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Wednesday, 6 April 2011.
11 am
Prayers-read by the Lord Bishop of Lichfield.
Personal Statement
11.06 am
The Minister of State, Ministry of Justice (Lord McNally): My Lords, with the permission of the House, I should like to make a personal statement. The Statement on social mobility that I made to the House yesterday did not repeat the Answer given by my right honourable friend the Deputy Prime Minister to Harriet Harman's Urgent Question in the House of Commons on the same day. I regret this error and apologise to the House. I have today made a Written Ministerial Statement to put on record the Answer that should have been repeated.
Telephone Hacking
Question
11.06 am
To ask Her Majesty's Government what assessment they have made of the evidence of telephone hacking by newspapers, and what action they propose to take.
Lord Wallace of Saltaire: My Lords, the task of assessing evidence of potentially unlawful activity is a matter for the police and the Crown Prosecution Service. The Metropolitan Police, as noble Lords will be well aware today, is currently conducting an investigation into allegations of telephone hacking and it would be inappropriate to comment or speculate on any particular aspects of that active investigation pending its outcome.
Lord Fowler: My Lords, leaving aside the two arrests yesterday, is it not already clear that there has been a total abuse of power involving some parts of the press in this area? Have we not also seen a five-year delay in investigation, a public dispute now taking place between the DPP and the Metropolitan Police, and the utter failure of any system to prevent such wrongdoing? Will the noble Lord give an assurance that, once criminal proceedings are complete, there will be an independent inquiry into what has happened and how scandals of this kind can be prevented?
Lord Wallace of Saltaire: My Lords, on reading the newspapers this morning, I wondered whether the noble Lord has the power of the curse of Gnome, given that every time he puts down a Question in this House something moves in the investigation. He raises some broad questions about the future relationship
6 Apr 2011 : Column 1724
Lord Prescott: My Lords, the Minister will be aware that on 3 March I asked the noble Baroness, Lady Rawlings, whether the Government would delay the decision on the acquisition of BSkyB by the Murdoch press until all these investigations and inquiries had been completed. In her supplementary reply, the noble Baroness said:
"The phone-hacking allegations are very serious, but they are matters for the criminal courts ... They have no bearing on the separate matter of media plurality and a decision on the merger".
Is the noble Lord aware of the decision yesterday, following the imprisonment of two employees of the Murdoch press, to arrest two senior employees of the Murdoch press? We learnt yesterday that, in the parliamentary committee in the other place, conflicting evidence was given by the Director of Public Prosecutions and Mr Yates, who was in charge of the original inquiry. Is the Minister also aware that Ms Rebekah Brooks gave evidence as the chief executive of the Murdoch press and said that it paid the police for information-an admission of a criminal act? Are the Government aware, in making the decision on BSkyB, that it would be totally unacceptable for a company that is actively involved at all levels in criminal acts to be given control of BSkyB? Will they now delay the decision until all these investigations have been completed?
Lord Wallace of Saltaire: My Lords, I am well aware of the strong feelings that many people have about the broader issues involved in this matter. The noble Lord raised the issue of payments to the police. Clearly they would have been illegal and I know that some have now been admitted. Of course it is necessary for the police to have a close relationship with the media, because the media can help to solve crimes, but payments for information are clearly illegal. I should add that the two senior journalists arrested yesterday have been bailed.
Lord Cormack: My Lords, do not these very regrettable events underline the need for a statutory Press Complaints Commission?
Lord Wallace of Saltaire: My Lords, that is very much one of the larger issues that it would be appropriate for the sort of general inquiry for which the noble Lord, Lord Fowler, is calling to look at once the current investigations are complete.
Lord Hunt of Kings Heath: My Lords, does the noble Lord not agree that it would give a great deal of reassurance if the Government were to say today that they would be prepared to commission an independent
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Lord Wallace of Saltaire: My Lords, I am happy to give the assurance that I will take the strength of feeling of this House back to senior Ministers. We are all aware of the complexities of this case. This is something with which the previous Government had to deal, as well as this Government. There are many aspects of concern to people in this House, the other place and more widely.
Lord Elystan-Morgan: My Lords, can the Minister tell the House whether at any stage during this inquiry Assistant Commissioner Yates sought the advice of the Director of Public Prosecutions with regard to the interpretation of the criminal offence? If so, when, and what was the nature of the advice given?
Lord Wallace of Saltaire: My Lords, I think that it would be inappropriate to comment on issues that may indeed be subject to some concern of the courts.
Baroness Bonham-Carter of Yarnbury: My Lords, my question covers a slightly different angle. Moves to regulate the private investigation industry began in 2001. Ten years on, the Security Industry Authority, set up under the Act, has yet to implement a licensing framework for that industry. Can the Minister tell us why we have been waiting so long for this to happen?
Lord Wallace of Saltaire: My Lords, that is another question that arises from the broadest aspect of this inquiry. I shall take that question, too, back to Ministers and, if necessary, write to the noble Baroness with a more informed reply.
Lord Tebbit: My Lords, will the noble Lord be very careful in his use of the words "responsible" and "irresponsible" in relation to the press? Of course, the press and the media generally must be held responsible for any unlawful acts, but there is no more reason for the press to be responsible in its comments than there is for politicians to be responsible in theirs. Daily, even in this House, we hear irresponsible comment, so we should be a little bit careful before we condemn the press.
Lord Wallace of Saltaire: My Lords, the question of who is careful in condemning whom is something that perhaps the press also needs to think about. With regard to the right of privacy for politicians, celebrities and others, which I know is a contentious issue at present, I had in my notes an interesting distinction between the concept of public interest, which is in the PCC code of conduct, and the question of what may be thought by newspaper editors to interest the public. Those concepts are not in any way the same.
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EU: Financial Management
Question
11.15 am
Asked By Lord Campbell of Alloway
To ask Her Majesty's Government what representations they will make to the Council of Ministers to give consideration to the joint declaration by the Netherlands, Sweden and the United Kingdom regarding the financial management of European Union funds, made at the Economic and Financial Council on 15 February, before the European Union Budget for 2010 is discharged.
The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, the failure to achieve a positive opinion from the European Court of Auditors on the EU accounts is unacceptable. The Government are working to resolve this and have been clear that they want to see simpler rules surrounding EU programmes to facilitate proper scrutiny of EU spending. The Government continue to build on the February joint declaration. This includes negotiations on the financial regulation and the principles governing EU budget implementation.
Lord Campbell of Alloway: I thank the noble Lord for that constructive response not only about representations that will be made to the Council of Ministers for approval of the joint declaration, but also about the initiative to set up negotiations, without which no new effective regime could be established. I add shortly that, having read the reports of yesterday-if you can understand them at all-it is apparent that a referendum is in no way related to this matter because, whether you call it a power, a competence or whatever, nothing is being taken away from us; it is in fact just given to us and to others.
I have two short questions. What practical steps will be taken to address the management of EU funds which relate to the EU budget and to make them transparent? Could the Government-of course we cannot deal with this issue at Question Time-arrange for a debate in which these matters may be considered by your Lordships?
Lord Sassoon: My Lords, I am very grateful to my noble friend for recognising the practical steps that the Government are taking to get round this issue. I very much respect his many years of involvement in European issues. We are working very practically. Only next week, my honourable friend the Economic Secretary is meeting the three Commissioners who have responsibilities for the budget and the audit of the budget. She plans to meet the Court of Auditors and she has met the one and only state Minister who is solely responsible for the management of EU funds. We are very much on the case in making sure that EU funds are handled in a much simpler and transparent way in the future so that control can be improved.
On the question about a debate, I shall take that suggestion on board. In another place, I believe they
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Lord Eatwell: In his first answer to the noble Lord, Lord Campbell of Alloway, the Minister referred to the development of the process of financial regulation. As that term usually applies to regulation in the private sector, I was a little unfamiliar with its use in respect of the public sector. Can he explain what practical measures of financial regulation are relevant in this case?
Lord Sassoon: My Lords, I am not responsible for some of the curious terminology which the EU uses, but I believe that financial regulation is the term it uses in this context. The relevant issue about which the Government are concerned is reducing the administrative burden on how expenditure is handled, particularly at member state level. We are worried about some specific questions: the proposal, for example, that loans might be used by the Commission to purchase EU buildings, which is something that the Government oppose; and the question of introducing a concept of tolerable risk of error within the accounting framework, which we oppose. I said before but I will say again that we want to push for much greater transparency in how assigned revenue is used. A host of issues come under that heading, but I cannot be responsible for the terminology.
Lord Newby: My Lords, the UK Government had support solely from the Netherlands and Sweden for the declaration submitted to the relevant meeting in February. What was the reaction of the other 24 member states at that meeting? What are the Government doing not just, as it were, to lobby the Commission but to persuade other member states that what seems a sensible series of reforms should get wider support?
Lord Sassoon: I am grateful to my noble friend, because he gives me an opportunity to refer to the joint letter in December, very much led by my right honourable friend the Prime Minister, to which Germany, France, Finland and the Netherlands were also signatories. That talks about the need progressively to tighten up on and limit the growth of payments into the EU budget in 2012-13 and makes important observations about the necessity for growth in the EU budget through the next financial perspective to be limited. That is a forward-looking set of proposals to which a significant number of member states are already committed.
Lord Harrison: Has the noble Lord read the Court of Auditors report, which demonstrates that: there is a welcome downward trend in infringements; 99.9 per cent of the infringements are of an administrative nature; 80 per cent of the spending is by European member states; and the most guilty member state is the United Kingdom itself? That can be examined in the Comptroller's recent evidence to the Treasury Committee.
Lord Sassoon: My Lords, it is the 16th consecutive year in which the Court of Auditors has been unable to give a clean opinion on the legality and regularity of the underlying transactions in the EU's expenditure, and that is an unacceptable state of affairs.
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Kyrgyzstan
Question
11.22 am
To ask Her Majesty's Government what is their political and security assessment of Kyrgyzstan one year on from the protest movement.
Viscount Waverley: My Lords, I beg leave to ask the Question standing in my name on the Order Paper and, in so doing, declare that I am chairman of the British Kyrgyzstan All-Party Parliamentary Group.
The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford): My Lords, this is a symbolic day, in that it marks the precise anniversary of the start of the unrest that toppled Kurmanbek Bakiev's regime. The consequences of that change and the serious clashes that followed in June in the southern cities of Osh and Jalal-Abad continue to reverberate in Kyrgyzstan. It is important, therefore, that the new political structures begin to deliver real change that helps Kyrgyzstan to move on from last year's tragic events.
Viscount Waverley: My Lords, the current situation in Kyrgyzstan is tense and complex, with a need for consensus and inter-ethnic reconciliation. What are the expectations from the delayed Kimmo Kiljunen commission inquiry report and how can the report be used in a constructive manner to promote understanding and reconciliation for internal and regional stability issues? Is it recognised that effective coalition governance and working for economic and social development are what will make the real difference for the people of Kyrgyzstan?
Lord Howell of Guildford: On the second point, yes, I am sure that it is fully recognised that that is a completely accurate assessment of what is needed. The Kimmo Kiljunen report is not due until next month-I think that there is a problem with translation aspects. Obviously, we very much hope that, as it looks back to the horrors of the multiple deaths of the past, it will be able to contribute to reconciliation in future, but we have not yet seen it.
Baroness Nicholson of Winterbourne: Does the Minister agree that, given the high level of corruption that has been entrenched in the political system in Kyrgyzstan since independence, the €38 million contribution from the European Union towards public finance and social protection is to be welcomed? Will he tell us what supervision the European Union is putting in place to ensure that this funding is used in the proper manner?
Lord Howell of Guildford: My noble friend is quite right to point to the substantial contribution from the EU. As core contributors to EU and UN funds-and, indeed, through the work of the OSCE-we have a considerable concern and need to ensure that these
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Lord Kilclooney: My Lords, as Kyrgyzstan works towards emerging from its Soviet past and, unfortunately, had terrible ethnic problems last year, which damaged the Uzbek minority there considerably, in what way are the Government assisting Kyrgyzstan in the path towards becoming a modern democratic country?
Lord Howell of Guildford: I had hoped that I had made it clear that our assistance is predominantly through the multilateral organisations: the European Union, the UN and the OSCE. I have just mentioned that we make a bilateral contribution as well. Obviously these are parts of a more general aim, in the interests of this country, to contribute to the stability of the whole region, which has important implications for the future security of the whole of Europe, including, particularly, in the energy field. I think that I have to repeat what I said earlier, which was that it is through the international institutions that we are making our main effort.
