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The Government’s view is that the Bill provides adequate direction to Ofcom on the conditions and processes governing the creation of a compensation fund. To build in further checks would delay Ofcom’s ability to take action in what by definition would be different circumstances from today’s. We believe that this is unwise and unnecessary.

First, the Bill provides that, before any scheme can be established, Ofcom must undertake a review of the costs of providing the universal service. Such a review would have to be published and its calculations audited. Details of these requirements are in Clause 39.

Secondly, Clause 40 sets out a two-stage test that Ofcom must undertake to determine, first, whether the universal service represents a burden to Royal Mail and, secondly, whether such a burden is unfair. Thus the test is not merely the identification of a burden. These determinations will be made transparently, and in line with regulations made by Ofcom.

Thirdly, the Bill requires Ofcom to ensure that any compensation fund operates in an objective, proportionate and transparent manner that does not distort competition or discriminate against particular users or operators. These provisions are also in Clause 40.

Fourthly, Section 403 of the Communications Act 2003 sets out the procedure that Ofcom must adhere to in making regulations. Among other things, this requires the regulator to publish notice that it intends to regulate and to consider any representations that it receives.

Clause 40 is based on Section 71 of the Communications Act, which relates to the setting up of a compensation fund in the context of a universal telecommunications service. In common with Clause 40, Section 71, approved by your Lordships' House and

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another place, does not include parliamentary procedure for the making of those regulations. I remind noble Lords that the Bill’s delegated powers have also been scrutinised by the Delegated Powers Committee, which did not recommend any changes.

I hope that I have provided the noble Lord with reassurance that there are already strict tests that Ofcom will be required to pass before imposing regulations, and that to tie its hands now could put the universal service at risk in future, subject to market changes; and also that, in relation to the creation and allocation of any compensation fund, there are a number of hurdles that the regulator will rightly be required to jump before it can create one. I therefore ask the noble Lord to withdraw his amendment.

Lord Hunt of Wirral: We are in complete agreement that nothing must put the USO at risk. That is agreed on all sides of the House. We are now debating whether to allow significant changes to be made without further debate in this place. That is the point of the amendment. Richard Hooper’s report is a good reminder that, at the moment, there is no case for the compensation fund. Paragraph 102 states:

“More importantly, we believe that compensation, from any source, would be counter-productive in the present situation. It would considerably weaken the incentive for Royal Mail to adapt to changes in the market. It would not address the fundamental issues undermining the financial health of Royal Mail”.

The report also points out, among other issues, that the amounts that could be recovered are tightly prescribed under European law. These issues ought to be considered if Ofcom decides to go down this route. However, at the moment, as far as one can tell from the Bill, there is no opportunity for the Government to have a view, let alone for Parliament to debate the pros and cons of such a situation. That is why I tabled the amendment, and why I still hope that the Minister and his colleagues will consider whether Parliament should not have the opportunity for a full debate on this, were the situation ever to arise. In the mean time, I beg leave to withdraw the amendment.

Amendment 93A withdrawn.

Amendment 93B not moved

Clause 40 agreed.

Clause 41 agreed.

Amendment 94

Moved by Lord Razzall

94: After Clause 41, insert the following new Clause—

“Borrowing from capital markets

Nothing in this Act prevents the universal service provider from borrowing money from capital markets in order to comply with its universal service obligations.”

Lord Razzall: In view of the sympathy shown to me by several noble Lords, it is perhaps appropriate to disclose that my right eye is in this condition not because my noble friend Lady Bonham-Carter hit me during what might be termed a “domestic”, but because, while playing cricket with the Lords and Commons on Thursday, I was struck in the eye by the ball.

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Amendment 94 is small, but raises a significant point. Obviously it is a probing amendment, and the purpose behind it is straightforward. If Her Majesty’s Government are going to introduce what the noble Lord, Lord Clarke of Hampstead, likes to call privatisation, but which clearly involves the Royal Mail not being owned 100 per cent by the taxpayer, is there any reason why the Royal Mail should not be entitled to borrow money from capital markets? Clearly there is liberalisation going on here, so why should that not include the ability to borrow from capital markets, to further whatever capital investment the Royal Mail or the universal service provider wishes to effect? That is the purpose of this amendment and I look forward to the Minister’s response.

