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What has been demonstrated is that Royal Mail is weathering the recession better than its supposedly superior rivals. It was never the case that Hooper had made the definitive analysis that the Government saw there. I remind noble Lords of what the Business and Enterprise Committee of the other place wrote in its verdict on the Postal Services Bill on 1 April:
“We agree with two key aspects of the proposals. First, that the Government should take responsibility for the historic pensions deficit. Most of its liabilities stem from Royal Mail’s time as a monopoly provider. It needs to be freed from them, as many of its European counterparts have already been freed. Moreover, pension fund members deserve to know that their pensions are secure. Second, we also agree that a new regulatory framework, in which postal services are viewed as part of a wider communications market, is entirely appropriate”.
“However, we do not consider either the Independent Review or the Government has properly made the case that these two reforms, about which there is a broad consensus, can only be made as part of a package which includes the third reform, the involvement of a private sector equity partner in Royal Mail. Similarly, we are not persuaded that the provisions contained in the Bill allowing such a partnership are necessary or desirable”.
Those are the words of a committee in the other place.
The report also indicates that the Government have been entirely unclear about the issue of investment, which undermines the suggestion that privatisation is necessary. The report also makes important contributions as to the lack of rationale regarding splitting Post Office Ltd and the Royal Mail Group. Nor have the Government indicated what the impact on competition will be if, as seems likely, the chosen partner is already active in the UK mail market. The report points out how completely unclear any partnership agreement
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“We are left with the conclusion that either the Government has not fully thought through its position about future share sales, or that it has done so and is refusing to reveal its hand”.
To date, the Government have not responded to this report. The opportunity exists for the Government to examine this important piece of work and to consider taking a step back before proceeding further with a Bill whose credibility has now been seriously weakened. My amendment offers a potential way forward for the Government, not to satisfy me or my emotional ties with the Post Office—I should have declared an interest but I am sure that most noble Lords know it by now—but as a way for the Government to disengage themselves from an argument that is not wanted by members of the Labour Party, members of the public or Members of Parliament down the other end. I want them to examine this important piece of work again and, I hope, the existing elements of the Bill which have been endorsed by the Business and Enterprise Committee and by the majority of opinion in this House.
We have made good progress in Committee in how we tackle the whole question of pensions and regulatory activities. However, I greatly fear that the Government do not yet recognise how unkind these past few months have been to Hooper’s proposals. We recently had a statement from Deutsche Post. We remember Deutsche Post from the early days in December when everyone was flurrying around to get a grip on our wonderful, profitable post service. What does it say now? We have a statement that it has no intention of bidding for Royal Mail. It has been rattled by its recent results, which followed hard on the heels of DHL withdrawing from the North American inland express market with huge losses, so it is concentrating on putting its basic business right.
Surely there is a lesson for the Government here. Deutsche Post’s statement means that, unless the Government inform us otherwise, there are only two potential partners interested in acquiring Royal Mail: the private equity firm CVC and, of course, the one that keeps cropping up and is likely to get the job if we ever let this go through, TNT. On the second day in Committee, the Secretary of State would not be drawn into commenting on TNT’s suitability for partnership with Royal Mail. He said,
- “we are undertaking a fair competition to identify a suitable partner for Royal Mail”.—[Official Report, 31/3/09; col. 967.]
My question still is, and I put it today, whether the Government are now prepared to admit the failure of such a search. After all, if TNT is the sole suitable bidder, then the competition has indeed failed. Since 16 December, when the predators were circling like vultures, TNT has been involved in illegal acts including the falsification and backdating of documents. The company was forced to pay back £49 million to the Revenue, including unpaid tax penalties and interest. There were similar inquiries into its tax affairs with other EU countries, although we do not know whether they resulted in further payments or disciplinary action.
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We have also learnt that the chief executive of Royal Mail, Adam Crozier, has accused TNT of trying to poach customers from Royal Mail’s profitable European parcel subsidiary, General Logistics Systems. We know that Adam Crozier sent an e-mail to the Government about this but we have yet to learn whether the Government responded to that correspondence. I confess that I do not read the weekend papers, but others have told me since they came into this Building today that we have learnt a bit more about TNT.
TNT is now considering its position. When the £3 billion figure is cited, it makes this whole thing look even sorrier than it was to begin with. If we were going to sell off our birthright for £3 billion then, in the words of that great Conservative Prime Minister, Harold Macmillan, it would be like selling the family silver. It is not right to sell off such a profitable post office.
