POST OFFICE (COMPENSATION)

HC Deb 02 December 1974 vol 882 cc1259-89

10.0 p.m.

The Under-Secretary of State for Industry (Mr. Gregor Mackenzie)

I beg to move, That the Compensation for Limitation of Prices (Post Office) Order 1974, a draft of which was laid before this House on 29th October, be approved. This order—

Mr. John Stanley (Tonbridge and Malling)

On a point of order, Mr. Speaker. We are in an unhappy position. The order has been considered by the Select Committee on Statutory Instruments, but although the Committee has produced its report, which is available to hon. Members, the minutes of oral and written evidence on which it is based are not available to hon. Members at this moment. I appreciate that this is no responsibility of yours, but could you advise the House as to what is the status of the proof of the minutes of oral evidence which has been made available to some hon. Members by courtesy of the Clerk to the Select Committee for purposes of debate?

Mr. Speaker

As the hon. Gentleman rightly says, it is not a matter for me. Therefore, my advice is that the piece of paper he has is worth exactly what he thinks it is worth.

Mr. Mackenzie

I appreciate what the hon. Member for Tonbridge and Mailing (Mr. Stanley) has said. I was only made aware of the situation a short while ago. I apologise to the House.

I take this opportunity of welcoming the hon. Member for Henley (Mr. Heseltine) to what we used to regard as the "Post Office club". This is my first ever effort as a member of the Government in a Post Office debate. I made many speeches from the Opposition as a spokesman on Post Office matters, and thoroughly enjoyed doing so over the years. I can only hope that the hon. Gentleman will, in the fullness of time, become a Post Office man, like my right hon. Friend the Secretary of State for Industry and myself, and will spend many happy years in which he can make speeches against us on these matters.

This order is made under Section 2 of the Statutory Corporations (Financial Provisions) Act 1974. I think it would be helpful to the House if I were to explain first of all how the order fits in with the Act and with the other orders which have already been considered, and then to describe some of the background to the present order.

Section 2 of the parent Act, which the hon. Gentleman knows well, provides that the appropriate Minister may make by statutory instrument an order in the case of a number of bodies corporate, including the Post Office, for the purpose of compensating them in respect of financial losses which may be or have been incurred by them, in either of the financial years 1973–74 and 1974–75, in consequence of their compliance with the national policy relating to limitation of prices.

This order deals only with the Post Office and only with the year 1973–74, and proposes the payment of £123,567,000 by way of that compensation. My right hon. Friend's powers are limited by the Act in the following ways: the amount in the order shall not exceed the Post Office's deficit on revenue account in 1973–74; the order may only be made after consultation with the Post Office and with the consent of the Treasury; and the aggregate amount of all orders made under this section of the Act is limited to £400 million.

There is also a special provision affecting the Post Office, and that is that reference to financial loss incurred and to a deficit on revenue account shall be construed as if each branch of the Post Office's business were taken on its own.

I am sorry to have wearied the House with that explanation, but I thought it wise to spell out the statutory background, for two reasons. The first is to remind the House of the legislation which was passed. The House has seen fit to provide for the payment to nationalised industries of compensation for price restraint in 1973–74, and my right hon. Friend is now simply complying with that desire in making this order. On the other hand, the parent Act does not provide for compensation to exceed the deficit in 1973–74. It was suggested in the debates on the parent Act that compensation should be on the basis of revenue forgone, which in the case of some industries would have been greater than the deficits, but in the event the legislation did not permit this in the case of 1973–74. The other reason for referring in detail to the provisions of the parent Act is to remind the House of the duties and discretion given to my right hon. Friend, and to explain how he has fulfilled the various requirements.

One point I should like to deal with straight away concerns the provision that the compensation shall not exceed the deficit. The Joint Committee on Statutory Instruments has advised that the wording of the order should make it clear that this provision has been complied with. That is, I think, a matter of judgment and opinion; the parent Act merely stipulates that compensation shall not, in fact, exceed the deficit, and is silent on how this point shall be dealt with before the House. However, in view of the Joint Committee's advice, let me state here and now that the amount specified in this order does not exceed the Post Office's deficit on revenue account for 1973–74, and, further, that the amount calculated in respect of each of the Post Office businesses which is to receive compensation does not exceed the deficit of the business in question. I think that all of us present tonight know that national policy has played a very major part in limiting prices and that the Post Office has complied with its limitations on prices over the period concerned.

During the financial year in question statutory price controls were in force throughout, all of which applied to the Post Office. In April 1973 the statutory price freeze was replaced by the stage 2 Price Code, which in turn was replaced by the stage 3 code before the end of the year. Under stage 2 and stage 3 the Post Office businesses were permitted to increase prices to contain their deficits to the 1972–73 level, but this was subject to the power of Ministers to cut the increases back to those necessary to pass on increases in allowable costs since September 1972.

However, in looking at the effect of price restraint in 1973–74 we should not concern ourselves primarily with events which took place in that year. The deficit of a business in a given year is determined by a number of factors. One is, of course, the cost increase incurred in that year as a result either of the expansion of the services or of increased pay and price levels in the business. This may be offset by increases in income earned from business expansion or from higher selling prices. But even if all the cost increases which arise in the year are passed on at once in higher prices, if the business has started the year in deficit further price increases are necessary to eliminate the inherited deficit. The Post Office entered 1973–74 with an inherited deficit, as a result of price restraint policies in earlier years. There was, for example, the price freeze imposed in November 1972, and this followed a continuous period of price restraint for nationalised industries under the CBI initiative which began in July 1971. Even before then the Post Office had been discouraged by the Government from raising prices on the postal side to the levels which would have been necessary if it was to meet its financial target.

Thus it was that in 1971–72, the first year of the CBI initiative, although the retail price index rose by 6.3 per cent., postal charges went up by only 5 per cent. and telecommunications charges rose by only 2 per cent. As a result, the postal business incurred a deficit of £12 million, while the telecommunications business saw its profits reduced from £94 million to £58 million. In the following year, 1972–73, although retail prices went up by 9.2 per cent., telecommunications prices went up by only 3 per cent. and postal charges did not go up at all. As a result, the Post Office recorded its first overall deficit since 1956, amounting to £64 million. Of that sum, £10 million was incurred on the telecommunications side and £43 million on the postal side, the balance being accounted for by the Giro and remittance services.

