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I am pleased to hear the questions posed by my noble friend Lord O'Neill, because we are getting down to the nitty-gritty. What has been tantalising and frustrating so far is that we have not got down to the nitty-gritty. I should like to look at the different models. I should like my noble friend to invite some of us to discuss some of these models, because it raises the axiom and begs the question of whether we can even talk about these things without being accused of being dinosaurs. That is not a word yet appearing from the Secretary of State. I will acknowledge every word other than dinosaur, but it is interesting that my noble friend Lord O'Neill, as a supporter of the Bill in its entirety, I guess, has raised some interesting questions for the first time.

Lord Brooke of Alverthorpe: I will be brief and do not wish to repeat all that has been said by my noble friend Lord O'Neill. I covered my view fairly clearly at Second Reading in support of the Bill. It was principally on two grounds—the nitty-gritty, to use the phrase of my noble friend Lord Lea. The first was investment and where it would come from. That is a fair question to put to the noble Lord, Lord Morgan. Does he believe that the money will be forthcoming? Anybody

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who has read the Hooper report will see the projected losses that are about to be approved and the failure to deliver in certain areas on performance.

My second point concerns management. Where is the assurance from the mover and the supporters of the amendment that the management can deliver? There is a world of difference between having plans to deliver and actually delivering the changes that are needed. The nitty-gritty behind the change that is being proposed is similar to the one that was the case with NATS when it became a PPP, which was to inject a different management style into the model that would deliver efficiency and effectiveness and defend the service and safety in the way that we would all expect. It is the same here. I would certainly support amendments for investment if we could be guaranteed that it would come from the Government or there were others with the investment lined up, provided, at the end of the day, that it would be value for money. We need to know that the increase in performance that is required would be delivered—not promised in the programme but actually delivered. That is the question that I put to the noble Lord, Lord Morgan. What is the guarantee that anything would be any different in the future even if you are getting your hands on the money?

Lord Neill of Bladen: I believed that I was making exactly the same point about practicalities as the noble Lords, Lord Lea and Lord O'Neill. We must look at this realistically. I fear that I am approaching this as a lawyer. What guarantee is there that you will find a partner to participate on a loan basis? There is no empirical basis for that statement. If we amended the Bill in the way that is now sought it would tie the hand of the negotiators in an absolutely appalling manner. We need a much looser arrangement so that a strategic partnership can be achieved. That is the aim. But you have to trust your negotiators to do that in a manner that protects the interests of the state but that is commercially feasible.

Do not say now that it must be done by way of loan. If you are going to raise the question of loan, start asking yourself who is the big player who is going to bring in a sum of up to £1 billion, or perhaps more. What sort of commercial conditions will he want to put in his loan agreement? What sort of fetters is he going to want to put on the power and control vested in the board? They would be binding—I referred to case law on the previous occasion—if an agreement was made that the board would act in a particular way unless that was contrary to some provision in the statute. My plea today is not to tie the hands of the Secretary of State in an impossible manner at this early stage.

6 pm

Baroness Turner of Camden: I support what my noble friend Lord Morgan said when moving this amendment. I also support my noble friend Lord Taylor. At Second Reading, I supported noble Lords who spoke against privatisation. I am a former union official, and I said that I supported the union’s position. I still feel that way about it. However, a number of points have been raised that have to be answered. One

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relates to the kind of private partner we are going to have and what sort of managerial experience he will bring. What is the business plan as far as he is concerned? We do not know whether he will have the necessary expertise to produce the managerial revolution that everybody wants to see within the Royal Mail. We have no idea about that. None of this is stated in the Bill. Therefore, I still support those who speak against privatisation. I do not think there is any proof that the private partnership envisaged in the Bill will produce the managerial revolution that everybody expects to see. I am not a fan of privatisation generally. I do not regard it as always the answer to efficiency problems. I still remain an opponent of the part-privatisation suggested in the Bill.

Lord Hoyle: I did not think I would have to go over some of the points I made at Second Reading. However, my noble friend Lord O’Neill, whose words I always listen to with great attention, has forced me to do so. I pointed out that a lot of things have happened in Royal Mail over the past 10 years. Fifty thousand people have gone and half the money for modernisation, which my noble friend said was needed, has already been spent. The orders have been placed, and some of them are coming in. The modernisation is due to take place. Call centres have been closed. Why do we not allow that to take place and take time to see how successful that is?