Lord Martin of Springburn: It is my understanding that many politicians from that country are keen to learn about parliamentary democracy. Could the IPU and the CPA be approached, because they have an excellent reputation for running seminars for politicians from abroad, particularly those from new democracies, to give whatever help and assistance they can and to allow Members of both Houses to share their experiences of parliamentary democracy?
Lord Howell of Guildford: That is a very positive idea. I will check with both those organisations to see what involvement they have. My half-memory is that they already have some involvement with promoting the beginnings and the embryo of parliamentary improvement and government in that country and associated countries. I will certainly approach them and check it out.
Lord Dykes: Can my noble friend say what the situation is with the freedom of the press in Kyrgyzstan at the moment?
Lord Howell of Guildford: I cannot say precisely, but there are questions about how much and whether proper freedom is being observed. There have been some criticisms. These are the sort of issues that we monitor very closely. We are not at all reticent or backward in pointing out the vital need for greater freedom of the press if democracy is to develop there.
Lord Foulkes of Cumnock: When the Minister contacts the IPU and the CPA about the promotion of democracy in Kyrgyzstan and elsewhere, will he include the Westminster Foundation for Democracy, which was set up by the previous Conservative Government and
6 Apr 2011 : Column 1730
Lord Howell of Guildford: That is an emphatic yes.
Côte d'Ivoire
Question
11.28 am
Asked By Baroness Kinnock of Holyhead
To ask Her Majesty's Government what is their assessment of the role of the African Union and the European Union in the crisis in Côte d'Ivoire.
The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford): We have fully supported the African Union and the European Union in their efforts to find a solution to the crisis. The African Union has been clear that Mr Alassane Ouattara legitimately won last year's elections. It is deeply regrettable that Mr Gbagbo continues to disregard the views of his African Union peers and the will of the Ivoirian people. The EU responded quickly and imposed targeted measures against Gbagbo and those supporting his illegitimate regime. The situation remains very uncertain, but once President Ouattara is fully able to assume office, we will encourage the European Union, the African Union and other international actors to support national reconciliation efforts.
Baroness Kinnock of Holyhead: I thank the noble Lord for his response, which is very helpful and informative. Clearly, the UN offences have tipped the balance, as we see this morning. I am sure he will agree that we hope that President Gbagbo will give himself up today to the United Nations and end the misery and suffering of the people of Ivory Coast. Does the noble Lord agree that the legitimate, internationally recognised president, Mr Ouattara, will then urgently need to build peace and reconciliation and to foster regional stability?
Côte d'Ivoire has been depicted as a model of stability but, as I have seen for myself, there are deep ethnic, religious and economic divisions in that country. Will Her Majesty's Government therefore undertake, through the EU, actively to support efforts to end the political division between the north and south of Côte d'Ivoire, which lies at the root of the crisis both before and since the election last November?
Lord Howell of Guildford: The noble Baroness has a particular and expert knowledge of this important, considerable country, which has a major trading role. Indeed, it is the world's largest producer of cocoa, although that is not the immediate concern of all of us. Of much more concern is of course the horrific killings and the incipient, or indeed developed, civil war.
The noble Baroness asks whether we will undertake to play our part. Yes, we will. Through the EU, we will
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Lord Hughes of Woodside: Does the Minister recall that the African Union frequently calls for African solutions to African problems? Laudable though that aim may be, is he aware that there is real concern that the African Union appears to think that mediation is the only thing necessary? Mediation is extremely important but is it not time for the African Union to consider wider measures, especially when there are such huge humanitarian problems faced by Côte d'Ivoire?
Lord Howell of Guildford: I think I have the sense of what the noble Lord is asking. The African Union role in this is very important and it has made some strong statements, as has the regional organisation, ECOWAS, whose support is also vital in this pattern. I hope that I have answered what I think the noble Lord was saying.
Lord Chidgey: Will my noble friend give your Lordships an update on the condition and situation of the thousands of refugees who have been fleeing the conflict and the activities of the militia? Is my noble friend aware, for example, that over the border, as a result of the recent civil wars, there were massive UN refugee camps in border towns such as Macenta and Nzérékoré? Are the Government making inquiries as to whether these camps are still available for use and for providing the sort of shelter and provisions that these refugees will need? In that context, can he tell us whether the Government are talking to our counterparts in the Guinean Government and the French Government who run these camps?
Lord Howell of Guildford: A continuous network of exchanges goes on. I cannot specify precisely which countries we have talked to very recently, but there is constant contact. My noble friend is quite right to draw attention to the major refugee problem. It is estimated that over 100,000 refugees have gone across the border, as he says, but that border is with Liberia-we must remember that five countries have a border with Côte d'Ivoire and that Sierra Leone, although it is not one of the contiguous countries, is not far away. A major refugee problem is developing, and we are focusing on how we can help. DfID announced on 26 March that the Government are providing £8 million to humanitarian agencies to provide emergency aid for refugees in Liberia and a further £8 million for inside Côte d'Ivoire itself. We are focused as far as is possible on this still expanding problem, and we must all pray that the expansion turns to contraction very soon and that peace descends so that some of the
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The Lord Bishop of Bath and Wells: My Lords, I thank the Minister for his remarks in relation to national reconciliation. I have this morning been talking to Methodist colleagues who have recently returned from Côte d'Ivoire. Besides the incredible realities of the humanitarian crisis, will the Minister seek to ensure that inquiries are made as to the sources of those who have conducted the massacres in that country and that those people be brought to appropriate justice under international law?
Lord Howell of Guildford: There are two channels through which these matters are being examined. First, the International Criminal Court has indicated, I think overnight, in fairly direct terms that it is considering an investigation into the horrors of the Duékoué massacre. Secondly, the International Red Cross is also conducting a detailed report into those massacres. The ICC is going beyond looking at any specific horrors, of which there have been plenty, and is considering abuses generally and whether war crimes have occurred. Finally, the UN Commission on Human Rights has called for an independent inquiry into all abuses in Côte d'Ivoire since the election. Therefore, there are not two but three agencies focusing on what has happened. I have no doubt that out of that will come some specific charges because it is clear that some hideous crimes have been committed.
Mental Health (Discrimination) Bill [HL]
First Reading
11.37 am
A Bill to make further provision against discrimination against people on the grounds of their mental health.
The Bill was introduced by Lord Stevenson of Coddenham, read a first time and ordered to be printed.
Postal Services Bill
Main Bill Page
Copy of the Bill
Explanatory Notes
Amendments
9th Report Delegated Powers
Committee (4th Day)
11.38 am
Clause 16 : Transfer of qualifying accrued rights to new public scheme
24EB: Clause 16, page 10, line 3, at end insert-
"( ) On making an order under subsection (2), and prior to the transfer of qualifying accrued rights, the Secretary of State must inform-
6 Apr 2011 : Column 1733
(a) all members affected that they are to be transferred to the new scheme;
(b) all active and deferred members of their accrued rights in the new scheme;
(c) all pension members of the details of payments from the new scheme and when they will commence; and
(d) all members of the details of the new scheme."
Baroness Drake: My Lords, Amendment 24EB seeks to place a duty on the Secretary of State to provide certain information to Royal Mail pension plan scheme members before their accrued pension rights are transferred to a new public scheme.
Clause 16 allows the Secretary of State to create by order a new public scheme and to make provision to transfer members' qualifying accrued rights under the Royal Mail pension plan on a date still to be specified into that new scheme, thereby allowing the Government to take responsibility for those liabilities. The pension rights that members of the Royal Mail pension plan have accrued up to that date will be covered by that government support. Pension rights accrued after that date will remain with the Royal Mail pension plan. I am sure that scheme members will be reassured by the additional security for the funding of accrued benefits which the new scheme provides because it will be backed by the covenant of the Government, but these members will still be looking for reassurances as to the protection of their individual rights and interests. I am sure that there is much detailed consultation between the trustees and employee representatives still to take place.
All the privatisations of public corporations and utilities over the past 20 years have had carefully to address the issue of accrued defined benefit pension rights. The solution taken has not been the same in each instance. In the case of the sale of BT, a Crown guarantee was given. On the privatisation of the railway, the Government assumed responsibility for pensioner liabilities which existed up to the point of privatisation. Other privatisations have taken other approaches.
The pension arrangements proposed in this Bill, on the sale of Royal Mail, which are intended to facilitate privatisation and give greater security to members given the current level of deficit, are quite complex. They cover all categories of scheme members, active, deferred and pensioner, in respect of their pension rights accrued up to the specified date, which is yet to be determined. Some conditionalities continue between the new public scheme and the Royal Mail pension plan post privatisation. I am not arguing against that complexity where it enhances the protection afforded to scheme members, but it goes to support my amendment that members should know prior to the transfer to a new public scheme what their accrued rights are that are to be transferred to that scheme.
There are three concepts in this Bill which will need to acquire flesh: a qualifying member, qualifying accrued rights, and qualifying time before members of the Royal Mail pension plan definitively know who is affected, what the rights are and what the cut-off date is for determining the accrued rights that are to be transferred. The members will be anxious to know. It is human nature, given the importance of this matter, that they will be so anxious.
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The other conditionalities relate to such matters as the increases in the value of pensions which occur after the qualifying date where they are linked, for example, to a final salary, and who bears the cost for this. The Bill reserves powers for the Secretary of State to amend the rules of the Royal Mail pension plan to address these matters. Complexity can carry ambiguity over the long term unless it is made very clear and people know precisely what their rights are and what the arrangements mean. Time moves on, key players go and memories fade. The BT Crown guarantee has had to be clarified at judicial review and the statutory framework of pension protection in the rail industry has from time to time required the assistance of legal opinion and clarification.
It is very important that members of the Royal Mail pension plan affected by this transfer of their accrued rights to the new scheme are personally informed before the transfer takes place so that they know who they are, what their accrued rights being transferred are and details of the arrangements and procedures applying in the new scheme. The amendment seeks to ensure that that happens. It would be totally unreasonable for them not to be so informed before the transfer of their rights to a new scheme.
I have absolutely no doubt that the Secretary of State will be motivated to treat people well, but people will be anxious. They need the confidence of knowing what is to be done to them before it is actually done. This will give them peace of mind. Clause 16(7) makes provision for an order to have retrospective effect; for example, where the effective date for the purpose of the transfer of pension liabilities has been agreed as a part of a wider arrangement with a third party and precedes the date of any order to set up the new pension scheme. The amendment does not prevent such a provision, but in the same way as the implementation of a retrospective date would be after the order had been made, so, too, the transfer of people's accrued rights should not be implemented until after the individual scheme members have been provided with the relevant information about the treatment of their pension benefits.
11.45 am
What I propose in my amendment is no more than good practice and is wholly consistent with regulatory requirements placed on occupational pension schemes. It is not undermining in its intent or impact. A public scheme, however, is often not covered by occupational pension scheme regulations precisely because it is a public service scheme covered by Crown guarantee. In the case of an ordinary private sector transaction, if members are transferred from one pension scheme to another, the trustees or managers of the transferring scheme would have to provide details of the transfer and the benefits that the new scheme will provide one month before the transfer. That is required by Regulation 12 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991.
However, that regulation will not apply to the transfer from the Royal Mail pension plan to the new public scheme. It would require a specific order under Clause 16(5) of the Bill for that to be so. Subsection (5)
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I note that several of the amendments in the group tabled by my noble friend Lord Young seek similarly to establish provisions that are no more than would exist in a normal occupational pension scheme as determined by Parliament. This is a common theme that runs through many of the amendments in the group. This is particularly so as the powers given to the Secretary of State in Clauses 16 to 24 have significant implications not only for the new scheme but for the remaining Royal Mail pension plan which is not backed by Crown guarantee. I would be delighted for someone to contradict me and say that it is and that it will continue to have the status of an occupational pension scheme.
To my knowledge, no assurance has been given by the Secretary of State that the spirit of Regulation 12 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991, to which I have referred, will be met and that members will be provided with the information referred to in the amendment before the transfer takes place. The amendment seeks to require the Secretary of State to follow disclosure requirements which are equivalent to the obligations that Parliament has decided are appropriate for transfers from one pension scheme to another in the private sector-that is, information prior to the transfer for those individual scheme members so affected.
