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I declare an interest not only as a solicitor but as one who used to act for the Transport and General Workers’ Union for many years and who is a strong supporter of the trade union movement when it offers real incentives and real benefits to its members. Indeed, there is no better organisation at looking after its members than the trade union movement that I used to serve, in tending to those who were injured or who had lost a member of their family. The amount of help and resources that came from the trade unions was remarkable. Those in the movement and those who represent employees have, rightly, often welcomed the opportunity for their members—and, indeed, for employees—to have the right to own shares.
As I understand it, the Bill in its present form does nothing to rule out the establishment of an employee share-ownership scheme, but the reality is that any such scheme would naturally have an impact on the negotiation and establishment of a private partnership deal.
Lord Hoyle: I understand what the noble Lord is saying about the benefits to employers, and I do not disagree with him for one minute on the issue of share-owning, but as we have seen, for example, with bus companies that were municipally owned, many of the shares were given to employees who then sold them when they had a higher offer, which defeated the object of giving the shares to employees. Might it not be better if there were a clause somewhere that said that if the shares were going to be sold, they would have to be sold back to the company rather than to some predator who wanted to get their hands on them?
Lord Hunt of Wirral: The noble Lord is right to point out the dangers of a predator. No doubt we will be dealing with that when we move on to the next amendment. My view is that it will be difficult to restrict the ownership in future. It is an inhibition that I do not favour, but I readily recognise the motivation behind what he has pointed out.
I refer back to the Minister’s telling phrase, “Better late than never”. Now that we are dealing with the prospect of a deal, my question to him is, “Deal or no deal?”. The impact assessment states clearly that,
“Doing nothing is not a viable option”.
He owes it to the Committee and to Parliament to tell us what is going on. Of course, it may be that he is unable to go into any detail because of commercial in-confidence negotiations. However, it might be helpful if he could give us some sort of timeline within which he is operating. A lot of us are troubled by the fact that there is no evidence of any deal at all, at present or in prospect. We need clarification of exactly what is going on. There were some indications at Second Reading. Where are we today? Where will we be when we get to May or June? Is the Secretary of State still working towards having a deal this summer?
I do not think it is enough for the noble Lord to say that he will look at employee share ownership some time in the future. It needs to be considered now.
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I have no wish to take up any more time in putting all these questions, and there are many more. I hope that the amendments will give the Secretary of State the opportunity of answering some of those fundamental questions and giving us an idea of what lies in the future. I beg to move.
Lord Razzall: I agree with the noble Lord, Lord Hunt of Wirral, that now is the time to determine whether we have an employee share trust. It will come as no surprise to the Minister to hear that we have for many years advocated that some element of the public ownership of the Royal Mail should be in the hands of the staff rather than the taxpayer. Clearly this is a complicated issue. We are suggesting that if the Government get their Bill through, under which up to 49 per cent of the Royal Mail can be in private hands, of the remaining 51 per cent, half should be retained by the Treasury and the other half should be in the hands of an employee trust.
I agree with the noble Lord, Lord Hoyle, that staff shares should not be sold in the market when someone makes a higher offer; they should be protected so that when someone leaves, those shares come back into the employee share trust. The model that we seek is the one adopted by the John Lewis Partnership and the Co-operative Society, although in both cases they have 100 per cent employee ownership. That may be a model for the post-capitalist world that we seem to be inching inexorably towards. It is no surprise that the largest takeover in the past month has been the Co-operative Society buying the Somerfield supermarket chain. How, in the modern world, can a company organised on a mutual basis be able to borrow the money necessary to acquire a major supermarket chain—as a result of which it is now back to fifth in the list of UK food retailers—whereas a number of organisations organised in a traditional manner find that more difficult to do?
