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31 Mar 2009 : Column 967

Lord Blackwell: While I have sympathy with the objectives of my noble friend’s amendments, we must be cautious about the appropriate role of Parliament versus the Executive here. There is a point at which the role of Parliament is to define objectives and give the Government permission to take a course of action, but Parliament should then let the Executive get on with it while holding them to account. I have a slight concern that, in some of the things that we are asking to be brought back to Parliament, such as negotiation details and choice of partner—whether they are the best partner to add value or successfully manage stakeholder issues—we might be crossing the line by getting Parliament too involved in executive matters of judgment and discussions. It would potentially be difficult to have commercial information shared in a way that would allow Parliament to participate in that decision properly. I want to ensure that we consider the precedent of what role Parliament should properly play.

The Secretary of State for Business, Enterprise and Regulatory Reform (Lord Mandelson): This group of amendments would introduce requirements for the Government to provide a number of reports setting out detail on various aspects of the partnership process. I should say at the outset that I entirely recognise and support the need for appropriate transparency on an important transaction; I want to be fully open about that. The noble Lord, Lord De Mauley, observed that we might follow a number of avenues to create a suitable partnership. As he said, he does not agree with the need for flexibility—I thank him for that observation. I will come back and respond more directly to his points.

In the mean time, I shall respond to a couple of my noble friends’ points. To my noble friend Lord Christopher, I say that, after partnership, the Royal Mail will continue to be, as it is now, a limited company. It will not be listed on any stock exchange for all the reasons that we have previously rehearsed in our debate. In response to the points of my noble friend Lord Clarke about a particular postal operator, TNT, and stories associated with that company about tax and employment rights, it would not be appropriate for me to comment on the media—I was going to say “reporting”; that would be too rich a word for the quality of stories that we have seen. I do not represent in this House those or any other commercial interests; I represent the Government. Therefore, I will not comment further on particular companies. However, TNT has publicly declared its interest, but we are undertaking a fair competition to identify a suitable partner for Royal Mail. It would be invidious for me to comment on one as opposed to another at this stage. The process of looking for a partner is not only about the price being offered by a potential partner. We are not just going to sell to the highest bidder, but I shall come back to that when I talk about the criteria.

3.30 pm

My noble friend also suggested that the board of Royal Mail is at loggerheads with TNT. The Royal Mail board is very supportive of this legislation. It wants a partner holding a minority stake to come in to

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help transform the company. The Royal Mail board is also supportive of the other proposals on pensions and regulation as a package. Any debate about GLS at this stage is simply a distraction.

Amendment 20 seeks a report about the timetable and process after Royal Assent. In fact, the process to find a partner is already under way in parallel with the passage of the Bill prior to Royal Assent. The Government hope to have reached agreement with a suitable partner before the summer. The Government’s timetable is driven by the need to introduce a partner into the business quickly, so that that partner can bring its transformation experience, expertise and confidence into Royal Mail Group with the minimum of delay. Negotiations are challenging and we must get the best terms for the company and for taxpayers. That is why we will not do a deal on any terms but will negotiate them, and also why we need to avoid a fixed timetable that would give an advantage to the bidder. I do not want to be boxed in; that would benefit only the potential partner with whom the Government are carrying out the negotiation.

Nevertheless, I shall explain the timetable we are following in broad terms. Since January we have actively sought expressions of interest from potential partners with experience of transforming a postal or network business. On 26 February, we set out in our policy document the main criteria against which we will judge a potential partner’s suitability. It might help noble Lords if I rehearse those criteria, which are highlighted in Amendment 21: the price offered for a minority stake or partnership, and the ability of a partner to finance the investment; the ability of the partner to add value to Royal Mail as a whole, including by assisting in the transformation of Royal Mail’s letters business and the modernisation of its network; and the partner’s capacity to manage stakeholder issues successfully, including relations with the workforce and trade unions. I regard this as indispensable and I agree with my noble friend Lord Clarke on this point.

In March, we invited shortlisted companies to present a detailed bid on the basis of the published criteria. The process will be phased, with firm offers sought by early June, and with a view to negotiating an initial agreement on the partnership by the summer, as I have said. As I also said at Second Reading, we will ensure that the House is informed of any important developments on the commercial negotiations as discussions continue and as the Bill goes through all its stages. Having given this undertaking, I will fulfil it. The current intention is then to complete the partnership either later this year or early in 2010. If there is any significant delay to this timetable, I will come back to the House to explain the position and the reasons for the delay and to allow noble Lords the opportunity to question me.

