POST OFFICE (LIMITATION OF PRICES)

HC Deb 10 November 1975 vol 899 cc1069-99

10.13 p.m.

The Minister of State, Department of Industry (Mr. Gregor Mackenzie)

I beg to move, That the Compensation for Limitation of Prices (Post Office) Order 1975, a draft of which was laid before this House on 27th October, be approved. This Order provides for the payment by my right hon. Friend the Secretary of State for Industry of the sum of £307,017,000 to the Post Office in respect of financial losses which its businesses have incurred in the financial year 1974–75 in consequence of its compliance with the national policy relating to limitation of prices. Section 1(1) of the Statutory Corporations (Financial Provisions) Act 1975, read with subsections (3) and (7) to (10) of that section and Schedule 1 to the Act, enables my right hon. Friend to make such an Order.

The sum to be paid corresponds to the aggregated deficits incurred by the Postal, Telecommunications, Giro and Remittance Service businesses on their revenue accounts for the financial year 1974–75, this being the limit imposed on compensation payments by Section 1(3) of the Act. For the purpose of assessing compensation to the Post Office, its postal services, telecommunications services, banking Giro and related services and data processing services have been treated as if they were separate undertakings.

The total sum of £307 million represents the deficits shown in three of the businesses, revenue accounts for 1974–75, which were laid before Parliament in accordance with Sections 11(10) and 42(3) of the Post Office Act 1969. The figures were £195 million for telecommunications business, £109 million for the postal business, and just over £3 million for the Giro and remittance services taken together. The House will recall that the Giro service itself achieved a modest profit, as did the Post Office data processing service. In compliance with subsections (7) and (8) of Section 1 of the Statutory Corporations (Financial Provision) Act 1975, the approval of the Treasury has been obtained to the draft Order, and the Post Office has been consulted in the normal way.

I am sorry to burden the House with this detailed explanation, but I thought it wise to spell out the statutory backing. I remind the House that the 1975 Act continues legislation introduced by the previous administration.

Last year, in the parallel debate, Conservative Members spoke critically about the inclusion of the whole of the deficit in the compensation payment. Other hon. Members have suggested, to the contrary, that compensation should be based on revenue forgone. I remind the House that the deficit over the two years 1973–74 and 1974–75, taken together, was of the order of £440 million—a quite intolerably large sum—and I blame this, as hon. Gentlemen know, on the policies of hon. Members opposite when they were in power. We could not undo overnight what I regard as their folly in departing from a rational pricing structure, but we have done so as quickly as was reasonably possible and have, to our deep regret, necessarily had to cause hardship through increased prices and loss of employment in the supply industry and, indeed, in the Post Office along the way. I hope that hon. Members opposite will acknowledge that the deficit is die consequence of their policies. Therefore, compensation is in every way proper.

Those of my hon. Friends who have suggested that compensation should be based on revenue forgone have a better case. It is important that the self-financing ratio of the Post Office, and of other nationalised industries, be improved. For this reason, we are seeking to ensure now, and should have liked to be able to do so earlier, that the Post Office earns a modest profit. But, whatever its merits, this is not die basis on which compensation is to be calculated under the Act.

Last year a number of hon. Members, including the hon. Member for Tonbridge and Mailing (Mr. Stanley), expressed reservations about the qualifications which the Post Office's auditors had felt professionally obliged to enter into their report. This year these are less severe and, in particular, agreement has been reached on the introduction of new procedures for assessing values and depreciation of telephones and ducting and on a programme for the similar assessment of other fixed assets. This is a major exercise and will take some years to complete: it will not be inexpensive. Since the Post Office is, at considerable expense and inconvenience, making it its duty to satisfy its auditors in this field, and since the auditors are among the most distinguished firms of accountants in the United Kingdom, I should regard any aspersion on the financial integrity of either as much to be deplored.

I am very conscious of the unprecedented size of the deficit for 1974–75 and therefore of the sum to be provided for as compensation under the Order. The facts are that, although early action was taken after we came into office, it was not until 1974, June for posts and August for telecommunications, that increases in the tariffs could be implemented because of the preliminary procedures required by legislation—both the Price Code and the Post Office Act. The further increase which we had always recognised as necessary could not, for similar reasons, take effect until 17th March 1975 for posts and the end of March for telecommunications. Hence they had virtually no impact on the receipts for the year in question. It is not a matter for any surprise that with costs steadily rising, and tariffs able to be raised only modestly, there was an unprecedented deficit.

On the postal side, throughout the year the Post Office waged a sustained campaign to halt and then to reverse the deterioration in the standard of service caused mainly by acute staff shortages in certain key areas. A vigorous recruitment campaign, coupled with improvements in pay, enabled the Post Office to recruit and train more than 21,000 new staff for postal and counter work, and to reduce the number of postman vacancies from 9,500 to 5,500. By the end of the year some improvement in the quality of the letter service was already becoming apparent, and this trend has, happily, since continued. The total volume of letters posted was a little lower than in the previous year but parcel tariff increased by 3 per cent.

On all sides of the telecommunications business—finance apart—there was much progress. A total of 1.35 million telephone connections were added to the system, which grew to nearly 13 million. Local calls increased by 6.4 per cent. to 13,523 million, trunk calls by 8.2 per cent. to 2,313 million, and international calls by 19 per cent. to 73 million.