Mr. John Page (Harrow, West)

The hon. Gentleman referred to telecommunications prices going up by 3 per cent. overall. Does that include the capital charges for installations?

Mr. Mackenzie

That is the point that I have made.

Mr. Page

That is right, is it?

Mr. Mackenzie

Yes. I shall explain the Giro situation a little later in my comments.

In the circumstances, the Post Office having incurred those deficits, there was very much concern and, naturally, the desire was to strike a happy balance. If it had not been for the fact that there were such restraints on the Post Office, there is no doubt that it would have put on charges which were more comparable with the situation obtaining at the time. However, the provisions of the Price Code prevented increases of the size required, since the deficit containment provision of the code limited the Post Office to the levels of 1972–73, which was a deficit year. Although the Post Office applied for the largest increases which it judged to be achievable under the Government's policies, events did not go its way.

As is made clear in the Post Office's report and accounts for 1973–74, the Post Office inherited a loss of £64 million from the previous year. It then had to face increased costs of £172 million and an increased pension fund provision of £37 million. To some extent these were offset by business expansion coupled with improved efficiency, which yielded £20 million in the year. Even so, to bridge the residual gap price increases bringing in about £180 million in the year would have been needed. But, because of counter-inflation policies, the stage 2 increases finally granted yielded only £52 million in 1973–74.

This is how, in 1973–74, the Post Office, having been unable over a period of years to respond to inflationary conditions by raising its own prices, incurred a record loss of £128 million and why the Government have decided to pay compensation equal to the deficits in respect of the postal and telecommunications business.

For the Giro and remittance services, the agreed compensation will be equal to the loss on remittances but less than the total loss on Giro. This is because only a part of the Giro deficit was incurred as a result of compliance with price restraint policies, the remainder being attributable to marketing and commercial factors which cannot reasonably be laid at the door of the Government.

I should not like to leave the year 1973–74 without a reference to the more positive side of the record. More than 1,460,000 telephone connections—a record number—were added to the system, which grew to nearly 12 million. The telephone waiting list—always a matter of great concern—was reduced from 200,000 to 109,000. Local telephone calls increased by nearly 10 per cent. to more than 12,000 million, trunk calls by 10 per cent. to more than 2,000 million, and international calls by 14 per cent. to more than 60 million. By the end of the year, more than 99 per cent. of local calls and 87 per cent. of trunk calls could be dialled direct by customers. In the telecommunications business, continued productivity improvements resulted in savings equivalent to 4,800 engineering and 1,550 clerical and executive staff. In all, staff numbers increased from 240,000 to 242,000 or by less than 1 per cent., much less than the rate of growth of the business.

As for posts, the year was difficult. Despite acute staff shortages in London, the Home Counties and the Midlands and disruptions due to letter bombs, which have caused so much concern in recent days, vigorous efforts were made to maintain an acceptable quality of service whilst absorbing a 2 per cent. increase in the number of letters posted.

I should mention here that counter staff coped very successfully with the payment of the £10 bonus to pensioners as well as issuing 18.5 million petrol coupons to motorists during the busy Christmas period.

Additional post-bus services were introduced in the rural areas of England, Scotland and Wales, increasing the total number of such services from 13 to 41 during the year. Giro, too, often a point of conflict within the House, made good progress, reducing its operating loss to £4.1 million and increasing its turnover by about 40 per cent.

Mr. John Page

I apologise for seeming to interrupt more often than anybody else. Was the cost of issuing petrol coupons given a figure or swallowed? Was the cost made up by any other Department to the Post Office as a service charge by the Post Office or was it a charge that was put upon the Post Office completely for its account?

Mr. Mackenzie

The Post Office only distributed the petrol coupons. The hon. Gentleman knows the system much better than I do. I had nothing to do with it then. I do not see why I should have to defend the issue of petrol coupons or anything else.

Mr. John Page

I was not attacking the hon. Gentleman. I was merely asking what the cost to the Post Office might have been in extra staff and effort in distributing these petrol coupons. It was done with incredible efficiency and courtesy.

Mr. Mackenzie

I do not have the information for which the hon. Gentleman asks. The only information that I have is the number of coupons issued by the Post Office at Christmas last year. I was paying a mild tribute to the Post Office staff for coping so valiantly with that problem.

I refer to these achievements because it is worth making clear to all concerned that whilst there is this loss, for which we are asking for compensation tonight, in my view it does not reflect on the management of the Post Office, nor on the staff, who have applied themselves so magnificently to the task over this last year. However, while this House is able to make good the loss by the payment of compensation, this does not in any way remove the cause of the problem that we face. As long as price increases lag behind cost increases, so does the underlying deficit carried over from one year to the next grow in size, the greater are the price increases needed to rectify the situation, and the greater are the losses recorded in the meantime.

This, then, is the background to our present policy on nationalised industry prices which my right hon. Friend the Chancellor of the Exchequer spelt out in his two Budget speeches. My right hon. Friend recognised in March that it was necessary to take immediate action to reduce the deficits of the nationalised industries and to reflect costs more closely in prices. The alternative was a heavy excess of demand for the products concerned, the collapse of financial disciplines and an unacceptable level of support by the Government.

Mr. Tim Renton (Mid-Sussex)

Before leaving the financial year 1973–74, will the hon. Gentleman tell us how the pension fund deficiency was treated in that year? Was full account taken in the accounts for 1973–74 of the necessary deficiency in the pension fund according to actuarial calculations?

Mr. Mackenzie

I shall be dealing with the pension fund in the borrowing powers order, which is the more suitable place to deal with it.

I wanted to get across the point about prices because I regard it as extremely important. I wanted to emphasise what the Chancellor said about increasing prices to meet the deficits that we are facing. At the moment we are all concerned, as is the Chancellor, who made this clear last month, that we should not allow these deficits to go any further than we have done so far.

Our expectations about prices in the earlier part of the year were only partly fulfilled, and experience shows that after prices have been held at far below their true cost for several years it is impossible to achieve a realistic level all at once. But it is our objective to phase out the subsidies completely, and as fast as possible. The specific measures needed will depend upon future movements of labour and material costs and be in large part for the industries themselves, subject, of course, to the jurisdiction of the Price Commission and the Minister concerned.