The Government initially proposed having 30 per cent of Royal Mail in private hands, but the Bill, if they get it through, would permit them to make it 49 per cent. We propose that half the balance should be in an employee share trust, with the other half retained by the taxpayer. Our Amendment 26 in this group floats a proposal for a figure of 25.5 per cent and makes it clear that that will not affect the definition of public ownership. We do not think that more than 49 per cent should ever be in the hands of anybody other than the Treasury and the staff.
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Lord Mandelson: We made clear in the policy statement which we issued when the Bill was published that the issue of appropriate workforce incentives was high on
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We heard at Second Reading, and again today, that several noble Lords believe that it is important to give Royal Mail employees real shares in this business to drive the transformation that we all agree it needs. We share the view that getting incentives right to drive modernisation in the business is important. However, in tabling this and other amendments, noble Lords have acknowledged that Royal Mail employees already benefit from some such incentives. As has been stated, Royal Mail staff currently participate in a shadow or phantom share scheme known as ColleagueShare. This was introduced in 2007 and provides members with an incentive scheme linked to the value of the business, driven by modernisation, akin to real shares. The scheme is only part way through and will run to 2012.
It is true that in 2007 the Government considered Royal Mail’s proposal for a significant proportion of its shares to be provided to employees. It was decided at that time that the ColleagueShare scheme was more appropriate, not least because I gather there was no interest in or enthusiasm for a full scheme among the workforce. This was before the unequivocal findings of the Hooper report which made it clear that for the universal service to be sustained, an injection of capital from a strategic partner would be required. I do not know whether that might influence workforce attitudes now. That remains to be tested.
I accept that the ColleagueShare scheme has not been a resounding success in inspiring the modernisation of Royal Mail that it was designed to produce. However, the scheme is only part way through and runs until 2012. I think that its success should be judged then and not now. The benefits which could accrue from the present scheme are potentially generous to Royal Mail’s employees. Each participant in the scheme could get up £5,300 in total, which is equivalent to a total payout of £0.9 billion over the life of the plan. This level of payout to staff would be more than five times the reported operating profits of the group in the year to March 2008. It demonstrates the importance that we place on ensuring that Royal Mail’s workforce shares in the company’s success. We do not, however, want to be obliged to offer shares for sale to employees at this stage as Amendment 3 contemplates. We need to reflect on the benefits of the existing shadow scheme in driving Royal Mail’s modernisation before putting in place any alternative incentive scheme. Any incentives must be linked, and be seen to be linked, to successful performance of the company.
We acknowledge that as the years go by the appropriate staff incentive arrangements may change. However, these arrangements would rightly be a matter for the Royal Mail management and any partner to consider in the context of their transformation plans for Royal Mail. The legislation should not prevent the right arrangements being put in place, and the noble Lord, Lord Hunt, has acknowledged that that is the case. The legislation does not prevent any such arrangements being put in place. It is entirely permissive but leaves the judgment for subsequent discussion between the current management, the new partner and the workforce.
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The percentage of such shares would be a matter for debate. We could not accept provision of shares to employees that would dilute the Government’s own stake in Royal Mail to below half, which would stop the company from being publicly owned. Amendment 26 could allow that to happen. However, let me stress again that Royal Mail is not restricted under this Bill from providing shares to employees.
We are happy to engage in further discussions with interested parties in both Houses to ensure that we put in place the very best form of incentives to drive modernisation in the business. It is also vital that any incentive arrangements represent value for money for the taxpayer and that Royal Mail should be maintained in public ownership so as to ensure that the Government have the right and ultimately the ability to ensure Royal Mail’s future and that it is run in the public interest.
In light of what I have said on the current provisions in the Bill and the employee scheme that already exists, I ask the noble Lord to withdraw the amendment.
Lord Hunt of Wirral: That was a very helpful response, but it raises a number of further questions, particularly over the timeline. If I recollect, at Second Reading the Secretary of State talked about summer this year. Could he clarify that a little? Will what is happening in these discussions and negotiations be announced at least in principle before the Bill has completed its passage? He says that anything is possible, but there is no provision in the Bill for the sort of employee share ownership that I outlined—or, indeed, that the noble Lord, Lord Razzall, outlined.