At the end of the year 99.5 per cent. of subscribers had STD facilities. Continued productivity improvements resulted in savings, equivalent to nearly 5,000 engineering, clerical and executive jobs.

The increase of the loss on this business from £61 million to £195 million was, of course, of great concern. But, as I have explained, costs increased inexorably. There were very proper reasons for the increase in wages, and the only tariff increase was that of 14 per cent. in the summer.

Hon. Members will know from my reply to the hon. Member for Bridgwater (Mr. King) that, in implementing the Government's policy for phased return to economic pricing, the Corporation expects to record a modest profit for 1975–76. Unfortunately the road back to financial viability is proving slower for the postal business. Hence, I expect that there will be a need to seek the approval of the House to a compensation Order next year.

But the postal deficit for 1975–76 is likely to be far less than for 1974–75. Some may argue that the postal business would have done rather better with a smaller increase in tariffs. Present evidence is that for the month of October—immediately after the last increase and therefore unrepresentative—total postings were down by 13 per cent. on the comparable figure for October 1974. The Post Office is always concerned to lose traffic from whatever cause. But its goal must be a return to financial viability.

As for telecommunications, it is still less credible that in such a developing and technologically based service there would be a long-term decline in demand. The Post Office has been assuming a 0.5 per cent. growth in trunk calls and a 2 per cent. growth in local calls this year, but that over a longer period the rate of growth would be restored to something of the order of 8 per cent. per annum or even higher. Clearly it is far too soon to estimate the accuracy of these figures, but I have little doubt that the telecommunications business will not be substantially diverted from its steady progress by the higher level of charges.

As I have already mentioned in the House, the aim of the Government's economic pricing policies is to ensure that the consumer pays for the true costs of the goods and services he consumes in every case where they can be sensibly identified and that these costs should include an appropriate return on public capital invested in the industries. As I said earlier, it was the former administration's departure from these policies which put Post Office tariffs at an uneconomic level in the years 1971 to 1974 and created the substance of the problem we are dealing with today.

The Post Office, like other nationalised industries, had to catch up. In order to maintain efficient services, the full economic cost of providing these services must either be borne by the users of those services or, in the absence of an economic pricing policy, the taxpayer must pay. It is the Government's view that the user should pay, though this must be consistently with the Post Office's social obligations. I would have hoped that Conservative Members would have welcomed the implementation of this policy which is designed to cut the level of public expenditure.

I cannot help but look across to the benches opposite and realise that the hon. Member for Tonbridge and Mailing will have come here, amongst other things, to ask me about the deficiencies in the pension fund of the Post Office. Deficiency contributions in respect of pensions have been expressly included in Post Office expenditure in every year since 1961–62. These payments are one crucial and inescapable cost of running a business and, since the Post Office is required by law to break even, taking one year with another, if not met out of revenue, can be met only out of compensation or allowed subsidy.

We believe that it is right to follow up policies of economic pricing, which means that the Post Office should, in principle, accept a deficiency as a proper charge. But, as hon. Members on both sides of the House are well aware, it is being contended that the particular element of a deficiency arising from the 1969 settlement warrants special treatment, but, as I told the hon. Member for Bridgwater in an answer the other day, my right hon. Friend the Secretary of State is still considering this contention, and an announcement will be made in due course.

This brief debate is on the Order. We have had fuller debates rather earlier this year, and I do not want to weary the House or to tempt you, Mr. Speaker, into calling me to order by straying too far from what is a rather restricted subject. With permission, I will speak briefly at the close of this debate if points are raised.

I expect that several hon. Members will ask me about the progress in setting up the independent review of the Post Office which my hon. Friend the Minister of State in the Department of Prices and Consumer Protection promised following the Post Office Users' National Council's report on the tariff increase implemented at the end of September. Unfortunately, I cannot make an announcement tonight, but I hope that an announcement will be made about the chairman and the terms of reference soon.

Mr. Tom King (Bridgwater)

I say to the Minister—and he will not be surprised to hear me say this—that we have the gravest doubts about this Order. Our concern is whether this Order is even valid, and it is a particular disappointment to us as I understand that the Statutory Instruments Committee was due to consider this matter this afternoon but due to the lack of a quorum it was unable to do so. The comments of the Statutory Instruments Committee would have been extremely useful, because, as the Minister will know, the point that concerns us is that the Statutory Corporations (Financial Provisions) Act is solely concerned with the consequences of compliance with the policy on the limitation of prices. This brief Order includes the claim that that is what the figure of £307,017,000 is all about. Those who were present at the debate on the previous Order on 2nd December 1974 will know that the Opposition were concerned about this matter.

There is a deadly coincidence of the sums of money. The postal deficit was £109 million. What is the consequence of compliance with the prices policy? It is £109 million. The loss on telecommunications was £194,550,000. What compensation is the Post Office receiving? It is £194,550,000—the identical sum.

The Minister tried to establish—this was part of the argument in the previous debate—the total blame and reason for these deficits. Today he put the blame squarely on the pay restraint policies of the previous administration. But he changed his tune half-way through his speech and said that only part of the problem was the previous policy of price restraint. That is closer to the reason. However, that does not go as far as the Price Commission whose Report stated that the rapid escalation of costs in recent months was responsible for the deficits. The recent Price Commission's Report conflicts with the Minister's statement. I tried to put down a Question to the Minister on this point but the Table Office, ever protective of Ministers, said that the matter was too contentious for a parliamentary Question. I meant to confront the Minister with the totally contradictory view of the Price Commission.