I think we have to ask ourselves how far the Post Office fits into the strategy of the two speeches made by my right hon. Friend the Chancellor of the Exchequer. In his earlier speech he referred to proposals for price increases. These were put to the Price Commission in the summer, and they have now been implemented. However, there was some delay in the timetable envisaged in March, and in the case of telecommunications the increase was cut back by the commission.

Further, in common with other nationalised industries, the Post Office has found its costs increasing faster in the current year than it had anticipated. For these reasons, the deficit of both the postal and telecommunications businesses is expected to be larger in the current year than in 1973–74, and the total Post Office deficit is currently expected to be a little over £300 million in 1974–75.

The Post Office's forecasts for future years show that the deficit will grow larger unless it is checked by tariff action. Substantial tariff increases in 1975–76 seem to me to be unavoidable, but these will need to be considered within the broad general Budget strategy, and they will, of course, have to conform with the stage 4 Price Code and be the subject of consultations with the Price Commission and the Post Office Users' National Council.

I have already referred to the situation in 1974–75 and the prospects for future years, because, clearly, the present financial problems of the Post Office and other nationalised industries are of a continuing nature and do not stop short at the end of a particular year.

It is evident that this will be a testing time for the Post Office. The deficit will grow unless action is taken, and I think that in such circumstances strong management is required. It is, therefore, a particular pleasure for me to be able to tell the House this evening that Sir William Ryland has agreed to accept my right hon. Friend's invitation to continue to serve as Chairman of the Post Office for a further three years.

The order that we are discussing is confined to the money needed to compensate the Post Office in respect of the single year 1973–74, and there will no doubt be later opportunities to discuss the present and future years in more depth. I have tried to show, perhaps at length, how the present order fulfils the will of the House that gave rise to the Statutory Corporations (Financial Provisions) Act, and I commend the order to the House.

Mr. Tom King (Bridgwater)

The hon. Gentleman said that the deficit of £300 million for this year would involve tariff increases in 1975–76. Is he saying that the Post Office is suffering from the fact that it is difficult to recover from deficits that have built up? Is he saying anything about an intermediate tariff increase?

Mr. Mackenzie

The hon. Gentleman and some of his hon. Friends have a bit of a crust in raising some of these points. I wish to repeat that the order we are now considering arises as a result of legislation passed by the hon. Gentleman and his hon. Friends. The deficit we are concerned with—it is a very big deficit— is the result of measures passed by the hon. Gentleman and his hon. Friends.

In the order I am having to ask the House to pay the bills incurred by the hon. Gentleman and his hon. Friends.

Mr. Tom King

With respect to the Minister, the deficit which he has just announced is twice as much as the figure in respect of the order which he is now moving. As I understand his speech, he has made absolutely no statement about a deficit of more than twice as much. The figure he quoted was, I think, £300 million, but the figure covered in the order is £123 million. The deficit for the period during which his Government took responsibility is more than twice the other figure—

Mr. Speaker

Order. This is becoming much more like a speech than an intervention.

10.26 p.m.

Mr. Michael Heseltine (Henley)

I bow to your judgment, Mr. Speaker, about the length of the intervention of my hon. Friend the Member for Bridgwater (Mr. King) but he seemed to have a valid point. The Minister has not answered the gist of my hon. Friend's question. My hon. Friend was taking the Minister to task for suggesting that we in some way failed for incurring a deficit of £123 million. The Minister said this only a few seconds after announcing that his Government had incurred a deficit of £300 million—

Mr. Gregor Mackenzie

A likely deficit.

Mr. Heseltine

I am glad to hear that the deficit is disintegrating before our eyes. If the hon. Gentleman deplores what we did in the interests of counterinflation, it is disturbing to hear that he has succeeded in almost trebling the deficit within the short period of a few months. Perhaps my hon. Friend will have an opportunity to pursue this point later in the debate.

The figure of £123 million, which the Minister referred to in moving the order is compensation for three of the Post Office's divisions in which losses have been incurred, and these losses aggregate just over £123 million. The divisions are telecommunications, posts, and the Giro and remittance service, the first two of these having accounted for 100 per cent. of the recoupment, while the Giro and remittance service has not recovered 100 per cent. but only half of the deficit incurred as a result of the price restraint policy.

The question that I did not hear the Minister answer is a critical one. I understand the totality of the amount because that is clearly in the Post Office's accounts, but how does the Minister know that these figures are the figures that were imposed on the Post Office as a consequence of the price restraint policy? I understand that the deficits are included in the audited accounts, but that is not the point. The point of the counter-inflationary legislation which we introduced was to compensate the Post Office for the deficits it incurred as a consequence of the legislation.

I find it extraordinary that the Minister should come to the Dispatch Box and simply accept the balancing figure in the accounts as having been the figure that was caused by the counter-inflationary legislation, without producing a single shred of evidence to support that contention. Perhaps when he replies to the debate the Minister will show where in the accounts it is suggested, or where calculations are to be found, that the Post Office lost £123 million as a consequence of the price restraint legislation. I do not believe that such figures are shown in the annual accounts of the Post Office, and this is what the debate ought to be about.

I fully understand the Minister calling, as he seems to be, on the Secretary of State for Industry for assistance. If the Secretary of State is to reply to the debate I would be even more enthusiastic to hear the winding-up speech than I already am. We are concerned with a critical question, and I am sure that the Minister will have taken the point on board. We simply want to know what is the basis on which the calculations were made. I believe, having read the accounts for 1973–74, that no such figures are included in those accounts.

The Minister said that the loss did not arise because of the management or the staff. How does he know that? He said, as the stark figures show, that commercial factors played a part in the Giro and remittance service. That is why the loss is not wholly claimed by the Post Office. But how do we know what the figures are? Only if we know the figures can we judge the Post Office's results.

In the Government memorandum, intriguingly, we read that the figures in two important sections of Post Office activity are precisely equal shown on the profit and loss account of those two divisions. The report and accounts for 1973–74, for example, show on page 83 that in none of the past 10 years has the postal side broken even. Is it not a remarkable coincidence that in this one year the break-even result, to the nearest £1,000, should have been achieved and that the difference between the figures in the accounts and the deficits should have been attributed to the price restraint legislation?