My noble friend Lord Morgan was right when he said that 30 per cent could also be 49.5 per cent. The Bill may say 30 per cent now, but will they be coming back to Parliament because they want to increase it? I do not think they will. My noble friend Lady Turner is right to ask for the outline of a business plan because it could be far more far-reaching than the assurances we have had from the Secretary of State that it will be only 30 per cent at this stage. It will be a 30 per cent stake and a partnership, but what kind of partnership will it be?

If I look at TNT, which has been mentioned, it has not had liberalisation in its own market. It will happen this year. It is already starting to squeal and say that liberalisation will have a dire effect on it, and its profits are down by 20 per cent. It has said to the workforce that it must take a pay cut or be sacked. If that is the kind of industrial relations that will be brought in by this company, I can see only trouble and calamity ahead for the Royal Mail. In addition, TNT does not have a good record at keeping things and delivering them. We know about the child benefit records it lost. What will it bring to the partnership, if it is the partner? Where is it going to get the money? It does not have it on its balance sheet and will have to go to the bank for a loan. Why cannot the same thing apply to Royal Mail?

I wanted to put forward the question of a loan, so I asked the Library to find out the problems facing Royal Mail and the Treasury restrictions. I got a very interesting reply:

“Dear Lord Hoyle, Postal Services Bill Further our conversation earlier today, I have spoken to the Postal Services Bill team who advise me they are not able to comment before the Committee stage tomorrow on your query regarding the continued control by the Treasury over the Royal Mail”.

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Why can I not have that reply? Why can I not know what the restrictions are so that I can make the point here and ask for them to be lifted? Why the secrecy? What can we not be told before we have this debate? Can my noble friend give me the answer to that question?

My noble friend Lord O’Neill mentioned co-operation. Why should there not be co-operation between the various post offices? To suggest that Royal Mail is not in Europe at the moment is wrong. It is in Europe in a big way—the noble Lord shakes his head—in the parcel industry. One of the most successful elements of Royal Mail is the parcel company. One of the things I am concerned about in relation to TNT, as is Royal Mail, is that it might be interested in taking over the successful European parcel business, GLS. I have had a Written Question down for a while about this. The view is that the partner being proposed will take it over, yet Royal Mail is depending on it for 50 per cent of its business in future years because that is where the growth lies. With modern communications, growth lies in the parcel industry, and that is in danger from the partnership being proposed.

Why are we going down this road at this moment? Why do we not let it settle and see whether the efficiency measures that are already in place and those that are to come are successful? If we are going to sell off part of the Royal Mail, in a recession is the worst possible time to do it. We will get the worst possible price if we go ahead now. That is another good reason why we should allow things to develop before we take up dogma. Dinosaurs have been mentioned. They might know the financial crisis in which we are taking over the banks and other things and be on the other side of those who are advocating that private must always be right and public must always be wrong. It is a dogma that is not proving successful worldwide at the moment.

I appeal to the Government not to be hasty but to think again, allow the dust to settle and see how the company is going. It is making a profit, which is likely to be more than £250 million in the current year. If it did not lose £100 million in access and, instead, made £100 million, it would be highly profitable, and then it would be acceptable to ask for a loan in the market. Remove the shackles and let the Post Office become a company that can go. I still do not know why—

Lord Brooke of Alverthorpe: We are all trying to get the same objective delivered at the end of the day; the defence of the universal service is certainly paramount to us. However, is my noble friend denying the projected loss for Royal Mail next year in figure 19 of the Hooper report? Present expectations are that the losses will be £52 million, £43 million in the following year, £86 million in the following year, and £96 million in the following year.

Lord Hoyle: I read the Hooper report very carefully. Is my noble friend taking into account the loss of £100 million which Royal Mail is making at the moment under access arrangements? I am asking for a revision of that loss. It was mentioned that Ofcom might look at removing that loss. I am saying that Royal Mail could be £100 million better off, and I do not think that the figures cited by my noble friend take that into account.

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Lord O'Neill of Clackmannan: Will my noble friend clear something up for us? Is the £100 million that has been lost through liberalisation clear profit or just £100 million of business? If it is £100 million of business, it is not profit; it represents only a bit of the turnover. To keep bandying about this figure of £100 million in these circumstances is somewhat less than accurate and helpful.

Lord Hoyle: If I am being less than accurate, I am only citing the figures that Adam Crozier gave as chief executive of Royal Mail when the committee, of which my noble friend was previously the chairman, asked for them. He remarked that it had cost Royal Mail £100 million. I am saying that if that loss were removed, £100 million could go to the balance sheet. That is pretty plain for everyone here to see.