In view of the debate in the other place, perhaps I may anticipate the Minister and say that I do not believe that the amendment is problematic or would cause additional confusion. The Royal Mail pension plan is under an obligation to provide information to members and will no doubt continue to do so. As some members will have some of their accrued pension rights in the new scheme and some of their accruing rights in the Royal Mail pension plan, they will no doubt be receiving benefit statements from two sources for some time to come even if they are contained in one envelope. However, the Royal Mail pension plan has no obligation to provide information about the new public scheme-that falls to the Secretary of State-and its trustees may well not have all the required information before the transfer takes effect. There are some 400,000 members of the Royal Mail pension plan and many of them are current employees. They are going to be extremely anxious about the detail of the provision in respect of their individual pension entitlements. They are anxious and they should be informed before the transfer takes place. That is what Amendment 24EB seeks to achieve. I beg to move.
Lord Young of Norwood Green: I will speak to Amendments 24EC, 24ED, 24FA and 24GA, which stand in my name, and also to Amendment 24EB.
As my noble friend Lady Drake pointed out, there is, at the point of transfer to the new scheme, no clarity in the Government's proposals regarding a
6 Apr 2011 : Column 1736
Equally, there is the question of the future governance of the scheme at the point of transfer. The current trustees of the scheme will end their trusteeship. That means that union members and pensioners will lose their current nominated and elected trustees. Whatever the Government's intentions on these matters for the future, the fact is that at the point of transfer there will be a loss of representation of Royal Mail pension plan members in the functioning of the scheme. Immediately prior to the transfer, existing trustees will not be in a position to provide the assurances and information that are necessary, and which are outlined in this amendment.
In the other place, the Minister sought to give some reassurances on these questions. The honourable Ed Davey said:
"Because we want to continue the high standard of service and support to which members of the pension plan are accustomed, we want to work with the trustees on ensuring that administration is in place. No final decision has been made on how the new governance scheme will be administered, but it is likely that the Government will look-at least initially-to contract the administration of the new scheme to the existing Royal Mail pension plan administrators in Chesterfield. We are speaking with the trustees about that".
We welcome that statement, and would welcome some reinforcement of it. That was said on 25 November, but what is the position now? Have the Government considered further the issue of contracting the administration of the new scheme to Chesterfield?
On the issue of the new scheme's governance, the Minister said:
"We understand the importance of pension scheme members having input into running their scheme; that is absolutely common ground between us. We will therefore consider establishing a governance group with member representation for the new public sector pension scheme for current beneficiaries. When considering this, we will take account of the views of stakeholders and practices in other large public sector pension schemes. For example, the NHS pension scheme and the principal civil service pension scheme".
He went on to talk about the governance group and it being,
- "critical that the public sector pension scheme works with the Royal Mail pension plan, in terms of administration, governance and communication".
He ended his contribution saying:
- "We are absolutely committed to that".-[Official Report, Commons, Postal Services Bill Committee, 25/11/10; cols. 431-32.]
Again, what progress has been made on this question?
6 Apr 2011 : Column 1737
If nearly four months later there is no greater clarity then, far from reassuring Royal Mail pension plan members, the Government will be responsible for having caused them greater concern. The intention of the amendment, as my noble friend Lady Drake said, is not to undermine but to seek clarity by obliging the Secretary of State to address Royal Mail pension plan members directly at the point of their greatest concern-that is, before the changes take place. In the absence of any further clarity from the Government, this amendment is surely profoundly important.
In relation to Amendment 24ED, as we noted in a previous amendment, under Clause 17 the Secretary of State has to make an order for the division of assets because of the separation of the pension schemes. There is no intent to prevent this process through this amendment, but there is concern that the trustees are losing control of hard-earned assets. There has to be a will to co-operate closely with the scheme representatives to ensure that there is a smooth transition in separating the schemes. The Bill gives great discretionary power to the Secretary of State; such power would not normally exist with the private employer in a pension scheme, so in order to demonstrate that there will be some checks on this power, we need a clearer picture of the future governance of the scheme. At this point in time, the Government have not had to make plain any detail about the future governance of the new scheme. Are the Government in a position to elaborate on their current thinking on this issue?
On Amendment 24GA, in Clause 24 there is no obligation on the Secretary of State to consult directly with representatives of the unions in Royal Mail. Although elected from and by union members, the members' trustees are bound by law to act outside the formal democracy and accountability of trade unions. It has to be said that the practice of the Government is better than the formulation in the Bill. Meetings are taking place between the ministerial team and BIS and the elected officials of the union to discuss the future of the pensions plan. That is necessary and sensible. But nothing in this relationship is guaranteed on the face of the Bill. It is not beyond the bounds of possibility that matters between the Government and the unions may take a turn for the worse before the implementation of the new scheme. One hopes that this will not occur, but banking on hope is not a good guide for legislators or those affected by legislation.
I believe that the Government should accept this amendment, because it recognises that the real interests of postal employees have different representative forms. The best practice of this Government is to act on this fact. Now let the Government guarantee this in legislation.
Lord De Mauley: My Lords, before I start I should repeat my declaration of an interest in that my wife jointly owns and runs a business which is essentially a web-based mail order company and as such uses Royal Mail for delivery of its product.
Before I turn to the detail of the amendments, it may help if I provide a brief overview of the provisions in Part 2 of the Bill and the intentions behind them. These provisions will allow the Government to take
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Lord Morris of Handsworth: The Minister made reference to the liabilities. Could he say a word about the inherited assets?
Lord De Mauley: Yes, my Lords. As a general point, could I say that we are in Committee? So the noble Lord is free to come in after I have spoken, if he wishes. I do not think that my mental calculator is fast enough, but the assets are the difference between the £34.4 billion liabilities and the £8.4 billion deficit. My maths is failing me, but it is something in the region of £26 billion. But I am sure that divine intervention will bring the exact figure to me shortly.
Royal Mail will also continue to have full responsibility for past and ongoing accruals in the senior executive pension plan. These proposals will safeguard the pension benefits accrued by members and I am sure that all sides of the Committee share that objective. Member protection is paramount and features prominently in the Bill. In particular, Clause 19 provides that benefits-let me be clear, that is the full range of member benefits including increases and payments to dependants-cannot be adversely affected by transfer into the new public scheme. Our proposals are subject to state aid clearance, which is why some of the detail can be provided only in secondary legislation.
Noon
On Amendment 24EB, moved by the noble Baroness, Lady Drake, I begin by thanking the noble Baroness for the important contribution that she made to the report of the noble Lord, Lord Hutton of Furness, on public sector pensions. The Hutton report will in general not apply to the new public scheme, as it will effectively be a closed scheme with no new accruals, but the report's recommendations on the governance and administration of public sector pension schemes will be pertinent. I assure the noble Baroness that we will take full account of the Hutton recommendations in this area when designing the operation of the new scheme.
Amendment 24EB seeks, as the noble Baroness explained, to ensure that members are provided with relevant information before their rights are transferred to the new public scheme. We entirely agree that clear and comprehensive communication with members is
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We are working closely with the trustee to ensure that members receive the right messages at the right time, in line with their circumstances. Although part of this work is ensuring that communications from both schemes dovetail, there are already statutory obligations on the RMPP, as an occupational pension scheme, to provide certain information to members. This amendment would mean that some such members might conceivably receive this information twice, from the two different bodies at the same time. Not only would this be inefficient but, more importantly, it could be unsettling for those members, which I know is not the noble Baroness's intention. Once the new scheme is up and running we intend to ensure that, at the very least, members continue to receive the information currently provided by the RMPP, and we will give due regard to specifying relevant reporting requirements in secondary legislation. Given these reassurances, I hope that the noble Baroness will feel able not to press her amendment.
Amendments 24EC, 24ED and 24GA, tabled by the noble Lord, Lord Young, all relate in essence to consultation on the secondary instruments that can be made under Part 2 of the Bill. For reasons which I hope will become clear, I would be grateful if noble Lords will allow me, perhaps rather unconventionally, to deal with these in reverse order.
Dealing with Amendment 24GA first, I wholeheartedly agree that members' interests should be at the heart of the pensions changes made under Part 2 of the Bill. That is why Clause 24 provides for consultation with the RMPP trustee. The trustee is bound to act in the best interest of all the plan beneficiaries, and the trustee board has strong member representation-five of its 11 directors are member-elected or union-nominated, and the chairman is independent. Our obligation to consult the trustee means that we can be sure that the interests of all beneficiaries are being represented.
We also recognise that it is important to discuss our proposals with other bodies representing member interests. We hold-and through the implementation stages will continue to hold-regular meetings on pension issues with the CWU and the National Federation of Occupational Pensioners. However, given the central role that the trustee holds in representing the interests of all members of the pension scheme, we hope that noble Lords will accept that it is neither necessary nor appropriate to broaden the obligation to include other member representatives.
Amendment 24ED would require consultation with the Pensions Regulator on orders made to amend the RMPP scheme rules under Clause 18. We will need to make such amendments to transfer liabilities into the new public scheme and to ensure that the salary-related liabilities stay with the RMPP.
The changes that we will make to the RMPP rules are complex but the effect is simple. We will ensure that members are left in no worse a position after the transfer than they were before that time, as we are obliged to do under Clause 19. We will work closely
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On Amendment 24EC, I ask noble Lords to accept that this would not provide additional benefit to members, as the Secretary of State is already obliged to consult the trustees on orders made under Clause 17 to divide the RMPP into sections by the general consultation provisions in Clause 24. With these assurances, I ask the noble Lord, Lord Young, not to press his Amendments 24EC, 24ED and 24GA.
I turn to government Amendments 24F and 24GB. Amendment 24F relates to the transfer of assets from RMPP to government. Before I deal with the detail of that amendment, I would like to make clear that we intend to leave the RMPP fully funded at the point of transfer, subject only to state aid clearance. The amendment does not in any way change that intention but results from the fact that there will inevitably be a time lag between the effective date of an actuarial valuation and the finalising of that valuation, because of the time required to gather and process relevant member and market data.
To deal with that time lag, we intend that assets will transfer in two stages. The bulk of assets will transfer at the same time as the Government take over the historic RMPP liabilities. This initial asset transfer will be determined in line with an interim valuation and will be on a conservative basis, so that there will be further assets to follow. The balance of assets will then be transferred once the actuarial valuation is finalised. Because that second transfer will be some months after the effective date of transfer, an adjustment will be required to account for investment market movements over the intervening period.
The restriction at Clause 21 ensures that the RMPP's funding level is at least as good immediately after transfer as it was immediately before. This funding level test, assessed at the effective date of the transfers, must therefore not be affected by any market movement, whether up or down, in the assets that transfer later. So the amendment simply provides that any adjustment applied to account for market movements in the second transfer is not taken into account by the Clause 21 test.
Government Amendment 24GB provides for any order or part of an order made under Part 2 of the Bill to come into force on a specific day and for that specific day to be specified in a separate stand-alone order. It allows the maximum flexibility to synchronise the various parts of the pensions solution. These are technical amendments to facilitate the smooth implementation of the pensions solution and I hope that noble Lords will feel able to support them.
I turn now to government Amendment 24G. As I said earlier, we are working closely with the trustee to ensure that active members, who will have rights both within the new scheme and in the RMPP, receive a seamless experience regarding their pensions. By that
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Amendment 24G will facilitate the sharing of information between the parties and thereby help ensure a seamless experience for members. This will be of considerable benefit to pension plan members and I hope that all noble Lords will feel able to support it. In case any noble Lords have concerns in this regard, I assure them that any sharing of information will be fully subject to the safeguards provided by the Data Protection Act.
Viscount Eccles: My Lords, I thank my noble friend very much for an extremely clear exposition. We started the group with an extremely clear and well expressed amendment from the noble Baroness, Lady Drake. I want to ask a question that perhaps cannot be answered this morning: namely, what information has been conveyed from Royal Mail either to Postcomm, as it is at present, or to the Government about the expected experience under the new pension scheme? Pension schemes are very difficult to keep in surplus or in balance if the number of employees is declining or their average age is rising. Royal Mail recently declared that it was going to reduce its staff and workforce and I think has further plans that might lead to that happening again in the future. In my submission it is likely that the new scheme, which is entirely properly set up under the arrangements as described, nevertheless could be threatened with going into deficit at an early date. In looking at that subject, I hope that the Government are also taking account of the comparative costs of pensions to Royal Mail and to other postal operators. As I say, I am not looking to receive a detailed assurance today as this is a new and rather complex point. Nevertheless, at a later stage I might consider it right to revert to this subject.