Precisely the same argument applies to page 71, where one finds the 10-year trading record of the telecommunications division. In none of those years did it come near breaking even. There were surpluses in some years, losses in others. Why, this year, has it precisely broken even, the difference between deficit and break-even point being matched by the amount supposed to have been incurred as a result of the price restraint legislation? The Government will have to persuade the House why we should not be incredulous about this coincidence of financial accounting, of a kind rarely seen in documents of this complexity.

In the minutes of evidence of the Select Committee, on 19th November 1974, the hon. Member for Keighley (Mr. Cryer), whom I am glad to see in his place, asked one of the officials concerned about the accounting procedure, and whether they were satisfied that it had been properly carried out. He was on the right track, although, with respect, he did not pursue the point with the force which he will no doubt show tonight. He was talking about the electricity boards, but precisely the same arguments apply. He said: I imagine that you are happy that the various area electricity boards are not asking for lavishly high sums and disguising behind round figures extra costs which they have not already incurred Were the accounts audited to your entire satisfaction? That, in much shorter form than I have been able to manage, is the question that I am directing to the attention of the House.

The reply to the question was: They were certainly audited to our satisfaction, yes. They were audited to the normal standards which apply to the industry. The hon. Member took that at its face value and accepted it for the assurance that it could have been assumed to be. But was it an assurance? Did it actually say that the deficiency had been audited?

Will the Minister say that these great accounting firms had put their names to the contention that these claims were valid? Did the auditors agree that the sums claimed in respect of these deficiencies had been incurred totally as a consequence of the price restraint legislation?

Mr. John Golding (Newcastle-under-Lyme)

Can the hon. Gentleman explain precisely how those figures have been calculated, and can he go on to tell us what evidence was given to the Select Committee on Nationalised Industries by a Minister of the Government of which he was a member when this problem was ventilated?

Mr. Heseltine

Sadly, the hon. Member will recall that a General Election took place between the giving of this evidence and the time when the Government of which I was a member were in power.

Mr. Golding

The hon. Member is obviously under a misapprehension. I am referring to the Select Committee on Nationalised Industries, which studied this under the heading of "Investment for Nationalised Industries" when a Minister from his party was in control and answerable on that point.

Mr. Heseltine

I do not wish to cross swords with the hon. Gentleman on this because I believe that this House is incapable of monitoring the performance of the nationalised industries. There is no method, no expertise, here or within the Civil Service, sufficient to exercise the necessary control over the nationalised industries. I say that having been a Minister responsible for a nationalised industry. If Labour Members believe that there is such a method they are deceiving themselves. They have not come to grips with the massive task, which the Secretary of State for Industry is beginning to understand.

It is one of the reasons why I am so fearful of expanding public ownership. I know that in the end the judgments are political compromises, taken for reasons which never see the light of day on the floor of the House. We deceive ourselves; if we think that we have the ability to probe and understand what is being done in our names every day. Later tonight we shall be coming to the £1,000 million issue. It is only the Secretary of State and I who understand the nature of spending such sums of money. Few Ministers have an understanding of this.

Mr. Golding

The hon. Gentleman has waffled on. Does he know what evidence was given to the Select Committee by a Minister from his party when in Government?

Mr. Heseltine

If I can build up the expectancy of the House, no, I do not know what evidence was given. It will give the hon. Member an opportunity to make an interesting contribution to the debate. I shall listen with interest to him. I doubt whether it will change my views. I have had some experience in the administration of these affairs.

Page 27 of these accounts says, under note 2 of the report of the auditors: A summary of the fixed assets and procedures for recording fixed assets and depreciation are set out in Note 13. With the exception of the assets referred to in that note, having an aggregate net book value of £730 million, for which asset registers are maintained, we are not yet able to verify the net book values appearing in the balance sheet and the depreciation charged to the profit and loss account nor to ascertain the actual surpluses and deficiencies on net book values which should be included in the profit and loss account in respect of assets withdrawn from service. The Post Office is continuing to study possible methods of overcoming these difficulties. What is being said there is that in respect of the net assets of the Post Office only £713 million have been properly recorded in the register of assets. That seems worth probing, especially if we turn to page 29 and find that the net assets amount to £4 billion. The auditors are saying that, while net assets are in excess of £4 billion, only £730 million of those assets have been recorded in the books of the Post Office in a way that enables the auditors properly to establish whether depreciation charges are rightly recorded.

The House will wish to know what depreciation charges are included in the accounts. I refer the House to page 32, where in respect of telecommunications the depreciation charge is given as £286 million, almost none of which could conceivably have been verified by the auditors, because the auditors were not able to inspect the register of assets of the Post Office. Will the Minister tell us whether he was satisfied? The management and staff of the Post Office are not responsible. The previous Government are responsible for the deficiency. Perhaps the Minister will tell us how he knows what two international firms of accountants are incapable of finding out.

Perhaps the Minister will also tell us what is the procedure in the Post Office which is described as a continuation of study of possible methods of dealing with the situation. How far has the study gone? I am not trying to make a party point. I am not blaming the Undersecretary of State for what has gone on, because I realise that he was responsible only for approximately one-sixth of the period covered by the accounts. I want to know what is happening in the Post Office and what the Minister has done to expedite the study referred to in note 2 on page 27, signed by the accountants on 22nd July 1974.

Mr. Bob Cryer (Keighley)

I take it that the hon. Gentleman is questioning the system and not the integrity of the people involved in the Post Office, the accountants or the civil servants? The hon. Gentleman is talking about the principle, and I think he accepts that everyone concerned works to the utmost of his ability to get out accurate accounts.

Mr. Heseltine

I am not prepared to follow the hon. Gentleman along the lines he suggests I should go. It would be tempting to suggest that everyone has done his best, but it is equally possible to interpret this set of accounts as saying "That is what we have lost, that is the method of recovering it from the Treasury, because legislations exist to recoup it, and that is what we will do." That would be a soft option to pursue. Holding the view I hold about lack of accountability for expenditure in public sector activity, for me to say that it was all right and that everyone had done the best possible job would be to deceive the House of my deep convictions. There was a soft, easy option, and that option was pursued for the softness it offered.

Until the Minister tells the House that he has tried to check what went on and that his civil servants tried to check what went on, I am not prepared to give the bland assurances which come easy to the lips of politicians, and I am not prepared to pretend that I do not understand the difficulties of coming to conclusions of that sort.