Amendment 21 requires the Government, before any deal is concluded, to commission an independent report on the extent to which the partnership proposed meets the criteria that I have outlined and to lay this before Parliament as soon as possible after the deal is concluded, together with any government response. I do not believe that the amendment is necessary, given the robust process, the independent advice and the subsequent scrutiny which are already attached to

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transactions of this nature. It will be of interest to noble Lords for me to set out exactly what robust process accompanies transactions of this nature.

The process sets out the criteria against which all bids will be judged. At all times, the bids will be assessed with the criteria in mind by my department’s shareholder executive, a body with a wide variety of commercial and Civil Service expertise and with a track record in securing value for money for the taxpayer in transactions of this kind. The assessment will be undertaken with the close involvement and independent advice of fully qualified external legal, commercial and accounting experts; it is not a cheap process. In addition, the Royal Mail board has its own external legal, commercial and accountancy advisers and will want to satisfy itself that the partnership deal is in the interests of the company.

I have no doubt that this process, once completed, will be thoroughly examined by the National Audit Office and that it will publish a report on the transaction. It is the usual practice in deals of this nature for the NAO to employ its own independent advisers to scrutinise the transaction; there is a lot of work available. The NAO is the correct authority to provide an independent account reporting directly to Parliament. This is the normal process of reaching and subsequently reviewing a partnership deal in the interests of Royal Mail and the taxpayer. I hope, therefore, that noble Lords will agree that appointing yet another—a fourth—set of independent experts is really unnecessary before a deal is completed. It would delay the process at a time when it is important to secure the future of Royal Mail. It would also have a significant impact on the ability of a deal to go forward as, frankly, it would be unlikely that a private sector partner would agree to such a time-consuming and expensive additional stage in the process.

I understand that noble Lords opposite are interested to have more detail on the future relationship between the Government and a partner. Clearly, this is subject to negotiation. It might be helpful if I provided more detail on our current expectations in relation to the shareholders’ agreement. This will be a legally binding contract between the Government as seller through Royal Mail Holdings and the buyer. That document will make clear what the buyer can do, for example, on a board of appointments and what it cannot do, for example, by placing restrictions on the sale of its shares. The shareholder agreement will reflect that this is a partnership. The Government will have greater control rights than the partner, as is appropriate for the majority shareholder.

However, the Government are keen to ensure that, in certain areas, there will be shared responsibility with the partner. This will give the partner sufficient rights to enable it to influence the decision-making process in the company. There is no point in having such a partner without their having the influence needed to play a strong, positive role in transforming the business: that is exactly what we are looking to a partner to help us to do. For example, we expect to agree equal rights with the partner in adopting the company’s business plan. In order to deliver the required transformation of the business, it will be

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essential that, in particular, on operational matters, including modernisation of working methods, introduction of technology and product innovation, the partner has a meaningful say in the running of the business.

The shareholder agreement would also set out the structure of the board for Royal Mail Group. The structure will reflect that this is a partnership in which the Government will retain ultimate control. Our current expectation is that the Government will appoint the chairman and the majority of the non-executive directors. The partner would be able to appoint a minority of non-executive directors. The Government and the partner will have shared responsibility over the appointment of the chief executive.

While negotiations with potential partners are ongoing, it would be damaging, both to value for money and to the achievability of a deal, to publish a running commentary on the proposed agreements. The details of such transactions are properly a confidential matter between the parties concerned during the course of the negotiation. It would be commercially unprecedented for the related documentation to be published. I am sure that noble Lords will agree that the appropriate place for commercial negotiations to take place is not on the Floor of the House. However, I entirely recognise the legitimate interest of noble Lords in this deal. You will wish to be assured, and rightly so, that the Government are meeting the objectives set for the transaction. Clearly, therefore, we will need to report to both Houses on the deal. Having listened carefully to all noble Lords’ comments, I would like to consider further what, if any, amendments to the Bill are required to meet their concerns. I am prepared to discuss this with noble Lords opposite before Report. I hope that this suggestion is acceptable.