Lord Whitty: I commend the noble Lord, Lord Razzall, for tabling the amendment. If the Secretary of State tells us that it is not needed in the Bill, I will be even more grateful. Not only would this give an option to the Royal Mail in the case of either continued public ownership or partial private ownership, it would also give the Government some negotiating strength in relation to potential partners and anybody else who has the future of the Royal Mail in their sights. The noble Lord, Lord Razzall, has a point: if it is not needed, it would be useful for the Secretary of State to put that on record.

Lord Clarke of Hampstead: I was tempted to keep quiet, but the noble Lord, Lord Razzall, has given an opening to people like myself who oppose the privatisation—I shall continue to use the word, whether it offends people or not—of the Royal Mail. One thing that the Royal Mail has needed for some time is flexibility in its financial dealings. This short amendment has a lot to commend it. If the Royal Mail were given the freedom to borrow from capital markets, we could perhaps do away with the element of privatisation that seems to obsess the Government.

6.30 pm

Lord Hoyle: As I mentioned earlier when we were discussing this matter, I could not agree more that Royal Mail should have the opportunity to borrow from the capital markets if it needs to do so. As my noble friend said, if it had that right, there would be no need at all for this partial privatisation. There is no need for it anyway, but this measure would certainly strengthen its hands. I, too, thank the noble Lord, Lord Razzall, for bringing this matter to the Committee’s notice.

The Secretary of State for Business, Enterprise and Regulatory Reform (Lord Mandelson): I am sure that we all extend our sympathy to the noble Lord, Lord Razzall, for the terrible injury that he has incurred in pursuit of a very good cause. I am delighted to see that he remains ready to do anything to prevent being beaten by the other place.

Amendment 94 relates to Royal Mail Group Ltd, which we expect to be designated the universal service provider, borrowing from the private sector. There is absolutely nothing in legislation to prevent Royal Mail Group borrowing. Indeed, the Government have made available loan facilities of £3.5 billon over eight years. Royal Mail Group currently has borrowing facilities

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of £1.2 billion from the Government on commercial terms. It expects fully to utilise these facilities over the next two years.

The source of Royal Mail’s borrowing, whether private or public sector, makes no difference to its legal, accounting or financial treatment. Whatever the source, the borrowing must be at a commercial rate. It scores against the public sector debt and has the same impact on the public sector affordability. The only difference is that any borrowing from the Government, in particular from the National Loan Fund, is cheaper for the public sector as a whole, rather than the company, because it uses the cheapest source of funds for the public sector; that is, gilts. If Royal Mail borrowed directly from the private sector rather than through the Exchequer, it would be the same cost for itself but the marginal cost to the public sector would be higher. It is, of course, possible that in value rather than pure cost terms this could be worth while in certain situations because of the specific disciplines it could bring to the borrower. However, as I say, the cost would be higher.

As regards the Treasury’s role, as any borrowing by Royal Mail scores as public sector debt, it is important that Her Majesty’s Treasury retains some controls over that borrowing. This amendment would prevent the Treasury exercising any control over Royal Mail’s borrowing. The amendment does not set a limit on what could be borrowed or any other controls. This is not desirable and could be damaging to the public finances as a whole. However, the key fundamental message is that the ability to borrow is not, as I say, a constraint on Royal Mail Group; the source of its borrowing is not constrained in legislation at the moment but that source is actually irrelevant and the terms that it borrows at are always equivalent to commercial terms. That is the essence of the matter.

In the context of the legislation, I understand what lies behind the amendment but we must not forget that partnership and what we are seeking to introduce to Royal Mail is not solely about introducing money into Royal Mail Group. I take this opportunity to stress that again. As importantly, a partnership is required to bring in the expertise and experience of transforming a postal or network business that would come by introducing a minority stakeholder from the private sector into Royal Mail. This represents the best route to accelerate modernisation and to enable Royal Mail to diversify and expand its operations. In the light of what I have said, I ask the noble Lord to withdraw his amendment.

Lord Clarke of Hampstead: Before the Secretary of State sits down, for the sake of clarity and because I am such a simple person, will he confirm that he is saying that Royal Mail can borrow from the market but only if the Treasury agrees?