Mr. Cryer

Will the hon. Gentleman be a little more precise about the bland assurances from his political lips? He has examined the accounts and claims that he has scrupulously read the minutes of evidence. Will he be more precise about the areas where he thinks there might have been some declaration of duty?

Mr. Heseltine

I think that I clearly pointed out that no one has said anything which one can say is a misstatement of fact. It is the omissions that are clear and that have to be studied by the House tonight. No one has said that the deficiency was arrived at after certain calculations which we can all examine. Had anyone done that and been wrong, the situation would be serious. The Undersecretary of State was told by officials that the accounts had been audited. Yes, they had been audited; but the auditors never said that the figures in the accounts had been arrived at because certain actions had been imposed upon the corporation by the Government. That is the question which the House has to ask and on which it must receive an answer from the Government.

I suspect that the Minister has not thought of this point, and I shall be interested to hear what he has to say. If he has thought of it, I hope he will tell us "The Post Office would have been able to increase its charges by X amount if there had not been any such price restraint." If we have stopped the Post Office from doing certain things, as the legislation gave us power to do, it is necessary to see what it would have done if there had not been that legislation. Then we could understand the calculations made.

Mr. Golding rose—

Mr. Deputy Speaker (Mr. George Thomas)

Order. The hon. Member for Newcastle-under-Lyme (Mr. Golding) has had four bites of the cherry. The debate lasts one and a half hours. If I am to be able to call all those hon. Members who wish to speak, we had better have fewer interruptions.

Mr. Gregor Mackenzie

Perhaps the hon. Member for Henley will explain why he chose to introduce the Statutory Corporations (Temporary Provisions) Act in the first place. What was the purpose of compensating the Post Office?

Mr. Heseltine

That point can be clearly dealt with. We wish to compensate the Post Office for losses incurred because it did not take certain steps which it would otherwise have taken and which would have enabled it to earn extra revenue. That is what the Act was about. If the order is now compensating the Post Office for steps it would have taken otherwise, the hon. Gentleman should tell us what those steps would have been. He should show us the figures, and then we could see whether there was a fair calculation. Nowhere in these accounts are the figures calculated.

Mr. Gregor Mackenzie

The hon. Gentleman was a Minister in the Department which put the Act through. Did he not envisage some of the questions he is now asking me? How did he propose that these calculations should be made? I should be fascinated to hear.

Mr. Heseltine

The hon. Gentleman will understand that I was not actually responsible for posts and telecommunications in the last Government. But if I were now the Minister in the hon. Gentleman's position, I believe I would have asked the questions I am now asking. I say this without in any way holding the hon. Gentleman responsible for decisions taken by the last Government. I believe, but I cannot demonstrate it beyond question because it is hypothetical, that in these accounts there would have been some calculation to show where the Post Office had refrained from taking certain steps thus enabling it to make claims upon us of the magnitude in this order. I believe that that is what I would have done, but I accept that I was never in a position to do it and the House can only accept my word on it.

Note 11 on page 57 of the order refers to the pension fund deficiency. I believe that it is necessary for the hon. Gentleman to indicate the present state of the fund in order to give the sort of assurances to the recipients of those pensions which I am sure the House will wish to give.

Every time the Prime Minister gets up and knocks the City of London for whatever purpose he may have in mind—I understand his party difficulties—he should understand that the asset-backing that the City of London gives to every pension scheme in the land is depreciated in direct consequence of speeches he makes, and the problem the Post Office has with the pension fund is in some part attributable to the language of the Left in British politics. I hope that the Left will take the message, measured in the substantial sums of money we are being asked to deal with tonight.

Finally, I turn to a question which the hon. Gentleman has in part already dealt with. He has told us that we are facing a £300 million deficit in the current year on the Post Office's total accounts. What he has not told us is how it is going to be dealt with.

It will not be enough—I am glad to be able to say this to him now—when we get to the borrowing powers order simply for him to repeat the phraseology of the Chancellor of the Exchequer. We all know that it is the Chancellor's intention to phase nationalised industry subsidies out "as soon as possible", or "as soon as reasonably practicable" and every other cliché he can fling into the situation.

Colin Chapman, writing in the Observer on 17th November forecast that there would be a 6p and 5p post, and said that proposals were before the Secretary of State whereby there would be dramatic increases in the cost of telecommunications. These are the things we wish to know about and which the hon. Gentleman will wish to inform the House about in his reply.

10.50 p.m.

Mr. Ian Wrigglesworth (Thornaby)

I do not think that I have ever heard such a staggering speech in the House as the one we have just heard from the hon. Member for Henley (Mr. Heseltine). It was full of contradictions. The hon. Gentleman demands that the House shall know the facts regarding the details of the accounts. Then he says that he does not believe that the House is capable of going into that detail on the accounts.

Second, the hon. Gentleman says that he does not want to take the soft option of pinning blame, forgetting that for four years, when his right hon. Friend the Member for Bournemouth, West (Sir J. Eden) was fully responsible for these matters, his own Government allowed accounts to be published with notes and reservations from the auditors without, as far as I know, any eyebrows raised at that time and nothing, apparently, done about it. The deficiencies, or some of them, are still there in the accounts this year.

The most staggering feature of the hon. Gentleman's speech was that he failed to recognise that all the deficiencies and actuarial calculations to which he referred appear in the report and accounts for the year ending at 31st March this year. In other words, they relate to the period when his own Government were in office, but he asks the present Government to answer for all the matters which he has raised. The hon. Gentleman should study the dates on the accounts as well as the figures in them before he fires his arrows at my right hon. Friend.

Mr. Heseltine

I asked about those matters because on 24th July 1974, in compliance with the Act, the Chairman of the Post Office sent the accounts to the Secretary of State, who was the right hon. Anthony Wedgwood Benn.

Mr. Wrigglesworth

But the accounts which the Chairman of the Post Office Corporation sent to the Secretary of State were the accounts for the period up to 31st March.