What has been the real effect of price restraint? What are the amounts? I do not believe that any Member of Parliament believes this Order or the figures. As a matter of convenience someone took the deficits and said "That is the compensation".

We are dealing with large sums of money in this Order. It is important for the Post Office and Parliament that we should not fudge or bodge up the figures. Nor should we say "We have a convenient Act. Let us lose the figures in that. We shall tidy it up." That is highly undesirable. Yet it appears that we shall do the same again.

The Minister referred to the Written Answer to my Question on 7th November on the probable outcome of the Post Office performance in 1975–76. I asked the Minister: what is the latest advice he has received of the estimated Post Office deficit for 1975–76. I was delighted to learn that it was hoped that there would not be a deficit, and that the Minister was looking for a modest surplus from the Post Office. He is a brave man, especially in the light of some of the figures he gave about the loss of traffic in the first month following the latest price increase.

That is the Minister's position. Some of us remember sadly the speed with which ironically the same deficit figure of £70 million turned within six weeks into £300 million for this year. We must all pray that that does not happen again.

We are as worried as the Minister must be. It is too soon to know what will be the impact of the latest tariff increases. I said "Here we go again for 1975–76," because the Minister answered: the Post Office Corporation as a whole will record a modest surplus for 1975–76. But it is likely that compensation for price restraint will be needed in respect of the postal business. This is expected to be within the figure of £70 million referred to by the Chief Secretary to the Treasury of 9th June."—[Official Report, 7th November 1975: Vol. 899, c. 372.] The Minister spoke of "compensation for price restraint". What price restraint has there been in 1975–76? It will come as a shock to the public, who realise that in the past year the postal tariff has risen from 4½p to 8½p, that telephone charges have doubled, trebled and in some cases quadrupled in the past year, that this is a demonstration of price restraint in action.

Perhaps the Minister will explain just what the price restraint has been. I thought that we were operating under the discipline of the Chancellor of the Exchequer who wished to move away from deficit financing. Has there been price restraint in 1975–76? If there has not—and I am not aware that there has, because the latest price request from the Post Office was virtually passed in full by the Government—how can the Minister turn round next year and bring forward a further Order, which he warned us in his speech he would do?

On this occasion the Act is being used improperly, and it is a serious matter. I am not attacking the Post Office. It is not a party political attack. It is in the interests of the Post Office that these matters should be put clearly in the open. It is also our duty as Members of Parliament, if Parliament is to be seen to be doing the job of guardian of the nation's finances, not to be seen as fudging an issue such as this. We should stand up and say "Yes, there is an element that is caused by national policy on price restraint. That is a certain sum as near as can be defined, but there are other elements that have contributed to this".

The Post Office has not pretended that it is due to price restraint. Therefore, it is all the more regrettable that the Government have dodged behind the legislation. The official and helpful Press release from the Post Office on this matter mentions the reasons for the price increase in July. It says that the finances and estimates of the Post Office had drifted from its original predictions largely as a result of the ever-rising rate of inflation and a decline in business. That is the honest answer. We all know that that is what happened. There has been a drop in traffic, with the downturn in the economy, and the rate of inflation has increased.

When the Post Office announced its budget in January it said quite bluntly that it had estimated on a rate of inflation of 20 per cent. The effect of a rate of inflation of over 25 per cent. had a serious effect on the Post Office's finances, as the Chairman of the Post Office said. On the figures given by the Post Office, I estimate that that 5 per cent. error in the forecast of the rate of inflation cost it £44 million alone. The Minister might like to confirm whether that is right. At that time the Minister said that the Post Office relied on a narrower definition of the social contract than actually proved to be the case. That was euphemism carried to a high degree.

Today I received an Answer to a Question which I had tabled to the Minister. I appreciate that he ensured its availability for today's debate. I asked him whether he would illustrate his conclusion that the substance of the problem of Post Office deficits was caused by uneconomic tariffs in the years 1971 to 1974. Although the Answer was, helpfully, prepared quickly, I find it difficult to understand but the Answer appears to indicate that the shortfall caused by the price restraint was nothing like the deficits that are being estimated. At the end the Minister made the helpful statement: The statements also show that the actual deficits have generally exceeded the amount of the shortfall as described above. This is mainly because inflation proved greater than could be allowed for in the price increases. Therefore, out of the Minister's own typewriter has come the contradiction of the very Order that he has advanced.

There is also the question of the pension fund deficit, to which the Minister fairly referred. This is a matter of serious concern to the Board of the Post Office and to the unions. The UPW has made representations about it. We have been given the figure of £90 million as the sum needed last year, and. I understand, this year, to meet the deficit on the pension fund.

What worries me about the whole situation is that we are fogging the Post Office finances, by hiding the deficits and putting through deficits against orders which are not really applicable, and muddling in matters such as the pension fund. I have some sympathy with the reasons behind the statement given in a further answer to my Questions. Incidentally, I am most grateful for the energy shown by the Department in answering those Questions. I asked what guidance the Minister had given the Post Office on the treatment of the pension fund deficit in future years in its forward financial planning, and I was told that The Post Office's financial planning necessarily includes alternative provision for a wide range of contingencies. My God! I bet it does. That is the wisest thing I have ever heard come out of the Post Office. With the sort of erratic treatment it receives in these respects, the Post Office is wise to plan for the widest range of contingencies possible.

