on both counts any idea of privatising Royal Mail would make him turn in his grave.

However, I have slightly more rational reasons for querying whether this is the only way in which we can mobilise the degree of capital that is there. I appreciate, and the Secretary of State will tell me, that we are in a new area. There are some novel arrangements of public/private relationships whereby we privatise the Post Office and nationalise the banks, and we have to be into that era. Is this the only way in which the capital could be mobilised? In particular, thinking about the number of partners under the strict criteria that the Secretary of State has referred to and under the Hooper report who are conceivably likely to provide this injection of capital and the management expertise, there are really only two of them. The Government’s negotiating position is fairly weak if you limit it to two. There is the problem also that if part of the improvement in Royal Mail has resulted from real competition in part of their trade, we are actually absorbing or handing

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over, whichever way you look at it, part of the activities of Royal Mail to one of the competitors. Therefore, competition is reduced rather than increased by this relationship.

I tell my noble friend the Secretary of State that I am not unpersuadable that this is the best way to proceed. I utterly accept that we need better management and an injection of capital. Do we need to close all other options in order to raise the money? After all, we could normally raise money on the market. We could issue bonds. We could get private money in that way. I think that the reputation of TNT and, to some extent, DHL in the industrial relations area will not help my noble friend in his discussion with the employees of the Post Office and Royal Mail, or with arguments that we will have in another place within our own political party.

Therefore, I agree with the general approach to this legislation. I agree with the needs identified by Hooper, the department and my noble friend, but I remain to be persuaded that in the final detail we have yet reached the ideal solution of how we provide that money.

6.29 pm

Lord Desai: My Lords, I support the Bill quite enthusiastically. I spoke on the topic seven years ago in a debate initiated by the noble Baroness, Lady O’Cathain, when the company was called Consignia and Postcomm had just put forward its first proposals for liberalising the trade. Similar sorts of statements were made at that time: “Yes, it was bad but it will get better”; “Just have patience”; “We should not change a 350 year-old industry”; “The postman is a noble person”—no doubt—“who works very hard”. All that is entirely accepted.

Such change as has happened did so because of the introduction of competition; without competition, it would not have happened. Although change has happened, it is by no means enough. Incidentally, I am sorry that, as bad as “Consignia” was, the company is called “Royal Mail”; it just brings royalty into disrepute, as my noble friend Lord Whitty said. People have criticised the Hooper report quite a bit, in a variety of aspects. They have said, “You know, the losses were in the past. Suddenly Royal Mail has made a profit”. Page 59 of the Hooper report shows a projection of profits for the next five years. Except for this year, they are all in negative territory.

That is not a comparison with foreign post offices. Of course, whenever you make comparisons, you encounter people who believe that foreigners know nothing about our business, that we are the only people who can do it and that all foreigners are irrelevant. However, as of now, the prediction is that Royal Mail will go into negative territory every subsequent year because, as people have said, the letters business is collapsing. Last Christmas, I received an all-singing, all-dancing Christmas card online, something that Royal Mail could not deliver because such cards are not available for sale. If Christmas cards are the bulk of the business, people will very soon be sending Christmas cards online. Soon, they will not write many letters. As the example of British Steel shows, if

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you want to manage an industry in decline, privatise it. That will manage the decline much better than keeping in the public domain. I know that this is not what all people say.

I was persuaded by what my noble friend Lord O’Neill said. We are very sentimental in tolerating a low-wage industry. It is a low-wage industry because it is unmechanised—that is a universal truth in economics. On page 52 of the Hooper report we have the comparative share of labour costs across different countries. The higher the labour cost, the lower the productivity of workers. It is a universal law; I can say that because I have taught economics for 45 years. The reason is that low wages result from a lack of courage to modernise, automate and use the latest equipment. Of course, the worker fears that if machinery is introduced, he will lose out. He therefore resists and consigns himself to a low-wage industry.

You have to work hard in an unmechanised industry. It is a job of drudgery. We are now asking ourselves whether to keep the postal workers in this glorious, low-paid, unmechanised job. Obviously, like St Augustine, we want to improve, but not yet. We basically go on praying that life will improve.

Frankly, it is not enough to say, as my noble friend Lord Whitty did, that we can get capital here, and management. That is not good enough. I doubt that anybody will give capital to the Royal Mail in the current market conditions, and any they did would be at an extremely heavy price anyway. Even with that, however, new management is needed, embodied with the incoming capital. Whether it is TNT or somebody else, I do not much mind. It is clear that internal, endogenous improvement in the Royal Mail, such as has taken place, has not been enough. Unless we recognise that simple fact, we will further consign the industry to backwardness.

A number of noble Lords have shown that this is a story of failure of Governments of that party and this party, trade unions and management. Yet we still believe that this circus should somehow go on and on, because we are sentimentally attached to what we have. We are a conservative country. We do not like change; we fear change. Despite that, every time that we have changed in the past 20 years, things have improved. Does anybody remember what the telephone service was like when you had to apply on a form for a telephone? You were not treated like a customer; of course not. You were treated like a citizen: very badly. Does anybody remember British Airways? Does anybody remember how bad the steel industry was? Did we not celebrate 25 years of the great, sentimental fight for the coal industry, which has now shut down? Why? Because the coal industry was then fighting not for worker ownership, but for the right of miners’ children to have miners’ jobs, thank you very much.

That has gone, and the economy is better for it. Who remembers when Ravenscraig was going to be shut down? The Scottish economy was going to come to a halt. I remember speaking at that time, saying “Let Ravenscraig go”. No wonder my career has not advanced.

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We must go firmly down this path without reservation, open up to competition and ask for bids from anybody, up to 30, 35 or 45 per cent; I do not care. We must get this business on the road again, so that whoever is employed in the post office in the future has a wage that is comparable to some better industries in the country, and the consumer gets a better service than he or she now does. The consumer does not get a very good service. Small businesses lose a lot of money from the inefficiency of the postal services. I have not looked at it lately, but when I last spoke about it, only 92 per cent of letters were delivered; I do not know where the other 8 per cent went.

There are few 350 year-old things worth keeping on. We have an opportunity now. Do not say, “Why now? Why can’t we delay?” We have delayed for 20 years. We have had 20 years of waiting to improve the postal services in this country. It is about time we grasped the nettle. I congratulate my noble friend the Secretary of State on at last having had the courage to do so, and to fight the good fight.

6.38 pm

Lord Stoddart of Swindon: My Lords, I agree with the noble Lord, Lord Fowler. If the Bill had been brought forward by the last Tory Government or any other Tory Government, the Labour Party would be jumping up and down in rage. It would be organising marches up and down the country and there would be a huge lobby of Parliament against the Bill.

I do not agree with the Bill. It is unnecessary and should not have been brought forward. However, I suppose that, because it is not a Tory Bill but a Labour Bill, it must be all right. I do not think so. I shall tell your Lordships in the time available why it is not the sort of thing that should be brought forward by a Labour Government.

I remind the House, and noble Lords who have already spoken, that the noble Lord, Lord Hunt, said from the Tory Front Bench that he will march shoulder to shoulder with the Secretary of State for the Bill in the Lobbies this evening. However, he also warned that the Conservatives will table amendments in Committee and on Report. I warn Labour Lords that this is a House of Lords Bill. Any amendments made here can be altered in the House of Commons but cannot be overturned by the Parliament Act because this is a House of Lords Bill. Therefore, noble Lords should be careful about supporting the Bill and consider supporting the amendment so admirably moved by the noble Lord, Lord Clarke.

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