Amendment 22 would require the Government to lay a report before Parliament, setting out what will happen to the proceeds resulting from the disposal of shares in Royal Mail Group Ltd. I fully appreciate that what happens to the proceeds of any disposal will be of high interest to noble Lords and in the other place. As outlined in our policy document, the Government intend to use the money received from the minority share sale to benefit Royal Mail Group, including Post Office Ltd. Obviously, there is a case for partially offsetting the cost to Government of taking on the pension deficit; and of course, anything that tackles the pension deficit releases Royal Mail revenues to invest in modernisation. However, as I and indeed the Prime Minister have made clear, it will also make available capital for Royal Mail to increase the investment available for modernisation and diversification. We will inform both Houses of the payment for the shares, and how it will be distributed, when the consideration is received.

Having given that undertaking, I do not believe that it is necessary to include such a provision in the Bill. In the light of the further detail and suggestions that I have provided, and the undertakings that I have made, I ask the noble Lord, Lord De Mauley, to withdraw the amendment.

Lord Clarke of Hampstead: Before the Secretary of State sits down, I would like to ask one question. When it is said that the Royal Mail board supports

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privatisation, is that a fact, or is it not the case that the Royal Mail board welcomes investment and the removal of the pension deficit yoke from its neck?

Lord Mandelson: The Royal Mail board does not support the privatisation of Royal Mail, which, among other reasons, is why the Government are not proposing to do so.

Lord Hoyle: Could my noble friend quantify a little further what investment would be required? He has talked about hundreds of millions of pounds. Can he put a figure on it?

3.45 pm

Lord Mandelson: The investment requirement depends on the extent to which the company is able and willing to modernise and innovate its products. I hope that that will be extensive. However, I cannot correlate, before any negotiation has taken place, the company’s needs for investment and what we would be able to attract from a potential partner.

Lord Clarke of Hampstead: I am sorry to come back on this again. Regarding the Secretary of State’s last comment, is it not a fact that the modernisation programme envisaged by Royal Mail has a total cost of £2 billion? That has been stated publicly. Is it also not the case that some of the money that the Government have already allocated for Royal Mail in the form of borrowing has not been used? Will the figures be within the parameters of what is already in the public domain, or is there something that we do not know about?

Lord Mandelson: Estimates of what the company requires in cash to modernise will vary from source to source. I would say only two things. Modernisation is not a once-off. Modernisation of a company or business has to be ongoing to meet the changing market needs and demands in which the company is undertaking its business. One of the problems for Royal Mail is not only that it has not modernised in terms of the mechanisation of its business, the introduction of new technology and in its working methods; it has also not innovated sufficiently in terms of new products. As I say, modernisation needs to take place on a continuing basis. My noble friend is right to point out that the Government have previously made sums of money available for investment and modernisation, and it is true that Royal Mail has not been able to take up all the resources available. However, I invite noble Lords to ask themselves why the company and its management have not been able, to the extent that is desirable, to take up and use all those resources for modernisation.

Lord Clarke of Hampstead: I am sorry but the modernisation issue brings into focus the Secretary of State’s comments to this House on Second Reading regarding two major machines which, other than assistance for delivery, have been talked about in relation to modernisation. The two machines are an enhanced optical character-recognition machine and what is described as a walk sequencing machine. We were told

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on Second Reading that they are here in wraps. I have made exhaustive inquiries but no one can tell me where these machines are. Perhaps they are still with the manufacturer, SOLYSTIC. We could get a much better idea of what is required if we knew the cost of one of these machines. Perhaps the Secretary of State can tell us the cost of a walk sequencing machine.

Lord Mandelson: I am a member of the Government, not the management of Royal Mail, and it is not my job or the job of any other Minister to be responsible for the introduction of such machinery or to put a price tag on it. That is what the management of Royal Mail is there to do. As shareholders, however, we would like the management to be able to manage in a way that allows it to progressively introduce this machinery and mechanisation in a way that transforms the business of the Royal Mail and its ability to compete properly in the market.

Lord Hoyle:My noble friend mentioned that the money raised would go back into investment in Royal Mail and I mentioned overheads that the Treasury may have incurred. I was asking what share of the money raised will go to the Treasury and what share will go to Royal Mail. Can he perhaps be more specific on that?