This is a serious matter. We have had the difficulty of the confusion of the figures and of knowing what the future treatment of the pension fund deficit will be, although we know that the Post Office has to stand it for this year, there is no mention of that here, as it has nothing to do with compensation for price control.

There is also the whole question of depreciation, which was well brought out in an interesting article in the Economist, pointing out that the Post Office was taking a progressive view of depreciation and that, unlike many companies which still worked on historic cost depreciation it was working on replacement cost. The article said that in its present depreciation of £388 million a year the effect of operating on replacement cost was £130 million added to the cost that might be shown by many other businesses in their normal accounts.

We are used to talking fairly casually about millions of pounds in this Chamber, but by any standards depreciation of £388 million is an enormous sum for any business, and one is very concerned at the continuing qualification of the accounts by auditors. The Minister rightly picking up the point made in last year's debate, said that there had been substantial improvements, and that arrangements had been made to try to resolve the matter by 1977.

Satisfactory procedures have been agreed for £1,621 million-worth of fixed assets. That is a substantial sum, which one might think must cover most of the possibilities—but only if one were unaware of the huge scale of the undertaking. The fact is that the procedures for auditing and establishing in the accounts £3,122 million-worth of fixed assets have been qualified by the auditors, who say that at present no satisfactory procedures exist for that vast amount of assets.

If there are no adequate procedures to record the assets, how can one be confident that the depreciation figures are correct? As the Minister fairly said, the accountants are very distinguished—two of the leading firms of British accountants. No doubt hon. Members have read their qualification of £3,000 million-worth of the Post Office's assets, saying that the procedures for recording them are unsatisfactory. The significance of that to the present matter before the House is that it puts a question mark over the substantial depreciation provisions.

All of that underlines our concern about the Order, which raises in a simple sentence all the problems of the Post Office finances and tries to tie them all up as though they were merely the consequence of price restraint. That is neat and tidy, but false. Any hon. Member who is familiar with such sums will know that this is not right. It is against this background that we have a duty to not only the country, but to the Post Office, to insist that we get the matter right. I hope that the Minister will give us a much clearer idea of what will be the figure attributable to price restraint and of the other factors involved, because the Post Office faces some very real problems.

The Minister has indicated that the first month of the new increases has shown a 13 per cent. drop in postal traffic compared with the equivalent month last year. Over a year 13 per cent. amounts to 1,300 million letters. Hon. Members who have knowledge of the Post Office will know what that will mean in terms of employment and finances. It is an extremely serious situation. We drew attention to this matter in the debate which took place in July. We feared that the effect of the tariffs would be a decline in traffic which would have serious consequences for the Post Office and for the people employed in it. Moreover, it would affect the service which the Post Office would be able to give to the public. We have also been told that there has been a further switch to second class mail, but that was predictable.

It is against that background that one must be extremely concerned about the validity of, and the confidence with which one can view, the Minister's forecast of the deficit for 1975–76.

My hon. Friends and I take no pleasure in this deteriorating situation, because it should be a matter of great concern to all hon. Members. Therefore, we welcome the Minister's decision to appoint an independent review. However, I am disappointed that he is unable to announce the names of its members and its terms tonight. I am sure that he recognises the urgency of the situation, because in any circumstances a review is a difficult matter. However, it is unforgivable to announce a review and then not to get on with it. If we are to have a review, we have a duty to the Post Office to get on with it as quickly as possible.

In the light of the way in which the Order has been presented and the lack of information about it, I hope that the Minister will tell us more about what we regard as a most unsatisfactory Order.

10.48 p.m.

Mr. John Golding (Newcastle-under-Lyme)

I declare my interest as an Assistant Secretary of the Post Office Engineering Union. As the Minister rightly acknowledged, Labour Members are concerned about the hardships being faced by the Post Office staff—workers in the private equipment manufacturing concerns—and by the consumers—hardships caused by the business recession and by the belated return to economic pricing. We must however—and I shall speak only about telecommunications, because I and other hon. Members are engaged on an inquiry by a Select Committee into the postal services—be careful to keep the picture in perspective.

Sir William Ryland was right. In an article in the AEUW Journal this week on the problems facing the Post Office, summed up by him as "How to make ends meet", he stressed that: The future of telecommunications is strong. Growth, new and exciting services, and new technologies will ensure better and more varied services at fair prices, giving good value for money. The potential here is very great indeed. However, we must be careful in our policies not to destroy that potential. Therefore, those who call for further Post Office economies, whether they be manufacturers of equipment, representatives of the Users' National Council or Ministers, must appreciate the extent of the stringent measures already taken and the fact that future growth and modernisation depend on the maintenance of staff morale.

Already the Post Office staff is facing premature retirements, redeployment, a ban on adult recruitment and reductions in earnings.

As a result of these economies, 8,000 jobs will be lost in Post Office telecommunications alone. Manpower economies within the telecommunications service have been all the more difficult to find because of substantial and sustained voluntary improvements in the use of manpower during the last decade which have increased labour productivity by 6 per cent. a year and saved 78,000 jobs. That was the result of voluntary improvements and consequent increases in productivity during the last decade before the present stringent economy measures were introduced. The union's view is that any further economies could produce a collapse in staff morale which would be detrimental to the recovery and future of telecommunications. There should be no resort to further economies, nor a return to compensation payments.