Lord De Mauley: My Lords, my noble friend makes an extremely important point. The terminology is confusing but I think that he is talking about the RMPP scheme, the old liabilities and assets having been transferred out into what is rather confusingly called the new scheme. Therefore, he is concerned about the ongoing liabilities in the RMPP scheme. I will write to him, but I can tell him that £1.5 billion of funding will be left in the new scheme specifically to cover what is known as the salary link. However, I had better expand on that in writing, if I may.
Baroness Drake: My Lords, I hope that I may respond to some of the points made in the debate, particularly to the comments made by the Minister. Before I deal specifically with my own Amendment 24EB, I wish to comment on Amendment 24EC, which was spoken to by my noble friend Lord Young, as this addresses the Secretary of State exercising powers under Clause 17. As far as I can see, there is no explicit requirement on the Secretary of State to consult the trustees when exercising powers under Clause 17. Clause 17
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These matters are of great importance to the trustees of the Royal Mail pension plan, which is left with accruing liabilities, or existing liabilities, that are not transferred to the new scheme. They will be very interested in the strength of the employer covenant backing any section so created, and what it does to the security of the members left in a particular section so created. In the occupational pension world, if you weaken the employer covenant to a particular section, that is a notifiable event-it is not something that you can breeze over. It is what the regulator exists for, which I suspect is why my noble friend raised the issue of the Pensions Regulator.
Hypothetically, if I were an employee of Post Office Ltd and I had accruing rights in the remaining Royal Mail pension scheme, I would want my trustees to be very alert to what assets were left on the balance sheet of Post Office Ltd, because they are the assets-the covenant-that are backing the future benefits or the benefits that are remaining in the Royal Mail pension plan. These are real issues for the trustees. This will remain an occupational pension scheme because, as I thought, the Minister has not said that Crown guarantee carries on in the Royal Mail pension plan.
I do not think that we have clarity about how the Secretary of State can exercise his power under Clause 16 to split up the Royal Mail pension plan and how at the same time the trustees can exercise their power to protect the employees so that their position as creditors or the strength of the employer covenant is not weakened and the members left in a less favourable position.
On Amendment 24EB, I fully recognise that the proposals in the Bill allow for the deficit to be taken over by the Government; that will clearly give a lot of people in the scheme peace of mind. I welcome the Minister's comment that members' protection is of great importance. I think I welcome his statement that there will be a comprehensive communication exercise before, during and after the transfer, which is clearly very positive and on the record. However, we still need clarity about what will happen before the transfer. What communication will there be then? If the Government could clarify that, in writing or in some other way, that might deal with the issue.
The Minister referred to the Royal Mail pension plan trustees having statutory obligations to provide information to pension scheme members, and that is absolutely true. However, we have a complex situation in that there is almost a Secretary of State override to impose certain powers or requirements on the Royal Mail pension scheme. The trustees cannot account for that-they cannot explain that. The Government might choose them as the conduit to do that, but they cannot
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I anticipated that the inefficiency of double communication might be raised, but I am not persuaded that that is an argument for not allowing people the maximum information prior to transfer. That is the reason for civil servants and Royal Mail pension plan trustees coming up with an efficient communication plan; it is not really a reason for not giving full and proper information prior to transfer.
It would be helpful to obtain greater clarity about the information that would be provided. However, I recognise that the noble Lord was seeking to improve the assurances given on the importance of protecting members' information.
Lord De Mauley: Before the noble Baroness withdraws her amendment, I am happy to provide some clarification on the points she raised. She asked about the Secretary of State being obliged to consult, and I mentioned Clause 17. I apologise if I was not clear enough. The Government's position is that under the general provisions in Clause 24 the Secretary of State must consult the trustees on the powers set out in Clause 17. I hope that that is helpful.
The noble Baroness also asked about the Crown guarantee. Perhaps I should clarify the Government's position, which is that an unfunded public sector scheme is a better option, because providing a Crown guarantee would expose the Government, and therefore taxpayers, to significant risks-for example, investment risk-that are not under government control. With a guarantee, it would not be clear as to what liabilities the Government would be taking on, because although they would assume responsibility for the deficit, the Royal Mail trustees would continue to exercise control over investment policy and discretionary powers in relation to benefits to members. Our proposal to establish a new unfunded scheme is consistent with the majority of existing public service pension schemes. The pay-as-you-go model provides members of the Royal Mail pension plan with certainty that their benefits will be paid, while minimising the taxpayers' exposure to investment risk and future volatility in the scheme's funding position.
I should say in answer to the noble Baroness's second broad point that officials have already started to work very closely with the trustees to implement Part 2, including over asset allocation. These discussions are critical in helping the Government to implement the pension solution.
Baroness Drake: I thank the Minister for those further clarifications. They are helpful, although they trigger one or two queries. Any further clarity that can be provided in writing would certainly be helpful. I interpreted what the Minister said as the Government putting on record that if they seek to exercise their powers under Clause 17, they will consult the trustees. That is helpful.
My point about the Crown guarantee was that after the transfer of liabilities or accrued rights to the new pension scheme, there remains a Royal Mail pension
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The Minister's clarifications have been helpful. Ambiguities remain and I am sure that they will be the subject of further discussion. Any clarity that can be given to my noble friend Lord Young on what happens before the transfer would be helpful. I beg leave to withdraw the amendment.
Clause 17 : Division of the RMPP into different sections
24EC: Clause 17, page 10, line 9, at end insert-
"( ) Before making an order under this section, the Secretary of State must consult the trustees of the RMPP."
Lord Young of Norwood Green: I, too, welcome the clarification. We will study the words closely. I concur with the points made by my noble friend Lady Drake. We reserve the right to return to these issues on Report, given their importance.
Clause 18 : Amendments of the RMPP
Clause 21 : Restriction on power to transfer assets
24F: Clause 21, page 11, line 40, at end insert-
"( ) For the purposes of this section as it applies in relation to the transfer of assets after the relevant time by virtue of a transfer order-
(a) treat the assets as if they had been transferred at the relevant time, but
(b) disregard so much of the assets as were transferred to reflect the fact that the assets were not actually transferred at the relevant time."
Clause 21, as amended, agreed.
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24G: Clause 23, page 13, line 6, at end insert-
(a) relates to pensions or other benefits under the RMPP or a new public scheme, or
(b) relates to the administration of the RMPP or a new public scheme in respect of those pensions or other benefits,
may be shared among relevant persons for the purpose of facilitating the administration of the RMPP or new public scheme.
(a) the Secretary of State,
(b) any person who administers, or exercises functions under, a new public scheme,
(c) the trustee of the RMPP,
(d) any person who exercises functions on behalf of the trustee of the RMPP, or
(e) any person who is or has been an employer of a qualifying member of the RMPP."
Clause 23, as amended, agreed.
Clause 24 : Orders and regulations
24GB: Clause 24, page 13, line 17, at end insert-
"( ) Any order under this Part may provide for it (or any of its provisions) to come into force on a specified day.
( ) A "specified day" means a day specified in an order made by the Secretary of State under this subsection (and different days may be specified for different purposes).
Subsections (1) to (3) do not apply to an order under this subsection."
Clause 24, as amended, agreed.
Clause 28 : Duty to secure provision of universal postal service
Lord Young of Norwood Green: My Lords, this important amendment seeks to reassert that the universal service should be maintained as a benefit to the whole country even though this may involve some cost. The
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These seem to be perfectly reasonable provisions. Who would not want financial sustainability or efficiency? However, the universal postal service is the object of our discussion, and the stark facts are that some elements of it cost more than the revenue they yield, and some parts are underutilised on a regular basis. That is why it is vital to draw attention to the new provision in the Bill.
It is generally accepted that the universal service is a good and necessary thing and that its delivery by Royal Mail has been well handled. That is significant. There is no body of evidence to suggest that Royal Mail's provision of the universal service lacks something. However, the Government have implied that it lacks something by suggesting new criteria. Let us look at these. In future, the universal service must be financially sustainable. Let us then suggest that the six-day delivery model may involve a degree of loss on at least one day a week-or, if not loss, then a lower rate of return on one or more days. Anyone who has some familiarity with the pattern of deliveries across the working week will endorse such a view. Therefore, would this not mean, on a strict interpretation, that the six-day service is not financially sustainable?
Let us consider the term "efficient". Is it efficient to maintain delivery vehicles and stock that may not be fully utilised but which guarantee a universal service to remote areas? From a commercial point of view, if these vehicles are utilised less than the other vehicles in the network on average, that is definitely inefficient. If that is the case, would it not be an argument for extending the number of exceptions to the USO on the basis that remote areas require an inefficient use of scarce resources?
Ofcom will be forced to move in this direction once the new owners of a privatised Royal Mail demonstrate that part of the USO can never be financially sustainable or efficient. In the debate in the other place, when questioned on this issue the Minister for Postal Services was forced into hypothetical speculation about how Ofcom would use these new criteria to do something that Postcomm does not-I repeat: does not-do at present.
12.30 pm
In Committee, Nia Griffith MP asked the Minister:
"Will the Minister give us an example of how a decision, requirement or interest might be different as a result of not having the clause in the Bill?".
"It will, of course, be for Ofcom to make that final decision. If I give a concrete example, what I do not want to do is to imply by my words in Hansard that that is what Ofcom should or ought to do. I want to make it absolutely clear, by those preliminary remarks, that in giving an example, I am not in any way saying that that is the intention of the clause".
We can see by this initial contortion by the Minister how abstract the debate has become because of the difficulty of justifying these new criteria. That said, the Minister continued:
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"Hypothetically-again, this is not necessarily the intention behind the measures, but it may be the way that it chooses to use the powers-Ofcom might decide, in a decision on prices, that if it held the price down too much, it could create financial problems for the universal service, and hence it might not be financially sustainable. In making these fine balances, Ofcom might decide that it has a duty under subsection (3)(a) to ensure that the universal postal service is financially sustainable. It might-this is not a suggestion of what it should do-decide that the price that the universal service provider, Royal Mail, can charge to competitors accessing its downstream service could be a little bit higher to ensure that the universal service was financially sustainable. I hope that that is quite a central example".-[Official Report, Commons, Postal Services Bill Committee, 30/11/10; col. 514.]
This is the only example that has been heard so far of the Government's intentions behind the new criteria. What is remarkable is that the Minister seems to assume that the existing arrangements allow the regulator to hold postal prices down without any regard to the needs of the universal service provider-hypothetically speaking, at least. In life, that is not the case. The price control arrangements are very long-winded and, before arriving at its decision, Postcomm has had to hold extensive public consultation exercises, which can last for years. Royal Mail is fully involved in these consultations and strongly argues the case for the price controls to reflect the need for it to maintain all its services and to secure the universal service.
Although the first price control was certainly severe for Royal Mail, the second one has given it more scope, the point being that, under the present criteria for maintaining the universal service, Royal Mail is legitimately able to direct the attention of the regulator to its financial needs. It is unrealistic to suggest that Postcomm, for all its many failings-and there were many of them-has ignored the maintenance of the universal service. Therefore, in reality, we come back to the view that the Government are introducing new considerations that could weigh against the provision of the universal service. Who will benefit from this? Certainly not the public, as such criteria will inevitably limit and reduce the scope of the universal service.
If noble Lords will forgive me, I intend to take this opportunity to comment on the other amendments in this large group while I am on my feet. Amendments 24QA and 24RA both bear on the relationship between access and the universal service network. There is no doubt that regulation of access has been one of the most controversial elements of the legislation introduced by the Postal Services Act 2000. As long ago as Richard Hooper's first report, it was noted:
"Whilst access competition has so far been predominantly based on price, and there has been less innovation than might have been hoped, the situation is still fundamentally better than one of a monopoly. We recommend, therefore, that downstream access should be continued.
The UK access regime differs from the approach used by other countries in two ways: ... Royal Mail is required to allow other postal companies to access its national network on a non-discriminatory basis. Very few other countries operate a mandatory regime in this way ... the price which Royal Mail charges other postal companies to deliver their mail over the final mile is regulated through a system of access headroom ... We are aware of no other country which has a comparable system".