Lord Mandelson: No, because we do not know what the sum of money is that will constitute the proceeds from the sale. Until we know that—or indeed until we have a partner in place from whom to get proceeds—I do not think that it would be a very satisfactory discussion between myself and the Chancellor.

Lord Stoddart of Swindon: We keep hearing about modernisation—new products and what have you. We have been hearing about this for a very long time. The Postal Services Act was supposed to put things very right but, since then, the postal services, far from getting better, have got worse. Never mind about the Royal Mail for the moment; what are the Government’s objectives? What exactly do the Government see as the job of the Post Office? What is it supposed to do? Where is it going? Are we going to have a resumption of early-morning postal services, for example? Are we going to have a second post, which we used to have? Are those objectives of the Government, or are they content, probably because of shortages of staff, to have mail in this country delivered to many areas not by 12 noon, which is the new and worse objective, but sometimes by five o’clock in the afternoon? Indeed, I had my post delivered one evening at 6.20 pm.

So what exactly are the objectives of the Government? I think we want to know about those objectives. After all, the first postal service in this country was introduced by Charles I, I think it was, in 1635, and we have had a publicly owned postal service ever since then. Now, we find that it is going to be part-privatised, but the Government do not tell us how much better it is going to be under the new system. Perhaps they can tell us how the service is going to be improved, and how they will ensure that the workers in the industry are protected and the customers are not overcharged for an inferior service.

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Lord Mandelson: With respect, I refer the noble Lord to Part 3 of the Bill, which describes the duty to secure the provision of a universal postal service. To do that, you need a Royal Mail that is efficient, competitive and dependable. It is precisely that objective that motivates the Government in introducing this legislation. When the noble Lord talks about failed attempts in the past to turn round the Royal Mail, he eloquently makes the case for the legislation.

Lord De Mauley: I thank all noble Lords for their contributions in what has been a very helpful debate. I thank in particular the noble Lords, Lord Clarke and Lord Hoyle, for their supportive and incisive comments. The noble Lords, Lord Christopher and Lord Stoddart, asked some interesting and important questions. The comments of my noble friend Lord Blackwell are well taken. Our intention was entirely about reporting to Parliament, not interference in the deal, but I take his point. I am happy, if on deliberation we consider it necessary, to look at the wording again. I thank the Secretary of State for his positive response. I thank him in particular for his report on progress towards a deal so far and also for his comments on independent reporting and the fact that Parliament will have an opportunity to discuss the deal in due course. That was all very helpful. I will read his remarks with care and, while of course reserving our right to return to these matters later, for now I beg leave to withdraw the amendment.

Amendment 20 withdrawn.

Amendments 21 and 22 not moved.

Schedule 2 agreed.

Amendment 23 had been withdrawn from the Marshalled List.

Clause 10 : Meaning of "owned in its entirety by the Crown" and "publicly owned"

Amendments 24 to 26 not moved.

Clause 10 agreed.

Clause 11 : Indirect ownership of companies

Amendment 27 not moved.

Clause 11 agreed.

Clause 12 : Ownership of a company

Amendment 28

Moved by Lord De Mauley

28: Clause 12, page 6 , line 2, leave out “or any other person”

Lord De Mauley: Amendments 28 and 29 simply propose drafting improvements to a part of the Bill that by my reading does not quite make sense. Clause 12

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deals with the calculation of the proportion of a company owned by the Crown or any other person. I am assuming that this clause will establish whether or not the requirement that only a minority stake in Royal Mail is to be sold has been met. Subsection (1) sets out four methods of calculating the relevant proportion, of which the smallest is to be used. This more or less makes sense until you realise that different paragraphs will undoubtedly apply when looking at the Crown than when looking at the private partner.

For example, let us say that a deal is established which gives the private partner 20 per cent of distributable profits but 30 per cent of voting rights, the remainder of both staying with the Crown. Under subsection (1) the Crown would be held to own 70 per cent of the company while the private partner would own 20 per cent. That would clearly be nonsense. The amendment would ensure that the Crown’s percentage was, as is currently drafted, the smallest percentage under subsection (1), which the Government seem to agree with, and any other person’s would simply be derived from that.

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