I listened with interest to the speech made by the hon. Member for Bridgwater (Mr. King). I recall that he strongly supported Ministers who first introduced the principle of compensation payments. I also recall that in Opposition we made similar speeches. It is inevitable that in Opposition we make such speeches because the principle of compensation payments is virtually indefensible.

It is impossible to calculate what the income of the Post Office would have been but for price restraint. Therefore, the whole system is a nonsense. But the system was introduced when the hon. Member for Bridgwater was assisting the Minister for Posts and Telecommunications. Perhaps that gives him great expertise to exploit the inconsistencies of the system. However, we should not take him too seriously.

Mr. Tom King

This matter came up recently when I believe my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) pointed out that we introduced income tax at 5 per cent. But that did not mean that we could not attack it when it got to 98 per cent. There is a slight difference between the levels of payments.

Mr. Golding

The hon. Gentleman was addressing himself to the principle of calculation, not to the level of payments. I have attended debates on this subject many times since the early 1970s. The principle was introduced by the last Conservative Prime Minister only as a sop to the CBI.

It would be a simple solution for the Government to provide larger subsidies so that telecommunications tariffs could be reduced or at least pegged. Alternatively, they could spend even more public money, cither directly or indirectly, purchasing telecommunications equipment which was not wanted. The Government could do these things, but I hope they will not. I argued the case against subsidies at the Labour Party conference. I am pleased to inform my hon. Friend that that conference endorsed its 1973 policy decision against indiscriminate blanket subsidies for the nationalised industries. With some exceptions, notably the railways and the mines, it is more important to spend taxpayers' money on pensions, hospitals, schools, housing, single-parent families and welfare generally than on nationalised industry subsidies—particularly for the telephones of businesses and other large private subscribers.

So far I have been negative in opposing those who want a return to the policies of the past, but what can be done in the future? The Government ought to meet their moral obligations and make a contribution to the Post Office's superannuation fund in respect of the £90 million a year shortfall which relates to commitments incurred before the Post Office became a public corporation. This would ease its finances considerably. However, there must be no question but that the pensions of Post Office staff are paid, despite any dispute between the Treasury, together with the Minister responsible for posts and telecommunications, on the one hand, and the Post Office and its unions, on the other hand.

The Government should take part or all of the private manufacturing industry into public ownership. The quicker we learn the facts surrounding the purchase of cable, the better. Since 1960, I have often accused equipment manufacturers of failing the Post Office and the nation with high prices, unreliable delivery dates and a loss of export opportunities, although judging by figures supplied by my hon. Friends earlier today, it seems that their export performance has improved in the past 18 months.

The Post Office has been taken to task by the Telephone Users' Association for the non-provision of a service in a case where it is quite clear from the Users' own report that the delay has been caused by late delivery from the private manufacturer. This is a story which is repeated all too often. The time is now ripe for the Post Office to undertake large-scale manufacturing itself.

Both the Post Office and private manufacturers should speed up the development of electronic systems to replace the out-of-date equipment which should be phased out here as soon as possible. It cannot be sold abroad. The Post Office should also pay far more attention to marketing and, if Governments will refrain from intervening, to forecasting as well.

The Government should settle a national telecommunications development plan and let the Post Office get on with the job of implementing it. The Post Office will be well run only if it is allowed to be run from the inside by a staff and management who are determined to provide the best possible service at fair prices. This cannot be done by Post Office inquiries, which must be the biggest growth industry in the country, or if management does not have control over pricing and investment.

The problems facing the Post Office are considerable, but they will be solved given the necessary determination. The potential of Post Office telecommunications is great. I am glad that the Minister has confirmed that there has been no absolute decline in the number of telephone calls being made and that the Post Office is confident that a growth rate will soon be re-established.

The potential is considerable, and for the good of the Government and the nation, it must be realised to the full.

11.0 p.m.

Mr. John Stanley (Tonbridge and Malling)

We are engaged in the operation of what I might call the parliamentary Parkinson's law, whereby the larger the sum of money under discussion, the later at night it is debated, the fewer Members are in the Chamber and the shorter the time available for debate. Tonight is no exception. We are disposing of the horrifying sum of £307 million of taxpayers' money in precisely 90 minutes—or at the rate of just over £3 million a minute.

I shall speak very briefly. I should like to pose three questions about the Statutory Instrument. I should like to know whether the deficit should be as much as £307 million, whether it is reasonable to attribute the whole of that deficit to a policy of statutory prices restraint, and whether the deficit itself can be related to the normal trading activities of the Post Office.

First, then, the deficit itself and whether it should be as much as £307 million: the Minister of State endeavoured to put the responsibility for this enormous deficit on to the Conservative Government, but I remind him that we are talking about a financial year which was covered wholly by the period during which the Labour Government's policies were being put into operation. My view is that the main cause of this enormous increase in deficit in the financial year 1974–5 lay very much less with the price restraint policy than with the enormous increase in the national rate of inflation, which knocked the Post Office's finances sideways.