Since then, we have witnessed further evidence of the unsuitability of TNT as a strategic partner. Towards the end of April, the European Court of Justice ruled against a challenge by TNT to have Royal Mail’s VAT exemption lifted. The European Court of Justice ruled that Royal Mail had an important obligation in the form of the universal service, and that, therefore, the role of TNT and Royal Mail were not comparable in the UK. So we see a potential partner with partnership skills that include trying to force Royal Mail to charge considerably more for its service. We have seen press reports that, in the potential negotiations, TNT insists upon guaranteed earnings from any future stake in Royal Mail. Presumably TNT expects the taxpayer to subsidise its acquisition of Royal Mail, as we have been subsidising its work through the downstream access ever since Postcomm made its original decisions on the tariffs to be charged.
I did not read it, but somebody I trust implicitly said that we have learnt from the Sunday Telegraph that TNT wants Royal Mail’s profitable European parcels arm, GLS. Well, of course it does! Anybody with half a brain would see what it is up to. If something is profitable, they want it. We would be daft if we let them have it. Further, it is suggested that TNT’s offer falls well short of the Government’s anticipated £3 billion for a 30 per cent stake.
Finally, I read in the Library a report in yesterday’s Observer that some of TNT’s own investors are moving to reject the acquisition of Royal Mail. The paper says that Jan Keuppens, representing the firm Robeko, one of the top 15 shareholders, believes that TNT’s management should focus on reversing the 58 per cent slide in its own profits reported last week. According to the article, Jan Keuppens said that,
- “‘buying a stake in Royal Mail would be a distraction ... They should not do it, unless they can agree a really good price and conditions. Many investors are saying that, even at a cheap price, TNT should not do a deal’”.
This is the reality of the potential partner, TNT. Surely this should give the Government pause for thought. Yet it appears that the Government have yet to consider the value of examining an alternative. Last week, Compass published its pamphlet Modernisation
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I have drawn up these amendments to demonstrate how the proposals raised in the Compass pamphlet could be introduced. I am not saying they are the last word, but they could be introduced. There is substantial room for further discussion, particularly on the type of governance that a company limited by guarantee with no share capital would require. Not only would such a move offer an alternative route to a successful Royal Mail in the public sector, it would also be popular, allowing Royal Mail, including the post office network, some stability, with new elements of accountability in governance possible.
Yesterday I noted in the Sunday Times, again from our lovely Library, that the most recent poll on Post Office privatisation indicated that a mere 20 per cent of those questioned were in favour. Sixty-nine per cent wanted the structure to remain the same or to be turned into a publicly owned, not-for-profit company. All those years that I have been involved in the Labour Party and listened to pollsters, there is always an inherent group in any polling that would oppose anything at all, but is 20 per cent any basis for moving towards the destruction of the wholly publicly owned Post Office?
I desperately want to see a fourth term for a Labour Government. That alone distinguishes me from some of the siren voices egging the Government on in this pursuit for privatisation. But all the published evidence is that privatisation of Royal Mail is deeply unpopular and will be hugely damaging to the Government’s electoral prospects.
From our debates in Committee, we learnt that the current modernisation proposals for Royal Mail management are fully funded. Indeed, despite agreement being reached with the Government in the financial year 2006-07, management have yet to acquire or deploy the walk-sequencing machines.
I shall now go off the brief I prepared for myself. On the last day of Committee, this House was assured that it would get the details of what modernisation meant, the cost of the machines and their make, and where they would come from. This gives me the opportunity to repeat what I said in Committee. The Secretary of State said at Second Reading the machines were here and in wraps. There is nobody in this country who can tell you where those machines are—not a company that says it has supplied them. Again I ask: where are those machines? Where are the wrappings? How much did they cost? When were they ordered? What is the lead time in getting delivery?
We have also learnt that the Government assuming responsibility for the pension fund deficit results in the company having an additional £280 million capital per year for the next 14 years. If Ofcom ends this subsidy given to competitors via access arrangements, Royal Mail would have a further £100 million capital a year
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We know that the time for a sale, even if it were the right thing to do, would not be now. The Compass Group recently demonstrated that a sale now would yield only 50 per cent of what would have been achieved a year ago. Therefore, for reasons of public need, the integrity of the industry and its workforce, and financial prudence, I urge the Government to forgo the policy of privatisation. There is an alternative: all that it needs is for the Government to display the will to take it and the will to carry out their own manifesto commitments. I beg to move.