Therefore, even someone as pro-competition and pro-access as Richard Hooper recognised that there might be problems. His report went on to indicate:
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"The access headroom margin is not directly related to Royal Mail's upstream costs. As Royal Mail's costs change over time, the level of headroom does not. As a result, the margin available for competitors to enter the upstream market could be too large for some projects (encouraging inefficient entry) and too small for other products (discouraging efficient entry).
Headroom may dilute some of Royal Mail's incentives to become more efficient. Royal Mail cannot pass upstream cost savings through to lower retail prices without also having to cut its access price. If Royal Mail does not wish to cut its access price, it has less incentive to reduce retail prices and upstream costs.
There is uncertainty whether access services are currently being provided by Royal Mail at a loss or a profit".
Therefore, even with his enthusiasm for the access arrangement, Hooper noted a number of problems which are of huge significance for the industry.
Moya Greene, the chief executive of Royal Mail, indicated in her evidence during discussions on the Bill in the other place that Royal Mail was subsidising the competition to the tune of approximately £160 million a year. She said that it was unfair and crippling Royal Mail, and, whether Royal Mail was privatised or not, this problem would have to be addressed.
Hooper also noted, as I said earlier, that the form of access in this country decided by the regulator is unique. Indeed, we have to register that since his report no other EU country has followed the lead of the British regulator, even though they are all now subject to liberalisation of the postal market. First, it is clear that across the EU access tends to be provided on the basis of negotiation. In Germany, access requests apply only to dominant firms in relevant geographies and only where it is reasonable from an economic standpoint. In Belgium, access is provided on a negotiated basis. In the Netherlands, unbundled access is not mandated. Therefore, compared with other countries, the UK is unique in requiring the Royal Mail Group to provide third-party wholesale access on an access headroom basis. The other countries may have mandatory access but they are on terms acceptable to the universal service provider, which gives the USP the ability to take a commercial decision on the terms of granting access.
The question that the Government surely have to address is why they should continue to support a form of access which encourages unfair competition and is not commercially sustainable and to which no other comparable national provider is subject. Amendment 24QA allows for this anomaly to be rectified. In future, this issue should be subject to normal commercial negotiations. If there is any complaint of market abuse or unfair competition by Royal Mail, a simple normal commercial remedy is at hand-complain to the Competition Commission and let it make a judgment.
Equally, Amendment 24RA introduces an important correction to current regulatory practice. The assumption is that access costs involve Royal Mail performing the service of final sorting and delivery for the company buying the access service. Therefore, Royal Mail charges for that service under the glare of the regulator's view of those costs. However, the competitor does not contribute to the maintenance or depreciation costs of the universal service provider in providing access. Bringing this into the estimation of access costs is entirely legitimate.
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The universal service obligation cannot be delivered without the deployment and replacement of the capital and workforce that Royal Mail maintains. Without such a physical embodiment, there is no universal service provision. It is worn out, depreciated and replaced in the provision of the universal service. Every use of the network in some manner or another involves this process, so the access contracts from competitors demand not just that part of the network that secures access but the whole of the pipeline to secure delivery. In this sense, competitors also need to be charged for sustaining the network from which they so generously profit.
If the Committee can see the benefit of these amendments, we will go a long way towards remedying the problems with regulations which Hooper highlighted and which continue to cripple Royal Mail.
I want to comment briefly on a number of other amendments in this very large group. They include Amendment 24H in the name of the noble Viscount, Lord Eccles. We are not absolutely clear about the intention of this amendment. On the one hand, if the intention is to ensure that Ofcom has an obligation-
Viscount Eccles: In the interests of time, it may be better for the noble Lord to wait until I explain what it is about.
Lord Young of Norwood Green: On reflection, I am happy to do that and shall conclude my comments at this point.
Lord Jenkin of Roding: My Lords, the noble Lord, Lord Young of Norwood Green, has said that this is a very large group of amendments. I considered whether it might be possible to disaggregate some of them and came to the conclusion that, as they all broadly address the same subject-access to the network-it is sensible for them all to be discussed together.
The amendments in the name of the noble Lord and his noble friends seek to make access more difficult, and those in my name and the names of my noble friends Lady Wheatcroft and Lord Skelmersdale take a different line. Before I speak to individual amendments, I thought it might be helpful to say something about what we are aiming at. I do not think it is all that different from what the noble Lord, Lord Young, has described to us, although I think the balance is different.
We want to provide a fair balance between protecting the universal service obligation and promoting competition in the postal sector. Therefore, our overall purpose is to try to find a way in which one can do that. I raised this point at Second Reading and since then my noble friends and I have had the opportunity to hold a number of meetings. We have met the chairman of Royal Mail, Ms Moya Greene, who is a very formidable and able lady-an excellent appointment. We have also had meetings with some of the major companies that entered the postal market under the existing legislation, which was introduced by the previous Government.
Turning first to what one learnt from the chairman, it is clear that Royal Mail is still facing an uphill struggle to become profitable, despite the prospective relief from the overhang of the huge pension liability,
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Ms Greene also pointed out to us-I quote her words, which I hope is not embarrassing-that there needs to be "a dramatically different regulatory approach". I am not sure that we have that yet in this Bill. Ms Greene has described regulation by Postcomm as "intrusive, extensive interference with no freedom to Royal Mail to price their products or to introduce new products". Moreover, she put the cost of dealing with regulatory impact at no less than £53 million a year. I find that an almost incredible figure, but she says that that is what it costs. We must return to this issue perhaps at a later stage. One has to ask why the competitors should not pay part of the cost of regulation. They are covered by it and they appeal to it, so why should not part of that cost be borne by them? That is the view from the chairman of Royal Mail, and I find it quite compelling.
12.45 pm
I also asked the chairman about the upstream competitors, and I put to her the figures that Postcomm gave to a committee in another place-I quoted them at Second Reading. Out of each £10 of business lost by Royal Mail, £9 was due to electronic communications and only £1 was due to upstream competition. The chairman of Royal Mail does not accept those figures at all. We have heard many criticisms of Postcomm and I do not seek to defend its figures. She points to the fact that Royal Mail has lost 50 per cent of bulk mail to the competition and that, therefore, the percentage must be higher than that.
I turn to the case put to us by the companies that seek to compete with Royal Mail for bulk collection, initial sorting, processing, data submission, account management, invoicing and the transportation of letters and packets before they are handed over to Royal Mail for final delivery. They point first-this is the core of the argument-to their ability to give an improved service and to reduce costs for their customers. They will increase those costs shortly, but they have made the point that that will be extremely unpopular with their customers. I shall come to that in a moment.
Moreover, the companies negotiated and agreed to pay Royal Mail what was intended to be a fair price for the final delivery stage-a price that Postcomm approved at the time, as the noble Lord, Lord Young, has pointed out, as giving Royal Mail a reasonable profit on that part of its business. I agree with the noble Lord, Lord Young, that, in the event, that did not happen. Although we can challenge the precise figure that he quoted of the loss made on the business, one has to look at the reason, which was that the agreement and the figures agreed were based on an assumption
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Another point, which it is important to make, is that the companies have stressed to me very positively that they support the aim that Royal Mail should become a successful and profitable business. They see that as essential for securing the final stage of the delivery of mail under the USO, which, quite rightly-I warmly support the Government on this-is to be retained and safeguarded under the Bill. After all, Royal Mail delivers something like 99.9 per cent of all licensed letter mail and there is currently no viable alternative business model for widespread downstream competition. It is not right that the competition should be able to cherry pick.
What are we looking for? I start from the proposition, which I think the noble Lord, Lord Young, had at the back of his mind, of the EU postal directive, Article 11a of which provides that:
"Whenever necessary to protect the interest of users and/or to promote effective competition, and in the light of national conditions"-
- "Member States shall ensure that transparent and non-discriminatory access conditions are available to ... elements of postal infrastructure or services",
within the scope of the universal service. I think that some of the things that the noble Lord, Lord Young, asked my noble friend on the Front Bench conflict with that. No doubt my noble friend will be able to deal with that.
However, at Second Reading, my noble friend Lady Wilcox made it quite clear how the Government are approaching this issue. She said:
"As Government, it is our role to strike the right balance between protecting the universal postal service and promoting competition in the sector".
Noble Lords will realise that those are precisely the words I used at the beginning of my speech. She continued:
"Our position is clear: competition is beneficial but not where it undermines the universal postal service. Ofcom, the new regulator, will have the regulatory tools it needs to ensure that this balance is protected".
My noble friend then referred to my concern that the new hurdles in the Bill, to which I shall come in a moment, were intended to increase the value of Royal Mail prior to its sale. She said:
"I assure my noble friend that this is not the case. We have two objectives: first, to secure the future of the universal service; and secondly, to secure the future of Royal Mail as the only company capable of providing that service".-[Official Report, 16/2/11; col. 777.]
The whole of that paragraph-both parts are important-entirely reflects our purpose in tabling our amendments. I must now turn to them.
Amendment 24Q is intended to implement the paragraph I cited from Article 11a of the EU directive about giving fair access. Under existing law, each of the three conditions set out in Clause 37(4)-
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- "promoting efficiency ... promoting effective competition, and ... conferring benefits on the users of postal services"-
would be a qualification for a regulator to grant access. Subsection (4), however, states that access can be given only if all three purposes are satisfied-what has come to be known as the triple lock. In other words, it is a significantly higher hurdle for competition than that provided in existing legislation. Amendment 24Q substitutes for that the words,
- "for either or both of the following purposes ... (a) protecting the interests of the users of postal services; and (b) promoting effective competition".
We are looking for a level playing field that is fair to both sides. If, under EU regulation, access is to be provided, there must be a level playing field that is fair to both parties. I am not sure that we have reached that yet. A level playing field must be the right principle to aim for. The trigger point for the application of the subsection is if the regulator has,
Given the almost exclusive right and activity of Royal Mail for the final stage of delivery, it seems clear that the condition is likely to be satisfied, so the access provisions will be triggered.
Amendment 24R, which is also in this group, would reword subsection (5). Instead of allowing Ofcom to impose price controls on Royal Mail, it would require it to impose price controls if the conditions set out in subsection (5) are satisfied. In other words, it would turn a negative into a positive.
Both those amendments are intended to ensure that competition has access to the network if the conditions spelt out are satisfied. If there is an economic bottleneck-when it comes to the final mile, that seems to be so-and a risk of abusive pricing, the regulator must be empowered to impose measures to prevent such abuses. I also want to ensure that the regulator has a level playing field as his objective. I am not sure that the Bill as drafted achieves that.
There are two other little groups of amendments-I call them groups because they would amend single subsections. I follow the example of the noble Lord, Lord Young. Amendments 24S to 24W would amend Clause 37(5), and Amendments 24AD to 24AH would amend Clause 48(5). The first subsection applies to the USP access conditions; the second is to general access conditions. Those two clauses, rather strangely, reproduce Section 84 of the Communications Act 2003, which dealt with telecoms as well as Royal Mail. Therefore, perfectly reasonably, it included certain technical considerations that were highly relevant to telecommunications but that seem less relevant when dealing with postal logistics, which involve the physical movement of mail. That creates new and unnecessary regulatory hurdles and added complication.
The amendments to both clauses would require Ofcom to consider only two factors: first, whether the access is feasible; secondly, whether it will promote effective competition in the long term. They would do that by amending those two subsections. That is all that is necessary. It would also help to create the level playing field which my noble friends and I seek. I hope that that is an objective which the Opposition can
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Viscount Eccles: My Lords, we have had two very interesting contributions-I am tempted to call them Second Reading speeches, but perhaps that is unkind or does not fully take into account where the argument has reached. They have been an overall look at where we are. We should remember, first, that the price of stamps went up substantially on 4 April. We should not forget that in all these discussions.
Secondly, we have talked a lot about regulation. Regulation is indeed central, and we have concluded across the House-the Government have certainly concluded-that Postcomm, for one reason or another, has not understood the situation correctly. I think that that is the right way to put it. I cite Mr Tim Brown's opening to Postcomm's February report:
"There is consensus that deregulating where it is safe to do so is the correct approach and that change is urgently needed".
That is a pretty comprehensive sentence for a regulator who has been regulating for the past six years. Then there are some qualifications, but he continues:
"That said, all interested parties acknowledge that the current framework is not fit for purpose".