We really want some sort of assurance that, if a private partner is greatly encouraged by the thought of extending share ownership as part of the deal, there will still be time to set out the scheme in much more detail. No doubt we will come later to what will happen to the proceeds of any sale of shares—or will we have to leave all that to the Secretary of State, who has not really outlined whether discussions have taken place with one, two, three, four or five different partners? I know that a lot of commercial in confidence negotiations must be going on—or at least I hope that they are, because we all want to see a satisfactory resolution to all this. But could the Secretary of State give a little more indication of what will happen if the private partner with which he starts to finalise discussions wants to see in this Bill some more detailed provision for an employee share ownership scheme, and whether he envisages that there will still be time to introduce that in the legislation?
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Lord Mandelson: The relationship between Government and any partner will be subject to a shareholders’ agreement. This will be a legally binding contract between the Government through Royal Mail Holdings as seller, and the buyer. That document will make clear what the buyer can do, for example on board appointments, and what it cannot do—for example, by placing restrictions on the sale of its shares. I am perfectly happy to respond further to questions about this agreement in due course. I think that it would more naturally arise in debate on subsequent amendments. What I would say at this stage is that the possibility of introducing a full employee share scheme would be something that we would discuss with the prospective partner. Should we reach a joint view that such is desirable, it is something that I think we would want to discuss with the workforce itself to test its opinion. Every last dot and comma of that does not need to be tied down as part of that agreement. That is the context in which we would address this issue.
Lord Hunt of Wirral: Does the Secretary of State believe that if that were to happen in these discussions, the present Bill would allow the sort of scheme that is being envisaged? It would be helpful to know that we are giving the Secretary of State enough power in this legislation to do the sort of thing that we have been discussing under the heading of employee share ownership. Any indication of that would be very welcome.
There is also talk about a share agreement—the Secretary of State has just mentioned one. Does that already exist in draft? There are shareholders’ agreements, and there are shareholders’ agreements. They are not all standard form. However, there may be a standard form that the Secretary of State and his fellow Ministers are working towards. It would be very helpful if he could perhaps share with us, or place a copy in the Library, the sort of provisions that he believes should be contained. We could then better adjudicate on whether the legislation in its present form would allow that to happen.
Lord Mandelson: I appreciate the spirit of the noble Lord’s inquiry. No such shareholder agreement exists because no such negotiation has yet taken place. We do not have some sort of putative agreement hanging around on a shelf waiting to be taken down, dusted off and shared. In answer to his previous question, which is very important, there is no legal bar on the Secretary of State or on Royal Mail and its prospective strategic partner agreeing to such an employee shareholding scheme. However, what the Government would say as shareholder, and what I have already said, is that any such scheme would have to be on the basis and within the terms and limitations that I have described—that is, one that does not push the Government, representing the public, into a minority ownership position in Royal Mail.
Lord Hunt of Wirral: I do not think that the Secretary of State quite said that there would be no need for any further legislation. I take it that he is virtually saying that. The noble Lord says, “That is what I meant”. I think we are reassured by that. There is still the question about what happens to colleagues’ share under any such agreement. I know that the Secretary
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4: After Clause 2, insert the following new Clause—
“Post Office board of directors
(1) The Secretary of State must appoint a board of directors for each Post Office company.
(1) The board of directors for each Post Office company must further the objectives that it sets itself.
(2) OFCOM, as determined by section 28, must monitor the board of directors’ efficiency and compliance with such objectives.
(4) OFCOM must also be responsible for the setting of charges.”
Lord Bradshaw: I have no intention of repeating my Second Reading speech. I trust that the Minister, who was not present then, might have read it.