Lord Mandelson: That is correct.

Lord Razzall: I thank the Minister for that response. I wish to make two points. First, the overall point I was making was that if Royal Mail had a minority shareholder going up to 49 per cent, such as TNT or Deutsche Post or all the other people who are forecast as possible minority partners, clearly that entity will

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become a different sort of company. It will become a different entity. In those circumstances, it seems to me and to other noble Lords, particularly on the Labour side, that it would be appropriate for it to be free to borrow without the Treasury’s approval. If TNT owned 49 per cent of Royal Mail—in the Government’s view, 51 per cent should be owned by the public sector and in our view, half should be owned by the employees and half by the Government—why should that new entity not be freed from Treasury restrictions in terms of giving consent?

Secondly, I completely take the point that Royal Mail management as presently constructed can borrow 100 per cent from the Government at cheaper rates than would apply in the capital markets today. But bearing in mind how much money Her Majesty’s Government will have to borrow, will that necessarily be true over the next few years? In the mean time, I beg leave to withdraw the amendment.

Amendment 94 withdrawn.

Amendment 95

Moved by Lord Razzall

95: After Clause 41, insert the following new Clause—

“Investment fund for post office network

(1) This Act shall not come into effect until the Secretary of State has by order made provision to establish an investment fund for the post office network of at least £2 billion in order to achieve a post and sub-post office network that may enter business agreements with other businesses in the postal service and other sectors, and deliver a range of services, including—

(a) the opening of new post office branches where there is a defined need,

(b) start up and investment capital and training in business opportunities to new and existing sub-postmasters,

(c) the provision of local and central government information and services by post offices and sub-post offices, and

(d) the creation of a postbank to deliver financial services for customers through the post office network.

(2) An order under subsection (1) must provide for the Crown to have a statutory obligation to maintain the Post Office network on the basis of a framework with agreed outlets and service requirements set every five years and beginning in April 2011.

(3) An order under this section is subject to the affirmative resolution procedure.”

Lord Razzall: This is probably the most fundamental amendment that we have moved from these Benches. Those noble Lords who were present at Second Reading will appreciate that the major point is that if we are to go down the route of having some element of private investment in Royal Mail Group, and if we are to divest the Post Office, this is a one-off opportunity to secure not only the future of Royal Mail but that of the Post Office network. If the Government want to get their Bill through to bring external investment into Royal Mail and separate the post office network, this is the moment to ensure that that network is secure for the foreseeable future.

I was extremely pleased that, when discussing earlier amendments, the Minister gave a certain commitment, which was the first time that the Government have done so. I choose my words carefully because the commitment was not that no post office will in the future be closed but that Her Majesty’s Government have no programme to close post offices. That is an extremely

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important commitment on the part of Her Majesty’s Government, and those who have campaigned to secure post offices will undoubtedly be very grateful for it. However, it seems to us that we should endeavour to secure the future of the post office network in the Bill.

We have inserted the figure of £2 billion in the amendment. I have no knowledge or information regarding the exact amount of investment that the post office network will require. The important point is that it is not just a case of subsidising the existing post office and sub-post office network but of what the cost will be of doing the things that are necessary to ensure the long-term future of that network. We have tried to include some of them in the amendment. I have no idea what investment will be required in order to set up a post bank, which everybody is in favour of, as, I think, is the Minister. However, investment will clearly be required. Therefore, we feel that this measure should be included in the Bill. I am sure that if the Government agree with the principle of the measure, they will produce a much better amendment on it than I have done. We consider that this is an important moment for the future of the post office network. I beg to move.

Amendment 95ZA (to Amendment 95)

Moved by Lord Hoyle

95ZA: After Clause 41, page 3, after “until” insert “the condition in subsection (1A) has been met and”

Lord Hoyle: I shall speak also to Amendment 95ZB. I want then to speak to Amendment 95 generally. All I am doing is saying something that Members on all sides of the Committee will agree with. I was pleased when my noble friend said that he would not approve any future programme of post office closures and I want to tie that down in the Bill. I want to ensure that there will be no future programme of post office closures because that is important. Most of us will agree that the Government have already gone too far. It is therefore important to write into the Bill the fact that there will be no further closures.