3.30 pm
Lord Hunt of Wirral: My Lords, first, I declare my interest as set out in the Register—in particular, being a partner in the national commercial law firm of Beachcroft LLP.
As I have said twice before to noble Lords, we support the part-privatisation of Royal Mail, and I have to say to the noble Lord that we agree with the Hooper review. We hope that the Government will be successful in establishing an effective partnership deal between a private operator and Royal Mail. The Conservative Party believes that, if Royal Mail and the universal postal service are to survive, Royal Mail needs the capital and management initiative that privatisation will provide. Therefore, I have to say to the noble Lord that we do not support his amendments, although we understand the passion with which he speaks. Of course, we all know his long-standing interest in this issue but we do not agree with him and we will support the Government if he presses his amendment to a Division.
There has been a lot of press speculation over the past few days about what I have just said. I assure the Secretary of State that rumours that we will join forces with the Labour rebels when the Bill reaches another place are quite untrue. We have no intention of voting against reforms which we believe are desperately needed and which are also Royal Mail’s best chance of a secure future.
The Conservatives have given every assurance possible. On 7 May in another place, my right honourable friend Kenneth Clarke reconfirmed his support for the principle of the part-privatisation of Royal Mail, and this weekend the Leader of the Opposition, my right honourable friend David Cameron, responded to the question of whether we would back the Government against the Labour Back-Benchers who oppose the Bill by saying:
“Yes, as long as the Government doesn’t do something crazy ... and do a U-turn”.
The Conservative Party position cannot be clearer. I recall one of my noble friends once saying:
The Conservative Party on this issue is not for turning. We will support the part-privatisation of Royal Mail and the establishment of an effective partnership deal with a private operator. My challenge to the Secretary of State is to be equally clear and rebuff the rumours that are flying around about the Government’s intentions. Will he please give this House a guarantee that there
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Of course, the optimism shown by the noble Lord, Lord Clarke of Hampstead, and other Labour Back-Benchers is understandable because this is exactly what happened in 1998. I do not know whether the Secretary of State will remember that on 7 December 1998, when he was Secretary of State for Trade and Industry, he promised “radical reforms”, which included the possibility of part-privatisation. I quote his words:
this is more than 10 years ago—
- “that we certainly do not rule out the possibility of introducing private shareholding into the Post Office—for example, through the sale of a minority stake in it”.—[Official Report, Commons, 7/12/98; col. 21.]
Of course, all we got were 10 wasted years.
Conservative support for genuine reform was not enough to bolster the resolve of the Secretary of State then, but I hope that it will be more successful now. I hope that, in responding to these amendments, he will respond also to our clear message of support for part-privatisation with a clear commitment that he, the Prime Minister and the Government will not waver. He must not once again be bullied into half-hearted reforms that will fail to deliver. That is why I do not support these amendments.
Lord Razzall: My Lords, I was not going to speak on the amendment, but I was intrigued when I read—I was going to say the “order of service”, but I am in the wrong place—the rules of debate on Report. I am not sure that the admonitions were aimed at the noble Lord, Lord Hunt, or indeed at me. However, as another principle of what we should do on Report—that we should not repeat Second Reading speeches—has been broken by the noble Lords, Lord Clarke and Lord Hunt, it behoves me to set out the Liberal Democrat position on the Bill. It is very clear: we agree with the noble Lord, Lord Hunt, that the amendments tabled by the noble Lord, Lord Clarke of Hampstead should not be supported. We agree that the Government should not make the concessions that he is asking for.
However, as the Minister is aware, there are two critical issues on which we require movement if we are to support the Bill, both of which will come up in later amendments that we have tabled. Depending on the Government’s response, we will decide, here and in another place, whether to support the Bill. Our position is that we support the principle of what the noble Lord, Lord Clarke of Hampstead, calls part-privatisation; but we will not support the Bill unless the two critical amendments that we seek are adopted.
Lord Christopher: My Lords, perhaps I could ask the noble Lord, Lord Hunt, if his enthusiasm for this part-privatisation proposal is without any qualification. Is there no qualification in his mind as to the scale of it, or the price? Do we give the Royal Mail away?