I hope that my noble friend Lord Mandelson will look at this again. I admire a lot of what has been said in the Hooper report, and I agree with it, but I do not agree that 30 per cent of Royal Mail—as I say, it could be more than that—should be sold. We should allow things to develop. Let us see how things go, because Royal Mail is losing on one thing but is very strong on the other—the parcel business—which would be lost with a public/private partnership. I think that it will be taken over. As I say, I have not had a reply to the questions that I have been asking, but I think it is possible for Royal Mail to be profitable if the shackles are removed. I see no reason why it should not be. It cannot go for a loan. I hope that my noble friend will give us some words of encouragement when he replies. I shall be very interested to hear what he has to say.

Lord Hunt of Wirral: I have no wish to delay the Secretary of State’s response to the challenge that he has just received from his noble friend Lord Hoyle, but it is important that my party’s position on this issue is set out very clearly. That will come as no surprise to the noble Lords on the Benches opposite who have tabled these amendments. I have listened with great interest to some distinguished contributions during the debate, but I have to say that we support the Secretary of State’s intention to part-privatise Royal Mail Group Ltd and that we will support him in rejecting the amendment if it is put to a vote today or on Report.

I think that I covered at Second Reading many of the arguments behind our policy. We support the Hooper report in principle. The influx of private capital and expertise, especially at the management level, is necessary—it has long been so—to give Royal Mail the support and the impetus to revitalise a company that must overcome the challenges of market liberalisation and the rise of digital communication. It will not be an easy task, but I found Richard Hooper very persuasive when he said, although it is unfortunate that this should be under headline 13:

“We recommend a strategic partnership between Royal Mail and one or more private sector companies with demonstrable experience of transforming a major business, ideally a major network business”.

I agree.

6.15 pm

We hope that a partially privatised Royal Mail will be able to seize the opportunities that new technology and the expansion of the parcel market offer, for

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example. That said, it is quite right that the policy should be challenged, as it has been, by the contributions that we have just heard. However, the Hooper review is an extremely useful document in bringing together in one analysis, which the Government have finally accepted, what so many of us have known for so long. The noble Lord, Lord O’Neill, took me to task before. I recall having a number of debates with him over the years. These go back even to when the Secretary of State and I used to run something called the British Youth Council and the noble Lord, Lord O’Neill, was chairman of the Scottish Union of Students. However, I do not want to look back—well, not that far back.

It is sad that the Government have done so little over the past 10 years to address the slow rate of modernisation and the inability to compete effectively with private sector providers, although I acknowledge what noble Lords have said about the past, particularly about Girobank. I remember Girobank, which I think had been Post Office Giro and became National Giro, National Girobank, Girobank and then the Alliance & Leicester Commercial Bank. There is still a need for that sort of service. I think that Girobank was the first organisation to offer a free banking service and telephone banking. I met the workforce on several occasions, and there is still a contribution to be made there.

Two years ago, however, the chairman of Postwatch submitted a proposal—it was called, rather dramatically, Project Neptune—which suggested a public/private partnership to supply the necessary equipment for fully automating mail centres. In contrast to what the Government are now suggesting, it did not involve any transfer of ownership to the private sector and, by the time it was rejected by the then Minister, it had established three private sector companies that would be willing to invest some £2 billion in Royal Mail in return for leasing and operating costs, with Royal Mail retaining any profits. I am certainly not suggesting that we bring that option back to the table—we are now long beyond that point—but it was very sad that it was not taken more seriously at the time.

With this Bill, the Government have now finally accepted that something needs to be done, and we are glad that they are implementing the report. I have asked a number of questions about the method by which they are doing it. We have alluded several times—I will not repeat myself—to the speed with which the Government are trying to go forward. A number of noble Lords have asked for the case to be set out quickly in Committee, which is why I very much look forward to hearing from the Secretary of State.

Lord Mandelson: In the first instance, I will respond to two specific questions. Other contributions have been wider and more general, and I shall come to them in a moment. My noble friend Lord O’Neill asked why the Government did not use Section 67 of the existing Postal Services Act to sell shares in Royal Mail Group Ltd. It is true that there are powers that allow for a joint venture, but it was not clear that Section 67 covered a partnership arrangement of the type being considered. The Government therefore decided that it would be better to give Parliament the opportunity to scrutinise proposals for any minority sale of shares to achieve a partnership through the passage of a Bill.

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My noble friend Lord Hoyle asked a number of questions about TNT. It would be inappropriate for me to comment on speculation about potential bidders for the minority stake. TNT has publicly declared its interest, which I welcome, but we are conducting a fair competition to identify a suitable partner for Royal Mail. We will judge bids against the strict criteria set out in our previous policy statements.