As a former Post Office employee, I welcome the order as a necessary measure for the Post Office in the predicament in which it finds itself. But I regret the need for the order. I agree with the comments on compensation for price restraint which the Chancellor of the Exchequer made in his Budget Statement: It is the escalation in this latter type of subsidy which we set out to reverse and, since our initial attempt has not fully achieved its purpose, we must continue a sustained assault on the problem until it has finally disappeared … It will be painful and disagreeable to carry this policy through, even step by step, but I believe that the future health and efficiency of the public sector depends on our success."—[OFFICIAL REPORT, 12th November 1974; Vol. 881, c. 268.] It took courage, I believe, to make that statement. It is never easy to tell the country that prices will have to go up fairly substantially in an area of the public sector which involves every consumer in the land.

In my view, however, the trouble with the price restraint policy and the compensation which follows from it is that the situation is never-ending, and the compensation entailed does not deal with the basic problem caused by the under-pricing and by the losses accruing as a result. Under-pricing and losses in the nationalised industries lead to lower morale and to lower public esteem because of the losses incurred. That stimulates artificial demand and, therefore, gives rise to greater losses.

In no industry is this more the case than in the Post Office, which suffers because of its labour-intensive character. There is greater and greater use of the postal and telecommunications services as a result of the demand created by the low prices. That destroys any hope of achieving proper financial controls and disciplines and leads inevitably to the first major point which I wish to raise, which is that as a result of this policy there is too much Government intervention in the public sector and in the Post Office in particular. [HON. MEMBERS: "Hear, hear."] Hon. Members may cheer that point, but no Government have ever intervened more in the public sector than did the Government of 1970…74.

The Post Office is a vast conglomerate, and that is often forgotten. It employs one in every 50 of the working population of the country, so that on any bus there will be, on average, one Post Office employee. It has a vast postal service responsible for delivering mails from Land's End to John O'Groats. It has a retail business with more than 22,000 outlets in the High Streets and back streets. It has a vast telecommunications industry with satellites, Goonhilly and all the other technical, research and scientific-based activities. It has data processing and it has the Giro banking service. It impinges on the lives of everyone in the country. There may be an argument that we could debate at some time for doing something about the size of the Post Office Corporation. Because of its size, I believe that it has great difficulties in management which need looking at, although the present time is not the correct one for that.

The Post Office has suffered badly over recent years from too much intervention. Its investment programmes have been delayed by indecision and cuts. Investigations such as the one into Giro, which lasted two years, had a severe effect upon the management and marketing ability of the organisation. The action taken recently on prices has been very welcome, but it will still leave the Post Office in the red, and these constant restraints and the shilly-shallying on price increases lead to indecision and lack of financial control and discipline. Every request for a price increase has to go not only to the Price Commission. It has to go through the Government machine and through the Post Office Users' National Council for consultation. It is a long, wearisome process which holds up the vital decisions which are necessary. This process has a debilitating effect on the management and the objectives of the organisation.

The Post Office has been hit most unfairly by wage freezes which have affected personnel at all levels. There is great resentment in the Post Office at the way in which staff have been treated in comparison with the Civil Service, to which many of them belonged until the Post Office became a corporation in 1969.

There is great difficulty in getting staff to work in the cities, in particular, on current levels of pay. We know that only too well in London. There is the added problem that the Post Office faces, and that faces many similar organisations, of getting people into the city centres, where housing is disappearing, to work at all hours of the day and night, particularly at four o'clock and five o'clock in the morning which are the sort of times that postmen work. This is an added problem which probably not even aid will make it easy to get over.

In the light of the great interference on wages, prices and investment, and investigations into the future of different parts of the business, we must tell any Government that the Post Office must be given a degree of commercial freedom to pursue policies over a period within a framework laid down and agreed with the Government. We propose that our major industries should have planning agreements with the Government. That is the right policy, as industry will see as the planning agreements become a reality. If we are to have planning agreements for the private sector, let us have them for the public sector and such organisations as the Post Office. Let us have corporate planning, which can be agreed with the Government on a rolling programme, so that once the guidelines and plans are laid down the management of the organisation can do its job. Until we have that sort of freedom I do not think we shall have the improvement in morale and enthusiasm which are vital for any organisation to be a success.

One bright star on the Post Office horizon, in which I have a special interest because I was closely associated with it while working in the Post Office, is the National Giro. It is a bright star because, despite the dreadful trough into which it fell when it was under the cloud of investigation, it has been able to pull itself round to its current situation. In the report and accounts already mentioned we see that the losses have been reduced to £1 million from a considerably higher level in previous years. Last year the loss was £4.1 million. The growth over the past year has been remarkable. Any concern which can increase its business by the percentages given in the report and accounts deserves our congratulations. There were increases in the collection of rent payments for local authorities by 300 per cent.; in the cash deposit service by 47 per cent.; in the overall transactions by 15 per cent.; in turnover by 40 per cent.; and in balances by 37 per cent.

But there is one point in the report and accounts which I must draw to the Government's attention. I hope that my hon. Friend the Minister will relay it to other Government Departments. The report and accounts refer to the fact that Giro has secured little Government business—under £1,000 million a year out of a potential market of £40,000 million a year. Giro is not asking for special favours. It is just asking to be given a fair crack of the whip. I know of occasions when the National Giro has put highly competitive proposals to Government Departments, leading to the clearing banks reducing their charges to those Departments. In their strong position, they can do that, even if in some cases it means that they make a loss. But I hope that the different Departments, with the substantial business that they do through the banking system, will give Giro a fair crack of the whip.

I also hope that the Government will give Giro freedom to compete on equal terms with other banks in the private account market. Unless the National Giro is allowed to lend to its customers it cannot do that. The funds which it invests and the funds which the clearing banks invest are just not comparable in the return that they attract. When we consider lending funds to private customers and think in terms of the Barclay-card the rate is approximately 18 per cent. The National Giro is restricted to gilt-edged, local authorities and the discount market. There is a return of approximately 12 per cent. That is obviously not a competitive position. Unless the full range of investment opportunities—including loans to customers—can be given to the National Giro it will not be in a competitive position and it will not be able to do what many of my hon. Friends would wish—namely, to return to its original concept of being a bank for the man in the street.

The National Giro is now providing an excellent service for big business. Over recent months many of our largest High Street shopping combines have opened accounts and have started collecting their cash through Giro. On the basis of the finance that has been built up, there is no reason for its not extending into the current account market for private customers. It could then return to the original concept of being a bank for the ordinary man in the street. It cannot do that unless it has the freedom to be able to lend in the same way as the clearing banks.