I do not think that you could go further than that. In his final paragraph, he concludes by saying two things:
"The 2012 price control may look and feel very different to the current price control developed in 2006 ... Regardless of the ongoing Parliamentary process, the coming months will be crucial in putting in place the building blocks for a new and sustainable regulatory framework".
In the ongoing conversations between Postcomm and Ofcom, it is pretty clear that Postcomm has come to the conclusion that it does not know what is going on. I make that comment with all seriousness. I think the reason is competition.
1 pm
Motor car manufacturers assemble motor cars. Many years ago, I spent some time in Dagenham in the Ford Motor Company's engine block foundry-not a place I would recommend then or now. Motor car manufacturers, in general, do not make their own engines. They rely on subcontractors. In this case, we do not have true competition, except, of course, those postal operators that operate end-to-end; that is to say, the courier on his bicycle who goes to one firm of solicitors in the City of London and picks up some documents that are to be delivered to another firm of solicitors in London. That is end-to-end, but the 12 operators who have access agreements into Royal Mail are not end-to-end. They cannot be end-to-end because they do not do what we rather loosely call the final
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The problem is created by the price of the stamps, which is the overall ceiling that sets all the commercial negotiations that go on between Royal Mail and the 12 companies that have access agreements. I have nothing against access agreements. Indeed, if I was in the rather unlikely position of running Royal Mail, I would quite welcome other people coming in to collect bulk mail and sort it out. After all, every envelope from Barclays Bank, for example, is printed very neatly and the post code is in exactly the same position, and I am sure you can get a machine that sorts out Barclays Bank mail a lot quicker than it would be able to sort out the things that come from my two granddaughters who do not write terribly well yet.
For my money, we are not looking at a truly competitive situation at all. We are looking at a complex monopoly because everybody who has an access agreement has an interest in common with the so-called final delivery and an interest in the fact that within this complex monopoly Royal Mail has to pick up all the difficult things. It has to provide the service to the blind or partially sighted. It has to do things that other postal operators are not required to do. I have no objection to that. It seems entirely sensible because if you were running Royal Mail and you could not raise any capital and therefore could not buy the machinery that you would like-incidentally, the most important machinery for Royal Mail to buy is sequencing machinery that sets out the way in which the final delivery should be most economically made-if you were looking at very complicated sorting arrangements, I think you would be quite pleased that TNT or UK Mail came in and put in the capital. After all, we have been spending a lot of time talking about how Royal Mail gets capital into its business. All this brings one back to saying that whatever the regulatory system, there must be a margin in the final delivery. It is crazy not to make sure that there is a margin in the final delivery.
When people talk, as some other operators do, about Royal Mail's inefficiency, I do not think that the delivery to 28 million destinations, the collection and the other matters that are in the service and are in Clauses 30, 31 and 32 are inefficient at that part of the market. This is where I come from. This is my version of the level playing field spoken about by my noble friend Lord Jenkin. I think that at the moment there has not been adequate analysis of how you create a level playing field. It is quite clear that Postcomm has not succeeded. Within what it has done-the £53 million and the £10 million a year cost of Postcomm are relevant here-understanding Royal Mail's costs remains one of its objectives. I think it is not worth trying to understand the costs of any business as big as Royal Mail and, indeed, the costs of TNT or UK Mail, in that detail. Many years ago, I was a member of the Monopolies and Mergers Commission. When we looked into competitive circumstances, we did not spend a lot of time on costs. We spent our time on prices and on return on capital. We looked at the prices being charged and at the return to the people who were charging them.
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I revert to something else which I think is another market. I could go back to motor cars. What would happen if there was a complaints system for the suppliers of all the components to motor car manufacturers about unfair competition? I should think that the Ford Motor Company would never be out of the courts. The way it treated me when I was a supplier of motor car parts was a complete disgrace. I could make a wonderful argument about how disgraceful it was, but we did not go to law because it was not worth it and we did not have a regulator.
That leads me to my final point before talking very briefly about my amendments, which are only an opening shot to try to get us to think about this matter. Why are we regulating at all? If we set the price of the stamps, look at the returns being made, have parity of information coming to Ofcom from the Royal Mail and the other postal operators and if the auditors are signing off accounts in a proper way so that we can see the results of these operators and their return on capital, what are we doing? When you come down to the bottom line, we are carrying out a social function. We are trying to perfect, quite correctly, a universal service for social reasons, not only for economic or business reasons. Therefore, in looking at this regulation and remembering that we have been assured that it will be light-touch, I ask that we consider how light much of the regulation may-happily, the word "may" is used a lot in the Bill about Ofcom-turn out to be. I hope that Royal Mail becomes a private company by way of an offer of shares-an IPO-because when all is said and done, the most likely person to offer to come into Royal Mail as a shareholder at the moment is one of the people with an access agreement-one of the "competitors".
All that my amendments are intended to do is to draw attention to the costing position, not in order to say that it should be made more onerous, but to start a discussion about why we are bothered about the detail of costs. It takes you into huge arguments about whether there is cross-subsidisation and one thing and another. Royal Mail is to be required to provide certain information. I pick up the point made by my noble friend Lord Jenkin about who pays. It is not in the amendments, but I agree with his suggestion. Why is it not right for a parity of information to be available to Ofcom from all the other postal operators so that if you really want to see what is going on, at least you see the whole picture and do not concentrate on what has been concentrated on so far, which is that it is only Royal Mail that should be required to do these things because it appears to have a monopoly-in my submission there is no monopoly power in the final mile-and to be inefficient. I think that is a very hard judgment in a sharply declining market with no money.
My level playing field is to make the suggestion that the Government go back and have one more real thought about what this market is about. They cannot get the correct advice from Postcomm-that is very clear-and it is a bit soon to get it from Ofcom, so it really will have to come out of their own internal resources. When they come to that conclusion, they will want to alter this Bill quite substantially between Committee and Report.
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Baroness Dean of Thornton-le-Fylde: My Lords, Amendment 24PB, which stands in my name and that of my noble friend Lord Brooke of Alverthorpe, would insert a new clause related to the indebtedness of a potential universal service provider. In following the Bill's progress, it has become clear to me that we have a willing seller. However, the financial model has not been revealed to us. We do not know whether it will be an IPO or some other type of financial structure. We also do not know whether there is a willing buyer; we will not know that for some time yet. We do know that it will be a regulated business, which is right. I think that many Members on this side of the Committee would identify entirely with the criticisms of Postcomm. Some of us believe that it has been positively damaging for Royal Mail services over many years and that it is completely non-commercial in its outlook.
This amendment has been drafted against a background of not knowing what the structure might be. In any sale, however, whatever the structure might be, there is a real danger that the acquirer of Royal Mail might be burdened with enormous debt. We have to consider that possibility very seriously because an overburdening of debt will threaten the viability of the new organisation, certainly in the longer term and possibly also in the shorter term. This is not a new phenomenon but is often encountered in any kind of sale or takeover. Two recent and obvious examples in the private sector come to mind-the Kraft takeover of Cadbury and the Boots takeover some time earlier.
In this case we are looking at a business that will be regulated, and there are some direct parallels. For instance, in moving to purchase BAA, Ferrovial was warned-perhaps that is too strong a word-by the Civil Aviation Authority, the aviation industry regulator, about the high level of indebtedness it would take on to implement the takeover. We all know the result. At that time, when considering its review, the CAA indicated that it might take that issue into account in reaching its decisions, which included price increases.
I should declare an interest as a member of the board of National Air Traffic Services. After its recent review of NATS, the CAA imposed on NATS a maximum debt level that would protect it from over ladening itself, a decision which was welcomed by many although not welcomed by some. It is protection for a company which is investing £150 million a year in its infrastructure and which will continue to need to do so.
Although the amendment does not require Ofcom to impose a maximum debt level, Ofcom would have to publish guidelines on how the new USP's indebtedness and valuation of assets will be calculated. As the regulator of a regulated company, Ofcom would then have to monitor the situation. If it judges that action has to be taken, this amendment will permit it to do so. It will also enable Ofcom, in publishing the regulations, to limit the debt burden that can be applied. In other words, it is a protective clause for a company that is currently wholly publicly owned but that, under the Government's current policy, probably will not be in future.
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1.15 pm
In the past few years we have seen the full extent of the problems in the banking and financial sector, where high levels of indebtedness have become a matter of concern. Many hold the view that indebtedness was a significant factor in the creation of the financial bubble, perhaps even more significant than subprime mortgages. In October 2004, a document entitled The Drivers and Public Policy Consequences of Increased Gearing was issued jointly by the Treasury and the Department of Trade and Industry-as I still call it. Way back then, there was concern about the ratcheting-up of the debt burden on companies and public bodies. The paper aimed to inform the Government and the regulators' understanding of the issues associated with increased debt financing by companies in the regulated water, energy and telecom markets-in fact, in all regulated markets. Of course it could not give such guidance to the plc world.
The paper also considered the reasons why utility companies had geared up, and outlined the possible public policy consequences of increased levels of debt financing. I should like to quote just a few of those reasons.
The paper pointed out that since the mid-1990s some organisations had moved to high gearing ratios and new financial structures, and highlighted some risks where the position could often lead to an increased risk of default. That could transfer the risk of cost or revenue shocks to consumers or, potentially, even to taxpayers. In the case of postal services, the risk would probably be transferred back to the taxpayer, which is where the burden currently lies. In the absence of shareholder pressure-again, we do not know the structure of the new organisation-there may be weaker incentives for outperformers, with bondholders primarily concerned with ensuring repayment of the interest and minimising default risk.
Another area of concern was the effect on those companies' ability to deliver the necessary investment efficiently. Some commentators also raised concerns that access to the capital markets-and I agree entirely that if any business needs new capital, it is the Post Office services-might be restricted for firms with very high gearing levels. Indeed, the Hooper report highlighted the essential requirement of substantial new investment in postal services if our universal service is to survive.
The regulators have taken some action as a result of the report. For example, BT is obligated by its licence to give the director-general of Oftel an annual undertaking that it is able adequately to fund its operations over the 25-year lifetime of its licence. It is also interesting to note that in the US-the great world of free trade-it is common for utility regulations to preclude high gearing; indeed a 60 per cent level is not unknown.
The amendment does not set a particular level, nor does it seek to insist that Ofcom should set one. It simply enables Ofcom-or whoever the regulator may be-to monitor the situation and to make it clear that, if it is concerned and needs to, it has the power to impose a limit on indebtedness. That factor could be taken into account as the Government reach their decision on model of sale. So this could be called a
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Baroness Wheatcroft: My Lords, I share the concerns of the noble Baroness, Lady Dean of Thornton-le-Fylde. Overgearing is as bad for companies as it is for Governments, and it is something we need to be aware of as we move towards selling Royal Mail. I would favour an initial public offering, but that in itself is no protection against what might come afterwards, so this is something we should look at. But first we have to have something that is saleable, which in its current form Royal Mail most certainly is not. Protecting the interests of the users of the postal services must mean protecting the universal service; that is paramount. Clause 28 gives Ofcom an overriding duty to do just that, to secure the universal service, and that is why my noble friend Lord Jenkin and I have tabled Amendment 24Q because, in our view, if there is an overriding duty then the triple lock imposed by Clause 37(4) is unnecessary if we are to stimulate the competition that eventually we would like to see.
Competition, as we have heard, depends first on having a level playing field, as otherwise fair competition is completely out of the question. Competition is in the interests of consumers and it is what in the long term our amendment would help to achieve. But, at the moment, the universal service is in jeopardy because Royal Mail's financial position is indeed precarious. To some extent the company has brought this fate upon itself. Successive managements have failed to achieve the efficiencies that they knew should have been brought about, and that in the face of a market becoming ever more dangerous. However, the current management is well aware of what needs to be done and, I believe, is fully capable of doing it as long as it is given the tools. It has the will, but it does not have the right regulatory regime.
I agree with the noble Lord, Lord Young of Norwood Green, about the problems with the current access arrangements. Royal Mail needs much more freedom to decide on its products and its prices. Competition has to be on that level playing field. There are now many private postal operators who are free to tailor their products and their prices to what the market wants. They can cherry pick, but Royal Mail is prohibited from giving itself that freedom. Ofcom, when it takes over the regulation of Royal Mail from Postcomm, needs to impose a different and very much lighter regulatory regime. As we have heard, Postcomm has not been the most successful of regulators, but it has put forward among the options going ahead that of removing its ability to set prices and leaving Royal Mail free to set its own prices, with a right of appeal being in place for those who feel that it is not playing fair. The competition would have the ultimate answer.