Why was it, at a time of enormous national inflation, when businesses both in the public and private sector were coming under great pressure on profit margins, that it was not until the last dying weeks of the financial year 1974–5 that the Post Office was able to get the benefit of increased tariffs? It is a striking fact that a period of 18 months elapsed between the previous tariff increases, made available under phase 2 of the last Government's counter-inflation policy, and the coming into operation of the first tariff increase under the present Labour administration which began to operate only on 17th March, 1975. Yet it was in March 1974—a year earlier—that the Chancellor of the Exchequer announced in his Budget that the Government were moving over to a policy of eliminating subsidies in the nationalised industries. It was quite apparent to the nationalised industries that inflation was accelerating. Surely it would have been a logical response for the Post Office to come forward with tariff increases at some time in mid-1974 rather than in January 1975.

The Minister of State suggested that what was inhibiting them was the Price Code. Has he forgotten that the Price Code was amended by his own Government? There was no barrier to the Government's amending the Price Code to enable the Post Office to obtain the increases in tariffs which were necessary.

We should be grateful for his explanation why it was that it was January 1975 before the Post Office, it is claimed, was ready and willing to lodge its first application for an increase in tariffs. It is my very firm view that in fact the Post Office was ready and willing to lodge an application for increases in tariffs in the summer of 1974 but was deterred from doing so by the Secretary of State for Industry because of the proximity of the election in October that year.

My second question was whether the deficit could have been eliminated if there had been complete price freedom. I raise it because, according to the Order, the sole justification given for claiming £307 million of the taxayers' money is that the Post Office complied with the national policy relating to limitation of prices. In other words, the Government are telling Parliament that if there had been no national policy of limiting prices, there would have been no deficit in the Post Office for 1974–75.

I have grave doubts about that supposition. I believe that even if the Post Office had had total price freedom in the last financial year, it would still have had a serious deficit, and that the evidence for that lies in what we have seen in the current financial year.

In March and September 1975, two of the largest ever increases in Post Office tariffs took place, yet, despite them, with the Post Office having had the benefit of those increases for almost the whole of this current financial year—certainly in the case of the first increase—we are told that there is still likely to be a new Order for compensation for price restrain, which means a fresh deficit in 1975–76.

In other words, the indications are that the postal service, at any rate, is suffering seriously under the law of diminishing returns and has become fundamentally uneconomic, and may be in a permanent loss-making situation. I hope that this is not the case, but it appears to be so from the evidence of the last 18 months. Price increases put forward are not, so far, succeeding in getting the postal service out of the red.

If that is so, I share the doubts expressed by my hon. Friend the Member for Bridgwater (Mr. King) whether it is reasonable and justifiable to use this system of Orders under the Statutory Corporations (Financial Provisions) Acts to reclaim fundamental underlying deficits in any nationalised industry. The Minister fairly pointed out that the first Act was passed by the Conservative Government at the beginning of 1974—but that was followed by a similar Act, involving even higher sums, passed by the present Government. It was the clear intention of the Conservative Government that this device was to be used solely for making up genuine trading losses of nationalised industries which were suffering under the policy of statutory price restraint.

I do not believe that it was the policy of the Conservative Government or the policy of this Government that such a device should be used to wipe off fundamental losses in individual parts of a nationalised industry which may have moved permanently into the red.

There are serious parliamentary implication if we continue to go down this path. We are providing a cash grant of taxpayers' revenue to meet underlying losses, and we are doing so in a way that gives only minimum parliamentary control. More important, by resorting to this method, we are removing from nationalised industries any obligation to increase their borrowing requirements in order to finance deficits. This is a means whereby significant parliamentary controls can be evaded. I hope that we shall not go on using the Statutory Corporations (Financial Provisions) Act simply to eliminate recurring deficits of individual nationalised industries.

My last question was whether the deficit actually related to the normal trading transactions within the Post Office. A significant element of the deficit does not. Over one-third of the £307 million is required to meet the deficit in the Post Office pension fund. The sum of £107 million is simply charged to the profit and loss account to meet the deficit in the pension fund. That should have been clearly stated on the statutory instrument. There is no doubt that trading losses are one thing, but extraordinary provisions to meet a deficit in pension funds are separate. I do not want to continue the slightly acrimonious exchanges that we have had in previous debates about the question of liability for the deficit in the pension fund because it has been clearly stated what the balance of the deficit is between the pre-Corporation liabilities and the post-Corporation liabilities. In its memorandum of 9th July the Post Office said: If the pre-Corporation liability had been properly funded the deficiency would have been only £300 million. In other words, of the actuarial deficit in the pension fund on 30th September 1972, roughly £300 million relates to post-Corporation liabilities and £800 million to pre-Corporation liabilities. It has to be pointed out that responsibility for the £800 million of pre-Corporation liabilities arises solely and wholly out of the way the pension fund was originally set up under the 1969 Post Office Act. I believe it is incumbent on the Government to set up a formal Government inquiry into this deficit. The very size of the deficit justifies a full and proper inquiry.

We are talking about a deficit of £800 million arising out of a piece of legislation. What is quite evident is that a miscalculation of enormous dimensions was made in respect of the funding of the Post Office's pension liabilities.

It seems imperative to have some form of formal scrutiny to make sure that politicians learn from their mistakes. I am far from happy about this Order. The deficit should never have been as much as £307 million. It does not relate to the normal trading activities of the Post Office. Pension fund liabilities should have been separately identified.