Generally, I agree with what has been outlined in the new clause and accept that we do not know how much will be required to implement it. However, while we are talking about no more closures, we are talking in the Bill about opening post offices. We can think of many areas in which post offices have been closed and where there is a growing demand for them to be reopened. I welcome the proposal for a Post Office bank, and the Government’s commitments that that will go ahead; the sooner that happens the better.

My noble friend Lord Clarke will no doubt talk about Girobank. I have talked in the past about the possibility of a merger between the Co-op Bank and the Britannia as being a suitable vehicle for a post bank. I welcome the general spirit of what has been put in the clause and my amendment is designed to ensure that there are no further closures and that we get a firm commitment to that in the Bill.

Lord Clarke of Hampstead: I support my noble friend’s comments and I share his joy. There must be communities all over the country that are relieved that

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the Secretary of State has given an undertaking that there will be no more closures. I think of the people who protested in London, in Bristol and in almost every part of the country when their much-valued post office was closed as a result of pressures put on the Post Office by the Government. I hope that that commitment will appear in the Bill, as my noble friend Lord Hoyle proposes.

I will resist the temptation once again to rehearse what happened to Girobank. The history will one day be written. The Alliance and Leicester, now part of another bigger banking group, got the benefit of what I have said many times was a giveaway. I will not go over it all again today, but I want to speak about post banking, proposed in the amendment tabled by the noble Lords, Lord Razzall and Lord Cotter. It appears clearly in subsection 3(1) of their proposed new clause. I am sorry that I did not table such an amendment. I received a letter from the Public Bill Office after asking whether I could table an amendment proposing a post bank. I was told nicely and politely by the clerk in the Public Bill Office that this was not within the framework of the Bill as presented. I am therefore delighted that it has been proposed by the noble Lords.

However, Amendment 95 gives us the opportunity to talk about a post bank. I believe that it should be aimed at tackling financial exclusion and supporting small businesses and local economic activity. In turn, this will strengthen the financial position of the post office network. I believe that the post bank could be the vehicle to provide the universal banking obligation. Appropriate and trustworthy financial service should be available to all through the banking system. I was harking back there to the Girobank when people received chequebooks for the first time in their lives.

6.45 pm

There is a substantial rising suspicion about the performance of banks. I do not understand high finance, as noble Lords have probably gathered by now, but I do understand that there is a little concern about the way banks are operating. Exclusion from the banking system remains a problem for the lower paid and poor. The universal banking obligation has been debated: most notably, it was examined by the House of Commons Treasury Select Committee in its report Banking the Unbanked, published on 19 November 2006. Among the comments of the committee was:

“Some evidence we received argued that the time is right to move beyond the current voluntary approach to enhance an access to banking services for the financially excluded by introducing a statutory requirement to provide banking services for all. The precise form that such a requirement might take remains unclear, as some of its advocates acknowledge.

The concept of a ‘Universal Service Obligation’ is generally associated with services that have been provided in the public sector or in sectors where licensing or high barriers to entry confer a particular market advantage. Banking could be seen as a more open and competitive market than some markets to which Universal Service Obligations apply, making comparisons with postal alternative communication services of limited value, although it is possible to envisage a situation in which statutory regulation undertaken by the FSA includes more stringent conditions on the activities of banks in relation to the financially excluded”.

Among its conclusions was that:

“The case for the imposition of statutory requirements relating to access to, or the provision of, banking services for the financially excluded is closely linked to analysis of current performance of

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the banking industry and of individual banks. This report makes a contribution to such an analysis. As matters stand, we do not consider that the case for such legislative action has been made. We agree with the Economic Secretary to the Treasury that more can be achieved at present by a voluntary partnership approach, and also with his important point that the willing participation of the banks will be essential in tackling the financial inclusion regardless of legislative action. However, we also note the statement by the Economic Secretary to the Treasury that a legislative approach is ‘not off the table’.”

The report then went on to say that,

I assume that this was not acted upon. But I hope that we can resume this debate, for one of the results of the recession has been to deepen the problems of financial exclusion.

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