Lord Hunt of Wirral: My Lords, I need the leave of the House to reply.
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Lord Tunnicliffe: My Lords, that is right. The noble Lord, Lord Hunt, had sat down. A short question of clarification was no longer possible.
Lord Hoyle: My Lords, I am a little puzzled by that. I listened to my noble friend Lord Clarke making what I thought was an extremely reasoned appeal for moderation on the part of my noble friend the Secretary of State. He mentioned the efficiency of the Post Office, but he could also have made the point that we have all been talking about efficiency rather than price. Royal Mail has been portrayed as inefficient, which is untrue. We have one of the cheapest and most efficient postal services in Europe.
I want to go over some of what my noble friend said about TNT. When the Minister replied before, it appeared that TNT was extremely interested in taking a 30 per cent stake in Royal Mail. I warned then that what it was really interested in was General Logistics Systems, the European parcels system, which is the jewel in the crown. Now that that is out in the open, perhaps my noble friend will say whether the press reports that a condition of the bid was that TNT would have control of GLS were true. That would be extremely serious news for Royal Mail because one development of the fall in the number of letters was to be an extension of the parcel service, but that would not happen if GLS were part of TNT.
TNT’s interest is waning because the financial position is worsening. I believe that its profits are 50 per cent down, so many of the shareholders are saying that, in the first instance, it must concentrate on putting its own house in order. I can only rely on the comments in the press. I know that my noble friend has said that he cannot discuss the details of any negotiations he may have had with interested parties. Once again, it is being said that £3 billion was asked for but my noble friend Lord Clarke said that that was a giveaway. I understand that the offer is less than £3 billion, which makes the situation even worse. Perhaps my noble friend will comment on the fact that the offer is nowhere near the £3 billion valuation, which I understand was the Government’s figure.
Right now, Deutsche Post has fallen away and, if it is true that TNT is no longer very interested, the only remaining contender is CBC Capital, together with the Belgian post office. People do not appear to be queuing up to buy it and, when the market is at its lowest, it is the worst possible time to be offering it for sale. Apparently TNT is not prepared to offer anywhere near that price, which again is bad news for my noble friend the Secretary of State.
On the offer from the Opposition—surprise, surprise—I would like to see these unlikely partners marching together through the Division Lobby. I would be delighted to think that a manifesto proposal from the Labour Party is being defeated with Conservative support. That is not the kind of thing that I want written in the annals of the Labour Party. If we believe in something we should stand up for it. When we were talking about a planned programme of post office closures, we knew where the Liberals stood, but I did not know where the Conservatives stood. We shall come on to that. Perhaps the noble Lord opposite, who I know is always willing to reply, would reply in due course on that.
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My noble friend will speak to Amendment 92 shortly, but my name is attached to it and, although I must allow him to make his case himself, I think it is a very modest proposal. I do not see why the Secretary of State could not accept it because all it does is put off Part 1, dealing with part privatisation, for three years and it asks for three conditions to be met. The first is,
and it asks that it be signed. Secondly, it asks that, within three years of the passing of the Act, that funds be made available to Royal Mail, either through a national loan plan or through private capital, to which I referred previously. Thirdly, within three years the pension scheme will have passed over to the Government and, if all these aspirations are met, it can only strengthen the position of Royal Mail.
The Hooper report has been referred to, but Royal Mail’s financial position is different from what it was when the report was being prepared: all divisions are now profitable and will continue to make profit. It is going the right way and, with the removal of the yoke of the pension fund for which successive Governments were responsible, it will be in a far better position to go forward.
I hope that my noble friend will not listen to the siren voices on the Benches opposite offering their full support but listen to what we are saying. There are other ways of achieving our aims—for instance, by continuing with the manifesto promise and with modernisation. A new factor is the waning interest of the people who might come in to take over through part-privatisation. I look forward to hearing from my noble friend, as always. I hope that he has listened to what we have had to say and will be able to offer us hope for the future.
3.45 pm
Lord Christopher: My Lords, it may be convenient if I speak to Amendments 91 and 92. My noble friend described them as modest amendments and I can live with that.
One of the things I learnt over the years I spent as a trade union official was that if you were not certain what to do, the best thing was to try to buy some time. Indeed, I will not name them but some Chancellors of the Exchequer found that a useful approach from time to time when they had a troublesome problem.
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