I am disturbed to hear the Minister say that he expects to bring forward next year—covering the financial year 1975–76—yet another Statutory Instrument calling for more compensation for statutory prices restraint. This seems to be completely in contradiction to the remarks the Chief-Secretary made in the debate on the Statutory Corporations (Financial Provisions) Bill on 9th June, when he said:

"The Chancellor said in his Budget Statement that these price restraint subsidies were likely to have been phased out completely by April 1976. It remains our firm intention to keep to this timetable so that subsidies in 1976–77 will not be necessary."—[Official Report, 9th June, 1975; Vol. 893, c. 48.]

I would have hoped that in the current year it would be possible to phase out these deficit subsidies. I hope that the Minister will assure us that his Department is doing everything possible to staunch this liability on the taxpayer.

11.15 p.m.

Mr. Ian Wrigglesworth (Thornaby)

The hon. Member for Tonbridge and Mailing (Mr. Stanley) has spent about £45 million worth of our time this evening. I shall try not to be so expensive. I take the opposite point of view from that of the hon. Member. This is the third debate in a year on Post Office affairs. It may only be 90 minutes, but bearing in mind all the demands upon the time of the House over the past year, the Post Office has done well. I am told by hon. Members that now that the Post Office is a public corporation we never get the opportunity to call it to account and to question it. Those who come to the House on a Thursday afternoon to ask the Lord President whether he will find time for a debate on their pet subject should take note of the fact that the Post Office has done very well.

I wish to say a few words on the specific question of prices and then on the review of the Post Office which has yet to be established. I find the remarks of Conservative Members contradictory. I am not sure what they are suggesting. They condemn the Government for introducing this measure and say that it should not be necessary. What do they suggest as an alternative? Do they suggest that the Post Office should put up its prices even more? Or do they suggest that Post Office staff should be cut substantially to stop these deficits? I have not heard any alternatives put forward.

Mr. Tom King

These deficits are historical, relating to 1974–75. The options that the hon. Member raises are not much good. Whatever we do now will not affect the situation. We say that if £307 million is lost there is legislation to compensate for price restraint, which should be used in the proper way. If it is necessary to write off the remaining deficit, which is a trading deficit, that should be faced up to.

Mr. Wrigglesworth

I am grateful to the hon. Member for that explanation. It would still be a charge upon the taxpayer, irrespective of the way it was handled. It is either written off or handled in this way. That is a fair attitude. But let us not deceive the taxpayer, as I suspect some remarks might have done, into thinking that there is some mystical way in which the deficit can be done away with. The Opposition say that the taxpayer has to pay and there is no alternative to that. I accept that that is the case. Like my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding), I regret that this Order and others like it should be put before us.

I fully support the Government's policy of phasing out price subsidies in the nationalised industries. The hon. Member for Bridgwater (Mr. King) asked whether these are justifiable costs. If the hon. Member read an article which appeared in the Daily Telegraph shortly after the price increases were announced he will know that the Chairman of the Post Office Corporation, Sir William Ryland, said: Prices have been kept down too. Recent statutory pricing policies required us to budget for losses. Under-priced services meant over-stimulated demand. Over-stimulated demand meant higher investment at very high rates of interest. All to provide services which did not begin to cover our costs. That was the situation the Post Office was in and is in as a result of Government action under both parties. We cannot blame the Post Office for the situation in which it finds itself. This loss has to be covered. The gradual phasing out is surely the best way to do this, rather than introducing even more swingeing price increases, which is the only other option open to the Government. When Conservative Members criticise the Post Office for the present state of affairs they should remember that it was this policy of subsidising prices that stimulated demand, as the chairman said. That is a very dangerous policy.

It may be that the Post Office should have anticipated the situation and budgeted accordingly, but when the Government tell a nationalised industry to pursue a certain policy it is difficult for that industry to plan for changes in Government policy which it cannot foresee. For that reason, the Post Office has faced great burdens in trying to plan ahead in these circumstances.

The hon. Member for Tonbridge and Mailing asked why the price increases were delayed, as they were. The hon. Gentleman should try to run an organisation with a staff of 425,000 delivering 35 million letters a day. He should try to plan for it. It is an enormous task. In a situation in which there are two General Elections within a period of six months, with price codes being changed, and, in addition, it takes three months at the minimum to get through a price increase, because of the necessity to go to the Post Office Users' Council, the Department of Industry, the Cabinet and the Price Commission, when changes in Government policy are taking place, and when there is uncertainty, which is not the responsibility of the Post Office, it is not difficult to understand why price increases are delayed and why the Post Office faces all the problems of planning for such an enormous organisation.

It is with regret that I support the Government's action. It is one of the last dying embers of the policy of subsidising the nationalised industries' price restraint policies.

I say a word now about the cost to the Post Office of the inquiry which has been laid upon it. Hon. Members will recall that in the course of our last debate on the Post Office, I roundly condemned inquiries which had been held into its affairs. I regret that this latest inquiry has been established. The facts are widely known. I have my own interests in the Post Office, as parliamentary adviser to one of the unions and as a former Post Office employee. We have a Select Committee on Nationalised Industries, which at present is conducting a thorough investigation into one of the businesses of the Post Office. Why is it necessary, on top of one inquiry, to establish yet another? It is an intolerable burden to load upon the Post Office not only the inquiry but also the uncertainty of delay from August until November without any inquiry being appointed and without any terms of reference being published.