I hope that in extending its operations the Government, with the Post Office, will consider the possibility of National Giro building up closer relations and working with the National Savings Bank and with the Trustee Savings Bank. It seems that there is a great potential for a large public sector bank involving those three organisations. If it were given the right headway and encouragement from the Government—that would obviously involve the Treasury—it could make a useful contribution to our banking services. In addition, it would provide much-needed investment capital and revenue resources for the Post Office. That one bright star on the Post Office horizon could be of enormous benefit in future.

None of these matters will develop in the way that we wish unless the Post Office is allowed to have the freedom to manage its business in commercial terms once it has agreed its policies with the Government.

11.8 p.m.

Mr. John Stanley (Tonbridge and Malling)

Like my hon. Friend the Member for Henley (Mr. Heseltine), I have serious doubts about the justification of claiming £123 million under this order in the light of the statutory authorisation provided by the Statutory Corporations (Financial Provisions) Act 1974.

I remind the House that the total amount that can be claimed under the Act must be in consequence of compliance with the national policy of price limitation. It is apparent from the legislation that the amount that can be claimed should be related to the normal trading activities of nationalised corporations. I wish to demonstrate that the lion's share of the £123 million which is being claimed under the order is not directly related to the normal trading operations of the Post Office. The lion's share is made up of extraordinary items which have been charged to revenue account. We shall be seeking justification of this from the Minister.

In an intervention my hon. Friend the Member for Mid-Sussex (Mr. Renton) referred to the deficiency of the Post Office pension fund. The Minister said that that was a matter to which he wished to return when we consider the following order. However, the deficiency is directly related financially to this order, and it is a matter of great surprise to my hon. Friends and myself that the Minister has failed to point to the relationship between that deficiency and the measure that we are now discussing. It is generally known in the House that when the last actuarial valuation was made of the Post Office Superannuation Fund it showed that on 30th September 1972 the fund had an actuarial deficit of £1,100 million. The meeting of that deficit is directly related to the provisions of this order.

May we look at the £123 million in detail and break it down? The Minister may like to get a copy of the annual accounts, which will be directly related to what I want to say. The breakdown of the £123 million compensation payment is on page 28 of the accounts, in Statement Al. The breakdown is between the three divisions, the telecommunications division which claims £61 million of the compensation, the posts division which claims £57 million of the compensation and the Giro and remittance service which claims £4½ million of the compensation.

May we now look at the breakdown within those three heads? A total of £61 million is claimed as compensation for the losses in the telecommunications division. We see how that is arrived at by referring to page 32 of the Post Office accounts, Statement B1. We see there that the sum of £61,386,000 represents the total loss of the telecommunications division in the last financial year. But we also see in the revenue account that there has been brought into it an extraordinary item of a very large amount—a total of £43 million representing the extraordinary amount which has been charged to revenue for pension fund deficiencies for the financial year 1973–74, plus a further £10½ million for pension fund deficiencies for the previous financial year. The Minister was wrong—I do not say that he was deliberately wrong—to say that this £123 million relates solely to the last financial year. It has incorporated into it losses which have been arrived at as a result of pension fund deficiencies which have been brought forward from the financial year for 1972–73. The net position is that of the £61 million which has been claimed in compensation under the telecommunications side, a total of £53,648,000 is represented by the extraordinary charge on revenue of Post Office Superannuation Fund deficiencies.

Turning to the posts side, we see exactly the same. A total of £57 million is claimed by way of compensation, but within that £57 million there has been extraordinarily charged to expenditure a total of £35 million for superannuation fund deficiencies for the 1973–74 financial year, together with over £8 million for superannuation fund deficiencies for the previous financial year 1972–73. So the position on the posts side is that, of the £57 million claimed, over £43 million is represented by the extraordinary charge to the revenue account of the deficiencies of the superannuation fund.

If we look at note 11 on page 58 of the accounts we see that the total amount charged extraordinarily to expenditure in the financial year 1973–74 as a result of meeting the deficiencies in the pension fund is £97,805,000. Of that, £79 million represents pension deficiencies in the 1973–74 financial year and £18½ million pension deficiencies in the 1972-73 financial year. In other words, of the £123,567,000 which has been claimed as losses supposedly from normal trading under this order, £97,805,000 is actually represented by an extraordinary charge of two previous years' deficiencies on the Post Office Pension Fund. In other words, 79 per cent. of the total sum being sought under this order is represented by this extraordinary item which bears no relationship to the normal trading activities of the Post Office.

Mr. John Page

We have listened with amazement to what my hon. Friend has said. Does he agree that not only is it not appropriate as an accounting figure to add those items into these years' figures but that the order specifically says that this is in compliance with the national policy relating to limitation of prices"? It has nothing whatever to do with it.

Mr. Stanley

I entirely agree. Under the legislation, it would seem to be compensation for normal trading losses, but what have been brought in here are extraordinary items which in no way relate to the trading activities of the Post Office Corporation.

I ask the Minister to deal with two very important questions. First, is he satisfied that this entire £123,567,000 is properly claimable as compensation for price restraint within the terms of the 1974 Act? Second, and equally important, why has he at no time, neither in the context of the order nor in its explanatory note, nor in his introduction of the order this evening, indicated that almost 80 per cent. of the sum being claimed is made up of an extraordinary item—namely, the historic deficiences on the Post Office Pension Fund?

11.17 p.m.

Mr. John Golding (Newcastle-under-Lyme)

I was very pleased to hear tonight that Sir William Ryland has been appointed Chairman of the Post Office today. He has shown great understanding, particularly about telecommunications. I believe that in the next three years, with the influence of my right hon. Friend the Secretary of State and my hon. Friend the Under-Secretary—about whose appointments we were also delighted to learn—the Post Office will make great progress.

I am sorry that we are not debating the two orders together, because logically they are linked. It is because of the over-stringent restriction on tariff increases that the Post Office is entitled to compensation. I take the point about superannuation, and that must be dealt with. But it is because of the restrictions on prices over the years that the compensation order has to be made and the level of borrowing must be increased.

I welcomed the statement in the Budget that there is to be a return to commercial pricing in the public sector. I am delighted, because I was a member of the Select Committee which examined various Conservative Ministers and leaders of the nationalised industries on this point. I became very impressed with the case presented by the Government of the day against the present system of pricing policies.