If my noble friend Lord Hoyle really wants to liberate the Royal Mail from what he calls the shackles and the tyranny of the Treasury, the logical conclusion he would reach in pursuit of that end would be to privatise Royal Mail completely and take it out totally from the public sector. What better liberation could you imagine from the shackles and constraints imposed by the Treasury or anyone else than to remove it entirely from the public sector? I thought that that was exactly the logic he did not want to follow, and that he shared my view and that of the Government to keep the Royal Mail in the public sector.

Lord Hoyle: I wish to keep it in the public sector as a separate company, but not to be shackled by the Treasury. A stand-alone company is quite simple and would be very much like other companies have been.

Lord Mandelson: No scheme has been devised in similar circumstances for my noble friend to have his cake and eat it in the way that he has described. But perhaps he is even more ingenious than those who have previously addressed these issues.

This group of amendments relates to the provisions which deal with the public ownership of a Royal Mail company and go to the heart of the Hooper recommendations and the Bill itself. In his moving of the amendment, my noble friend Lord Morgan suggested that it would be much better all round if I simply adopted the approach of my grandfather—the architect, as my noble friend described him, of post-war nationalisation. I think that my noble friend, an eminent historian, should reflect on my grandfather’s character and his approach to these matters. He was no dinosaur, if I may use that term for the first time. His very strong view was that when the facts change, so must the conclusions about those facts change. In other words, he was a pragmatist, a sort of dynamic moderniser and not a static one, whose pragmatic dynamism gave rise to his firm belief that socialism is what a Labour Government do. I think that all Members of the Committee would agree that that is a very dynamic definition indeed.

The amendments tabled by my noble friends remove the concept of “publicly owned” from the Bill. They go to the heart of what we are trying to achieve for Royal Mail under this legislation. Before turning to the specifics of the amendments, I therefore remind the House of the importance of a strategic partnership for the future of Royal Mail. As presently organised, managed and financed, the Royal Mail simply is not in a position to sustain its universal service indefinitely, which is why we are seeking changes through legislation.

As I made clear at Second Reading, the future of the Royal Mail, and therefore the future of the universal service, is under very real threat from the challenges of

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the digital age. None the less, despite those challenges, mail is still a critical part of our social fabric, our communication infrastructure and our economy. The Government are therefore fully committed to maintaining the universal service by means of a publicly owned Royal Mail fully restored to good health. Perhaps I may remind my noble friend Lord Morgan that that is what we said precisely in our last manifesto. That is what our policy, if implemented in full through this Bill, will achieve. I want to see Royal Mail modernised and made fit for its future purpose. Previous attempts by this Government and by previous Administrations to achieve this have failed. In spite of the best efforts of management, supported by vast amounts of government funding, modernisation has simply not happened in the way, on the scale and at the pace required in a fast-changing marketplace of the sort in which Royal Mail has to compete.

At Second Reading, a number of noble Lords commended Richard Hooper’s excellent report on the postal sector, which is the basis for this legislation. His report clearly identified the constraints faced by Royal Mail. They include that the company has relatively little room for manoeuvre on pricing—the higher the prices, the quicker business will be driven away. Also, he said that industrial relations in the business were strained; I think we are all agreed that that is an understatement. He said that it has a very large and volatile pension deficit—indeed, it does—and it does not make the profits required to modernise its business and, crucially, to diversify, which I think is common ground. Opponents of this Bill, some of whom we have heard today, have simply not addressed these issues and constraints in their contributions with arguments or viable alternatives to what we are doing, which the House might reasonably have expected in their contributions to our discussions today and previously.

The Hooper review’s final judgment was that the introduction of a strategic partner will bring the capital, experience and confidence needed to tackle these challenges. No one has been able to counter this conclusion with equal strength or argument. We agree with the review that this dynamic—the best route to accelerate modernisation, and to enable Royal Mail to diversify and expand its operations—is a partnership with a private sector company that has real expertise in transforming a postal or network business. Consultancy or contractorisation, as some have mentioned previously, is simply not an adequate basis for the sort of partnership that Royal Mail needs. A minority sale of shares is needed to give the partner a real stake in the business and a real motivation to generate the necessary drive and synergy to bring not only the opportunity for fresh capital into the company but the much-needed confidence, expertise and dynamic that this business needs if it is to turn around its finances and transform itself as a going concern.

Amendments which remove references to “publicly owned” and replace them with,

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