I have considerable experience of the governance of publicly owned industries. Those running them have to put up with constant government interference. We have heard this afternoon of two cases—pension holidays and payments to the Treasury—which have no doubt damaged the Royal Mail considerably.
We also have the problem of uncertain funding streams, but I believe that the Bill addresses that in Part 3, in the setting up of the new regulator, Ofcom, which we hope will be better than Postcomm. If Ofcom follows the pattern set by the Office of Rail Regulation for the railways, at least it will establish as firm a funding stream for the industry over five years. Of course, it is possible for the industry to make representations to the regulator about the following five years.
It seems that political interference turns on, first, setting not vague but very clear objectives of what the boards of these bodies are to do. One of them is, of course, to maintain the universal obligation. However, there is a need for a few objectives. The next thing is to appoint competent and able people to run them, free of political interference but subject to the regulator’s control. The regulator has done well in the railways industry, but in others—perhaps the national grid is an example—the regulator has not done so well.
Thirdly, the public sector has of course had its fair share of the industrial relations problem. It has often been fairly constrained politically in what it can do by, for example, constant interference by the Government in wage negotiations, or rate or fare setting. However, the public sector is now moving to a point where it should have compulsory arbitration of disputes. I draw the Secretary of State’s attention to the fact that
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I want the Secretary of State to think broadly in considering Amendments 4 and 10, and perhaps to think afresh about these problems. We must move the Post Office on to a new plateau which is reliable in terms of its industrial relations, its financing and its objectives. I beg to move.
Lord Whitty: I shall not be able to be present when the Committee discusses later amendments relating to the governance of Royal Mail. I declare my interest as chair of Consumer Focus. Confidence in the future of Royal Mail and the Post Office is key to this discussion. I do not agree with this amendment and I consider that the noble Lord has wrongly interpreted the relationship with the regulator. The board is not subject to the regulator; the regulator regulates certain aspects of the business but the board must be independent of the regulator and the Government. Therefore, I consider that the amendment is misconceived. However, the Government must indicate clearly how they expect the governance of the new structure to work. I am very grateful to the Secretary of State for sending me a copy of the envisaged structure of the new industry. However, governance issues arise at every level of the company and will be different for the different parts of the structure. Whether or not we need to go into huge detail in the Bill, it is incumbent on the Government to indicate how they see the governance structure emerging.
In that context I am bound to say that it is not only a question—as some have said—of representation of the potential partner or of the workers. You also need people on the board who have experience, as business or individual consumers, of the services both of Royal Mail and of Post Office Counters. Therefore, I do not support the relevant amendments on the Marshalled List today, but I hope that the Secretary of State will give a clearer indication of the thinking on governance.
Lord De Mauley: The amendments of the noble Lord, Lord Bradshaw, raise important questions and we look forward to hearing the Secretary of State’s response. It is right that we should look at how best to support the network and encourage its expansion, modernisation and diversification. A strong board with, as the noble Lord, Lord Bradshaw, said, clear objectives, is, of course, a necessity as much for the Post Office as for Royal Mail, and I have a lot of sympathy with his concerns in this area. The noble Lord also referred to regulation. An interesting point arises here about the regulation of post offices. The Bill is, of course, largely focused on Royal Mail and Part 3 concerns Ofcom’s responsibilities over Royal Mail, and potentially private sector providers of services within this sector. However, I believe that the reorganisation of Royal Mail Group will—the Secretary of State will correct me if I am wrong—bring Post Office Limited out of the remit of Postcomm. If I am right, it is important that we hear his reasons for excluding post offices from Ofcom’s remit, and the Government’s plans for the ongoing regulation of
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Lord Mandelson: Ensuring the appropriate governance arrangements for the Royal Mail Group of companies is absolutely vital. At Second Reading, the noble Lord, Lord Bradshaw, raised very important points about corporate governance, as he has done again today, and the serious consequences which can arise if companies do not have sufficient clarity in this regard. I agree with the noble Lord’s sentiments if not his amendments.
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