I see that a Government Whip has come to sit next to me. This being my maiden speech in a debate about the Post Office since I left the Whip's Office, I am perhaps less intimidated by the Whip who sits next to me than by the sight of my hon. Friend the Member for Wakefield (Mr. Harrison), who is sitting next to the Clerk at the Table. Having received the message that the Minister is to reply to the debate at 11.20 p.m., and being thoroughly intimidated, I merely say that these two subjects are linked and that the case for compensation, on this occasion, but the case against having deficit financing in future, can perhaps best be presented in total on the next order. It is for those reasons that I resume my seat.

11.20 p.m.

Mr. Gregor Mackenzie

The sheer effrontery of the speech of the hon. Member for Henley (Mr. Heseltine) surpassed anything that I expected of him—

Mr. Tom King

Answer the debate.

Mr. Mackenzie

I was putting forward, I thought in good faith, a compensation order which I must confess—

Mr. Tom King

On a point of order, Mr. Deputy Speaker. The Under-Secretary must be asked to answer the debate. There is a serious point here which he must answer.

Mr. Mackenzie

I will answer the debate in my own way, just as the hon. Member for Henley made his points in his way.

The hon. Gentleman asked, first, how it came about that, when in years past there had been deficits in the Post Office, we did not have this elaborate system of compensation. The hon. Member for Bridgwater (Mr. King) will remember what happened, because it was only in 1972 that we had a Post Office (Borrowing Powers) Order. The then Minister of Posts and Telecommunications, the right hon. Member for Bournemouth, West (Sir J. Eden), was obliged to ask the House to give him money in order to write off the debts of the Post Office at that time.

The second feature in the speech of the hon. Member for Henley which surprised me was his whole questioning of the management of the Post Office and his attitude to the staff of the Post Office. I should have thought that the morale of Post Office staff had suffered quite enough in the past few years without that. They have experienced price restraints, restrictions on tariffs and all the other difficulties. They do not need the hon. Member for Henley now to make a virtue out of the deficiencies of the past four years.

In the past few years the morale of Post Office staff has gone down considerably. They wanted to see tariff increases which were appropriate to the work that they were doing. The policies of the Conservative administration would not permit of them. It is singularly unfortunate now for the hon. Member for Henley to compound these difficulties by nit-picking speeches of the kind that he made tonight.

The hon. Gentleman asked me about tariff increases, and he wanted me to say precisely what these would be in the next year. He knows the attitude spelt out by my right hon. Friend the Chancellor of the Exchequer in his first Budget. He knows the attitude spelt out in my right hon. Friend's second Budget. My right hon. Friend said that over a period the nationalised industries would be self-financing. He said, in other words, that we would no longer expect our large national public corporations to continue subsidising private enterprise and other organisations, as they had been forced to do for a very long time at considerable cost to themselves.

We hear repeated appeals from the Opposition Front Bench for honest government. The one factor which I want to underline is that there will be a substantial deficit in the course of the next year, and no doubt appropriate action will be taken by the Post Office, after consultation with the Price Commission and the Post Office Users' National Council, to bring forward tariff increases.

I do not believe that we should seek to hide that. I believe that it should happen, and it would be dishonest of me if I were to leave anyone thinking that there were any soft options on prices. For a very long time there has been under-pricing both on the postal side and on the telecommunications side. In my view, it is high time that the considerations referred to by my hon. Friend the Member for Thornaby (Mr. Wriggles-worth) were acted upon. The Post Office should be given an opportunity of putting its house in order by being allowed to charge an economic price for what I regard as an excellent service.

Mr. Tom King

That is the point that I was making. Why is the hon. Gentleman unable to announce those increases? The longer the increases are delayed, the greater they will have to be to recover the deficit and match the costs involved.

Mr. Mackenzie

The hon. Gentleman knows better than his hon. Friends the procedure on this matter. It is a matter for the Post Office to put to the Price Commission and to the Post Office Users' National Council. The hon. Gentleman knows that it would be improper for me to make any further comment on that matter other than that it is right for the Post Office to charge an economic price.

The hon. Member for Henley made allegations about the depreciation in value and asked about the reservations in the Post Office accounts. It was a serious point and I will deal with it.

Mr. Heseltine

Did the auditors agree that the deficiency claimed in these accounts was justified? Did the auditors agree that the deficiency, the subject of the order, was the consequence of price restraint?

Mr. Mackenzie

Of course they did, or I should not be presenting it.

Mr. Heseltine

I heard the advice given to the hon. Gentleman by his right hon. Friend the Secretary of State. I am asking a specific question: did the auditors agree that the deficiency had been caused by the price restraint introduced by the last Government? Did the auditors agree that particular figure?

Mr. Mackenzie

It is my view that it was caused by the price restraint policies introduced by the last Government.

Mr. Heseltine

I apologise for interrupting again. I asked the question: did the auditors agree?

Mr. Mackenzie

That is not the point I am making. I agree that this has happened. In my view, it was the result of the price restraint policies of the last Government. The hon. Gentleman may sneer and giggle as much as he chooses, but there is no doubt that if the Post Office had not had these constraints laid upon it it would certainly have increased its prices to an economic level and we would not be put in the position of having to present this compensation order tonight. I realise that this order and the policies of the previous administration may embarrass the hon. Gentleman, because he likes to make abrasive speeches and to make a bit of a star of himself on these occasions. The point is that these policies brought a lot of trouble to the Post Office. We are now asking the hon. Gentleman's help in bailing it out of the difficulties which he created for it.

Mr. Heseltine

If the hon. Gentleman now confirms that the auditors did not agree, upon what basis of calculation does he know that these figures are right?

Mr. Mackenzie

Because this is the deficit of the Post Office and this is the compensation that we want to make for that deficit.

The hon. Member for Henley and my hon. Friend the Member for Thornaby referred to the deficiencies in the Post Office Pension Fund. This is a matter of concern to all Post Office employees, and we should put their minds at rest. This point has not arisen in the last few months. This problem was raised in the summer of last year. Unhappily, we did not get any satisfactory explanation from the then Minister, who simply said that the fund was in good order. I should like to say very much the same tonight. Post

Question accordingly agreed to.

Resolved.

That the Compensation for Limitation of Prices (Post Office) Order 1974, a draft of which was laid before this House on 29th October, be approved