If Royal Mail is to have a viable future and appeal to investors, it needs to be able to compete. It should not be as expensive for the company as the current regulatory regime, which is expensive in two ways: it forbids Royal Mail to compete with the many private operators, and it gives Royal Mail a huge bill-£53 million in the current year, as we have heard. In the interests of fair competition, we really should consider what my
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Baroness Kramer: My Lords, I hesitate to rise on this occasion because there have been so many detailed, coherent and powerful speeches, but perhaps I may make two brief comments. I would ask the Minister, as he looks at the potential amendments to Clause 28, to recognise that it is an extraordinarily powerful clause. Everyone in this House is concerned that Royal Mail should have an effective future and that we should have a secure universal service provider. Moreover, everyone in this House is aware that Postcomm in its approach to regulation has played a role-it has not been the only factor but it is certainly a critical one-in bringing Royal Mail, frankly, to its financial knees. If I were a potential investor I would ask myself how that regulatory environment was going to change because I certainly would not want to put my head into the same noose that Royal Mail has had to face for the past decade or so. Clause 28 therefore signals a fundamental change in the outlook, priorities and focus for Ofcom, particularly by for once looking for financial sustainability. So I urge the Minister, in looking at a variety of complex and interwoven evidence, to continue to recognise the importance of sustaining a balance between competition and the future of the universal service provider. But let us not lose what this clause has finally brought to the picture.
My final brief comment is that concerns have been expressed around the Committee that one of the responses Ofcom might make to financial pressures in the universal service provider would be to restrict the scope of the universal service. It seems to me that that would be very hard to do, given the language used in this clause and in Clause 30. I know that it was only meant to get the debate going, but I am rather taken with Amendment 24H tabled by the noble Viscount, Lord Eccles, which would require paying attention to the underlying costings. That would drive in the direction of recognising that price might be the mechanism to use to ensure Royal Mail's financial future rather than reducing the scope of the USP.
Lord Brooke of Alverthorpe: My Lords, I shall speak briefly in support of Amendment 24PB, which has already been spoken to by my noble friend Lady Dean. I await the Minister's response with interest because that will give an indication of the Government's view not just on how they will tackle this particular piece of legislation, but their more general view on the problems we face in many other areas of society related to indebtedness. It will also be an indication of whether we are learning the lessons of history. I go back to NATS which, when it was privatised, was very highly geared indeed. My old friend the former Chancellor and then Prime Minister was even prepared to contemplate a gearing of 129 per cent, but in the event it was limited to 110 per cent, which was still an extraordinarily high gearing to bear for the airlines group that bought the major part of the company.
We privatised in order to bring in capital, to bring in to a degree the economic disciplines of the private sector, and to bring in private sector management that
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BAA was purchased on the basis of very high gearing indeed, and there is a big question mark over the extent to which the capital that went in has been used to its fullest effect. We know perfectly well that those who suffered from the poor performance of BAA just before Christmas because of a lack of capital investment in equipment will feel that BAA did not deliver as it should have done. Instead, BAA has spent much of its time trying to make profits to repay the capital it borrowed at very high interest rates. When we come to changing the status of Royal Mail, there is no way that we should be looking at a company that is very highly geared.
The noble Baroness, Lady Dean, has made in this amendment a modest attempt-it is not very prescriptive-to put right the wrongs that we have experienced in the past. When we move to talk in a different context about the private sector, perhaps these are the frameworks that we should lay down for changes there, too. The Americans certainly know that, when utilities have been privatised, there should not be gearings of more than 60 per cent. I hope that we can look for similar changes in this legislation.
1.30 pm
Lord Young of Norwood Green: My Lords, I shall comment on some of the other amendments and points that have been made in this debate, which the noble Baroness, Lady Kramer, was right to say has been rather wide-ranging and complex. Perhaps such a large group of amendments has both benefits and disbenefits.
I was interested in the assessment of the noble Lord, Lord Jenkin, of the cost of regulation and his points about regulators paying. He said that we should create a level playing field. That seems a difficult objective to achieve, given that, as the noble Baroness, Lady Wheatcroft, candidly observed, competitors can cherry pick. We have seen that under the current regulations they go where it is easiest to operate, which is usually in city areas. We do not see them clustering around the rural areas, because, as we know from the correspondence that was helpfully sent to us by the noble Baroness, Lady Wilcox, the cost of doing so is prohibitive, and there are special circumstances in London which increase their costs-for example, wages.
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Our amendments would ensure that Ofcom protects the universal service obligation and the universal service provider. We want to make sure that Royal Mail can fairly account for all the costs-I stress, all the costs-of providing that universal service. The noble Lord, Lord Jenkin, provided an interesting figure for the cost of regulation in his proposal that the competitors should pick up some of it. It is an interesting approach.
We are opposed to Amendment 24Q in the name of the noble Lord and the noble Baroness, Lady Wheatcroft, because the imposition of an access condition here is premised on market power. In reality, that applies only to Royal Mail. By excluding the notion of efficiency as a criterion for access, the amendment would exclude the need for Royal Mail to secure its network while providing access. If it is inefficient for Royal Mail, the terms of access are unfair. The amendment would allow Ofcom, in theory at least, to endorse inefficient and therefore unfair access to Royal Mail.
I said at the outset that I was interested in Amendment 24H in the name of the noble Viscount, Lord Eccles, and moved by him with a focus on the costing approach. If it is the intention of the amendment, as I think it is, to ensure that Ofcom has an obligation to allow the universal service provider to cover the proper costs of the universal service, it would be welcome. If, however, the minimum standards for the universal service obligation have to be subject to a set of costing systems, we could be worried about whether it would undermine the force of the obligation to maintain the universal service standards as they are.
It seems that we are all united in trying to ensure that we preserve the universal service and the universal service provider. Where there is an important difference of opinion is how competition should be introduced. We have tried to ensure in our amendments that Ofcom takes into account the true and total cost of providing that universal service.
Amendment 24PB, spoken to by the noble Baroness, Lady Wheatcroft, and my noble friends Lady Dean and Lord Brooke, is an important probing amendment. We will listen intently to what the Minister says on this subject.
Lord Flight: My Lords, we have had an extremely important discussion of the Bill today. The real logic of what I believe the noble Lord, Lord Jenkin, the noble Baroness, Lady Wheatcroft, and in particular the noble Viscount, Lord Eccles, have drawn to our attention is that there is no need to regulate the monopoly issue-the Competition Commission can do that. There is not a real monopoly when you look at it; you are just cluttering up the business with an unnecessary cost. The issue is whether a regulator is needed to regulate the universal service. I can see some argument for that being the case, although, in principle, if provision of the universal service is written into the legislation and, as it were, into the charter, whether regulation is needed to make sure that it is delivered, or whether it can be done by another method, is a question. However, in terms of the competition aspect, I simply do not see any realistic case for the need for regulators to monitor it.
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Viscount Eccles: You could run Royal Mail on the basis of the universal service only. That is to say, if you were being properly paid by whoever was using it, you could outsource-I use that word advisedly-every form of sorting except probably the very final sort where you sequence the delivery. You could write a PhD thesis on whether a final-delivery universal service provider should have to sort mail. My answer to that question would be no, it should not have to. It would have to collect it, because that is in the universal service, but it could immediately deliver it to somebody else who did all the sorting. That of course is what is happening with the people who have access agreements. In that way, you would reduce quite dramatically the amount of capital you needed and you might also establish a profitable business which would be attractive to the market.
Lord Christopher: My Lords, I had not intended to speak, but some of the comments made require a response. The noble Lord, Lord Flight, put his finger on one point: we have had much discussion about competition for the universal service when it does not exist and, in my own judgment, never will. However, you need regulation, because science moves on and who knows what might happen?
I was interested in the intervention of the noble Viscount, Lord Eccles, because I was going to use as a not-too-strong illustration the supermarkets. It is very interesting that they have not come together to provide a universal delivery service; they all do it on their own. Whether they ever will, I do not know, but I think that people would be very worried if we had the system which the noble Viscount, Lord Eccles, has just suggested, because the delivery of one's letter in 24 hours would disappear and it would become increasingly difficult to discover who was responsible for it.
I shall move on to something more practical; the low cost of postage in this country, as has been mentioned. A couple of days ago, the Telegraph ran one of its happy headlines about the increase in the price of postage, and now utterly unrealistic correspondence is going on. I should like to put the differences on record. Despite the increase that is about to take place, we are still the second cheapest in Europe and the only country which has a mandatory access service. No other country in Europe has picked that up-not one. The new price of posting a first-class letter in the UK is to be 46p as compared with the following countries, none of which has an access requirement. In Denmark it costs 64p; in Germany 48p; in Belgium 51p; in the Netherlands 38p; in Sweden 58p; in France 50p; in Austria 48p; and in Spain, at the bottom, 30p, which will come as no surprise to anyone who has had experience of its postal service. Whichever company ultimately buys Royal Mail, it will seek to make a profit, so how can we conceivably expect a price structure to exist unless we have some regulation over it? We should be realistic, not only with ourselves but with the country, about the fact that there will continue to be increases in the price of mail in this country.
Lord De Mauley: My Lords, the essence of this large group of amendments concerns the balance between protecting the universal service on the one hand and allowing competition on the other. We agree that the
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The Government's policy for the mail market is clear: competition is beneficial but must not undermine the universal service. Securing the universal service is therefore the overarching objective of the Bill. Clause 28, which gives Ofcom its primary duties for postal services, and Clauses 37 and 38, which relate to the access regime, are fundamentally important to ensuring that that objective is met.
Amendment 24GC seeks to remove subsection (3) of Clause 28, which ensures that, in performing its primary duty, Ofcom must have regard to the need for the provision of the universal postal service to be both financially sustainable and efficient. It is vital that the Bill ensures that Ofcom considers the impact of all that it does in regulating the market on the long-term financial sustainability of the universal service. None of us would want Ofcom to support the development of the market in a way that would undermine the long-term viability of the universal service. Furthermore, it is common ground that Royal Mail needs to modernise and to become ever more efficient. It is therefore also important that the financial sustainability requirement is balanced by a duty to have regard to the need for efficiency. Clause 28(3) is therefore a vital part of the new regulatory framework that we are creating.
The noble Lord, Lord Young, suggested that there will be pressure to remove parts of the universal service that are not efficient. The requirements to have regard to both financial sustainability and efficiency apply to the universal service as a whole; it is both inevitable and in the nature of any universal service that some parts of it will be profitable and will need to cross-subsidise those parts that are not. There is nothing in the approach set out in the Bill that could or would lead to every individual component of the universal service needing to be profitable in itself-although, obviously, Royal Mail would hope that they could be. The Bill seeks to ensure that the universal service as a whole is financially sustainable and that it is delivered efficiently to the requirements and standards set.
1.45 pm
It is clear that there exists a strong view in your Lordships' House-to a large degree, it is shared by many in the other place-that a greater emphasis needs to be placed on the security of the universal service. This is absolutely in line with the Government's primary objective to secure a universal postal service for us all. We have always been clear that the financial sustainability of Royal Mail is a vital part of the overall picture. This was explicit in the Government's policy statement that accompanied the publication of the Bill. It said:
"The Government is clear that Royal Mail needs to be in a sustainable financial position to ensure that it has the capacity to modernise, innovate and grow".
While I cannot support Amendment 24GC for the reasons that I have explained, I have listened carefully to these general concerns. I therefore give your Lordships a commitment that we will revisit this area with the aim of bringing back proposals on Report to strengthen
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I fully support the sentiments underpinning Amendment 24H in the name of my noble friend Lord Eccles. He has already made a number of thoughtful contributions to our discussions and I thank him for raising this important matter. His amendment addresses an issue that goes right to the heart of the Bill in terms of ensuring that the regulatory regime accurately reflects the costs associated with delivering the universal service. When he explained it, I understood him to say that consideration of cost was less important than price, but I shall address the specifics of costing. This is important for the following reasons: first, cost is important to assist in monitoring the universal service; secondly, it helps to set appropriate prices for users; and, thirdly, it ensures that any access price controls do not result in an unfair subsidy between operators, which is an issue that I shall address in more detail in a moment.
Clause 38 allows Ofcom to impose USP accounting conditions, including costing systems, to ensure cost transparency and accounting separation. The impact of Amendment 24H-I acknowledge that my noble friend has clarified that it is a probing amendment-would be to create an additional duty on Ofcom to have regard to the need to establish costing systems to calculate the costs of providing the minimum requirements of the universal service obligation. However, as I have said, Ofcom already has the power to require costing systems under Clause 38, and one of the primary uses of these powers will be to determine the cost of providing the universal service.
I agree with my noble friend that we all want to avoid a situation where unnecessary regulation is placed on the universal service provider. The Bill as drafted allows Ofcom to impose accounting conditions on the USP if it deems them necessary; it does not require it to do so in each and every circumstance. I may well not have adequately addressed my noble friend's key points. I shall read carefully what he said and, if necessary, my already promised letter to him will no doubt expand.
I am grateful to the noble Baroness, Lady Dean, and the noble Lord, Lord Brooke of Alverthorpe, for tabling Amendment 24PB, as it concerns an extremely important issue. It would give Ofcom the power to limit the indebtedness of the universal service provider in relation to the overall value of the company. The noble Lords speak from great experience on this issue. However, I reassure them that Ofcom is well equipped to tackle the risk of unsustainable levels of debt within the universal service provider. Clause 28, which we have just been discussing, ensures that Ofcom must carry out all its functions in relation to post that it considers will secure the provision of the universal service. As I have signalled, we will look again at the Bill to ensure that the universal service is sufficiently protected and that proper regard is paid to the financial sustainability of the universal service provider.
On top of this, Ofcom already has the power to impose designated USP conditions through Clause 35, which could include conditions akin to the condition 16 requirement in Royal Mail's existing licence. That does not allow Royal Mail to do anything that,
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to carry on its business. As I say, we will look again at this area. With that assurance, I hope that the noble Baroness, Lady Dean, and the noble Lord, Lord Brooke, will not feel that they need to press Amendment 24PB.
The remaining amendments in this group all concern the access regime in the Bill. Before I turn to the specific amendments, it might be helpful to say a few words about the clauses in question-Clauses 37 and 48. We are clear that competition, by providing customers with greater choice, can help to support a vibrant postal service in the digital age by encouraging the postal sector to develop new products and become more efficient. The key is to deliver the benefits of competition to postal users but to ensure that it does not undermine the universal service on which we all depend. This is a primary focus of the Bill, delivered in large part by Clauses 37 and 48, which create a fair and transparent basis for access to the postal network.
Clause 37 sets out the key principles of the new universal service provider access regime. It ensures that Ofcom can mandate access to the network of the USP only if to do so is consistent with its overarching duty, set out in Clause 28, to secure the provision of the universal service and if so doing meets the three tests of promoting efficiency, promoting effective competition and significantly benefitting users of postal services. This is a change from the 2009 Bill, which required that any one of these three tests be met. Coupled with the requirement that any regulation imposed must be objectively justifiable, non-discriminatory, proportionate and transparent, this will ensure that regulation is focused on economic bottlenecks, such as access to Royal Mail's "final mile" delivery network.
Clause 37 also allows Ofcom to cap access prices where they are too high or to prevent anti-competitive action by Royal Mail towards access operators. To ensure that USP access conditions are proportionate, Ofcom must take account of a number of factors when imposing obligations under an access condition. These include technical and economic viability, feasibility, investment made by the USP, the need to secure effective competition in the long term and intellectual property rights. Clause 48, which deals with general access conditions, mirrors Clause 37 closely. One key difference is that the clause applies to all postal operators, including the USP, whereas Clause 37 is concerned purely with access to the USP's network.
Amendments 24ACA and 24WA to 24WG, tabled by my noble friend Lord Eccles, relate to the access regime. Amendment 24ACA would enable Ofcom to request information from access competitors on which Ofcom could base its access terms and conditions. I hope to reassure my noble friend that the Bill already provides Ofcom with the powers to do just this through Clauses 53 and 38. Clause 53 and specifically Schedule 8 set out Ofcom's powers to require information from postal operators. That is supplemented by Clause 38, which gives Ofcom the power to impose accounting conditions in order to achieve cost transparency and accounting separation.
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Amendments 24WA to 24WG to Schedule 3 would make some technical changes to exactly how the access conditions would operate. The key element of these amendments would be to apply access conditions to those operators not only giving access but also seeking it. I have listened carefully to my noble friend's arguments and, again, hope to persuade him that these matters are already catered for in the Bill. The regulatory framework of the Bill works by imposing regulatory conditions on operators giving that access. Through Clause 37, Ofcom has the power, subject to certain tests being met, to impose access to the universal service provider's network and to set prices for such access. Through Clause 48, Ofcom also has the power to impose access to other postal operators' networks. Through Clause 40 conditions, Ofcom has powers to regulate those operators obtaining access, which it would use if it deemed it necessary. As such, I hope that my noble friend will accept that what he seeks to achieve is already adequately covered and that he will not feel it necessary to press his amendments.
Amendments 24PD, 24PE, 24QA and 24RA, tabled by the noble Lord, Lord Young, also concern the access regime. The key feature of these amendments is that they would essentially provide for access to be granted only on the basis of a commercial negotiation. Their effect would be hugely to reduce-even, we fear, to eliminate-Ofcom's ability to mandate access at all. I understand the reasoning behind the amendments-ensuring greater security for the universal service. However, I am surprised that the noble Lord seems to have somewhat departed from his party's relatively recent position on the access regime. The Postal Services Bill that was bought to this House in 2009 by the last Government, and in which the noble Lord, Lord Young, played such a prominent role, contained an access regime that many argued favoured competitors to Royal Mail to too great an extent. These amendments could even lead to the end of any competition at all. As I have said, the access regime in this Bill has already been strengthened considerably in comparison to that in the 2009 Bill. I believe that the access regime here strikes the right balance.
The noble Lord, Lord Young, stated that no other country requires an access regime. While it is the case that no other country has the same access regime as this country, it is not the case that no other country requires access to the postal network. Everyone accepts that the current regulatory regime is not working-I do not think that there is any argument there-but access regulation is not a bad thing. It has been beneficial to the UK's postal market. Moreover, all member states are now required to enable access to their postal infrastructure where necessary to protect consumers or promote effective competition. Having said all that, I have committed to look again at Ofcom's duties with a view to bringing back proposals to strengthen the protection for the universal service. Given that commitment, I hope that the noble Lord, Lord Young, will not feel it necessary to press his amendments.
Amendments 24Q to 24W and 24AD to 24AH, tabled by my noble friends Lord Jenkin, Lord Skelmersdale and Lady Wheatcroft, would, as my noble friend Lord Jenkin said, pull the access clauses
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Secondly, the amendments would also oblige Ofcom to impose price controls in certain circumstances, rather than allowing it to do so. This runs counter to the general philosophy of the Bill, which allows Ofcom the discretion to utilise regulation in the way that it considers most appropriate to meet its statutory duties. This is also in line with the Government's position that regulation should not be imposed on business unless necessary.
Thirdly, in deleting paragraphs (a), (c) and (e) from Clause 37(8), and the equivalent paragraphs from Clause 48, the amendments would remove some important criteria that we believe Ofcom should take into account when deciding what obligations to impose in an access condition. Specifically, the amendments would mean that Ofcom did not have to take into account the following criteria: the viability of installing and using facilities that would make the proposed access unnecessary; relevant investment made by the operator from which access is mandated; and any intellectual property rights. The Government consider that it is only right that Ofcom has those criteria in mind when deciding what obligations to impose in an access condition. Whether it is viable to utilise facilities that would render the request for access unnecessary is important to an assessment of the proportionality of any obligation. How to price access to ensure that investment and intellectual property rights are taken into account is clearly an important consideration. It is only right that companies that have invested in equipment and processes for developing intellectual property should be able to earn a reasonable rate of return on those investments.
My noble friend Lord Jenkin asked why only Royal Mail pays towards the costs of Postcomm. I assure him that the figure is only £8.9 million and not the £53 million that was suggested. I reassure him that under the current regime-
Lord Jenkin of Roding: I was not referring to the cost of Postcomm. I was referring to the cost that fell on the Royal Mail from complying with the regulatory requirements of Postcomm. That is the point that was made to me. I was astonished at the size of the figure, but I accepted what was being said.
Lord De Mauley: My Lords, I am most grateful to my noble friend for his clarification. I hope that I can reassure him that under the current regime, under the Postal Services Act 2000, any operators providing
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The debate that we have heard today, for which I thank noble Lords on all sides for their helpful and knowledgeable contributions, demonstrates that a case can be made to move the access regime in either direction. However, I strongly believe that the provisions in the Bill set the right framework for access-one that supports competition but not at the expense of the universal service. I am of the firm view that Clauses 37 and 48 strike the right balance and, when combined with other powers in the Bill, give Ofcom the tools to ensure a better and more effective access regime. I hope, therefore, that after this rather lengthy explanation, the noble Lord will feel able to withdraw his amendment.
Lord Young of Norwood Green: As a matter of historical accuracy, I did not play a prominent part in dealing with the previous Bill. That was done by my noble friends Lord Mandelson and Lord Tunnicliffe, although I was part of the Government.
Lord De Mauley: I withdraw my remarks.
Lord Young of Norwood Green: I felt that the Minister's comments were helpful. He has agreed to take away some issues, which would be useful. He stressed the importance of ensuring that competition does not undermine the universal service provision or the role of the universal service provider. It is important to hear those remarks and to have them put on the record. I also welcome the response that he made to the amendment spoken to by my noble friend Lord Brooke. Reserving the right to look carefully at the record and at any further correspondence from the Minister, as well as amendments that may come on Report, I beg leave to withdraw the amendment.
Lord Clarke of Hampstead: I start by declaring my usual interests. From the age of 14, as a telegraph boy, I have been directly associated with the Post Office and am very proud to have that association.
In the past 24 hours, I have given a lot of care to the idea of moving this amendment separately, upsetting some of my friends, who wanted me to leave it in the group. The purpose of taking it out of the group is to focus on one of the most important things that the new Royal Mail will have to face, which was mentioned in the last debate at length. Incidentally, the last debate has given me some comfort because, after 10 years of criticising Postcomm with very little or no support from my own Government and my own friends, I heard an analysis from the noble Viscount, Lord Eccles, who put his finger right on it. It has been a con from the start, and those of us who said so 10 years ago can
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I will not be too long. Given the timing of this debate and its wide and, I think, unwieldy groupings, I know that there is a desire among noble Lords to get off for the Recess in good time, so I will not go over the history too much, but I will say one or two things. However, some people will find it difficult to understand why, with all this complexity that we have just been dealing with, we are proposing legislation at the fag-end of a term, when people are going off. I find that a little bit trying-but never mind, it has happened.
I would be failing in my responsibilities as a human being and my conscience if I did not stand up and speak about this question of profitability of the new Royal Mail. A number of friends have said that it is not necessary, but what is at issue here is the regulator and the criteria that Ofcom will have to apply to looking at things like tariffs and at what surrounds the making up of a price structure for competitors and for access agreements to work. Of course they are necessary to make sure that we have the universal service. I think every Member who has spoken would agree that it is an important part of the fabric of our society to maintain the principles not only of Rowland Hill but of the 300 years of Post Office service since Queen Anne's time.
I have every confidence that Ofcom will do a good job, although it would not take much to do better than Postcomm. In fact, this is not a new thought. On 9 February two years ago I wrote to Mr Brown, the chief executive of Postcomm, who had written a nice letter to me asking a couple of things. I told him,
- "Postcomm is an organisation that gives me little confidence that its existence was ever necessary. I may be the only person who believes that the transfer of postal regulation to Ofcom is a step in the right direction".
I welcomed the change then and I welcome it now, providing that Ofcom is given the right tools to do the job that it is going to be charged with. Part of that is dealt with in my amendment, which says that the question of profitability must be in the minds of the people considering these things. It is no good expecting Royal Mail to do the work contained in the universal service obligation if it is not able to price things the right way. The price structure must allow profitability. I spent too long in my job trying to get the Post Office to pay its dues to the pension fund. There was a 12-year holiday, when it did not pay anything into the pension fund-and we wonder why it got into a state in the end-but that is another story.
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