I know that the Minister appreciates that the Post Office is willing to assist in the running of this inquiry and to expedite its work. I hope that he will try to assist the Post Office by appointing the inquiry and by getting the terms of reference published as soon as possible, so that the inquiry can get on with its job, publish its findings, and let the Post Office do the job that it has to do.

At the end of the day, the Post Office management has to run the Corporation itself. It has to plan ahead. If, all the time, it is looking over its shoulder at this House, the Department or the Government investigating its activities, it is not devoting its attention to the job of providing efficient telecommunications, postal and other services. That is the job to which the management of the Post Office should be devoting all its time. I regret that in the coming months so much time will have to be spent providing information for the inquiry. I hope that it will be expedited as much as possible.

11.24 p.m.

Sir George Young (Ealing, Acton)

It is a pleasure to speak in the debate after the hon. Member for Thornaby (Mr. Wrigglesworth). We share a common stake in the Post Office Pension Fund and we are delighted to see the concern of our parliamentary colleagues that we should both be provided for in our old age.

In previous debates the Minister has robustly reminded us that he does not run the Post Office and is not responsible for some of the criticisms which, in our enthusiasm, we visit on him. I shall respect the hon. Gentleman's sensitivity by concentrating briefly on one subject which is his responsibility, namely, the financial targets for the Post Office that are set by the Government.

The situation is that nearly all the nationalised industries have the same financial target—roughly to make 2 per cent. on turnover. One has only to look at the Post Office to realise what a nonsense this is, because there is the same financial target for the postal service, which has virtually nil growth and which is labour-intensive, as there is for telecommunications, which is capital-intensive and which enjoys a growth in demand. It is economic nonsense for the Government to set the same financial targets for two such completely different industries.

The Government owe it to the Post Office and to the country to define, much more clearly and coherently than they have done to date, their expectations of these two services, to set realistic and relevant financial targets, and to ensure that the country gets good value for money. Historically, such targets have been expressed in terms of so much return on assets. Two particular problems have arisen, and I put this point to the Minister because I hope he is contemplating setting fresh targets for the Post Office.

First, many of the nationalised industries, and particularly the Post Office, are monopolies. As such, they can jack up tariffs to meet any financial targets which the Government set them, and there is no guarantee that those assets are being used efficiently. Secondly, because of the high rate of inflation, the provision that has been made by the Post Office and other nationalised industries for replacement has been inadequate, and there is an argument that the nationalised industries should now move over to current cost accounting. It would be interesting if the Government could share their thinking with the House and, when they set financial targets, set out clearly on what basis the assets are to be valued. The Post Office telecommunications side could have a target of a 5 per cent. to 6 per cent. return on net assets if they were valued on a current cost basis.

When the Minister sets targets for the Post Office he should set them in terms of output per employee, of letters delivered per postman, so that one can try to flush out some of the overmanning in the Post Office, but financial targets are set which can easily be achieved by putting up tariffs.

The price of mismanaging the nationalised industries is high. Over the past 10 years we have spent about £3,000 million in subsidies to nationalised industries of the kind that we are debating this evening. That sum of money could have built 375 new schools, 200 new hospitals, or 300,000 new homes. We are not debating the Post Office in isolation, we are debating a problem which means that resources are being diverted towards the Post Office and away from services which desperately need those resources. The Government owe it to the House to set realistic targets for the Post Office, so that it can contribute to the Exchequer instead of being a drain on it.

11.28 p.m.

Mr. Giles Shaw (Pudsey)

It is important that we have a discussion of this kind, ranging from the consumer on the one hand to the taxpayer on the other. They happen to be the same person. The consumer is involved in both those categories, in footing the bill as well as enjoying a reduced level of service in many aspects of Post Office activities.

The Minister said that as a result of the new postal tariffs the traffic loss in the first month was 13 per cent. What was the estimated loss for the first month, which was a matter of deep calculation in the Post Office, and what is the average estimated loss for the 12 months under the current review?

Secondly, I must refer to the Price Commission and its reports. For two successive quarters the Price Commission has warned the Government of the rate of escalating costs within the nationalised industries, and in its advice it has made a clear distinction between price policy and cost policy.

In his opening remarks the Minister said that there was some improvement, and that the number of vacancies had dropped from the 9,000 level to the 5,000 level. May we ask what effect this will have on costs? If, as I suspect, it will increase costs, bearing in mind the falling return in terms of service, what does the Minister expect he will have to do to reduce costs in order to come anywhere near the cash targets that he has set?

Thirdly, on the question of pricing policy, will the Minister comment on the extent to which he sees recovery being spread as between industrial users and domestic users of the Post Office services? I draw a distinction between telecommunications services on both those grounds, because the domestic user is to some extent insulated against some tariff increases which are passed by the Post Office on to industry. Bearing in mind; the recurring reductions in industry's profit levels, because of the operation of the Price Commission and the Price Code, does the hon. Gentleman suggest that it will be Post Office policy to increase again the charges upon industry so as to subsidise to some extent the consumer?

I raise these questions in the name of the hard-pressed taxpayer and consumer.

11.31 p.m.

Mr. Gregor Mackenzie

We have an expression in the part of the world that I come from—"You can have your feet ca'ed away from you." This has not been quite the debate that I expected we would have. It has been a very useful and constructive debate. I am grateful to hon. Members for the way in which they have participated and for the spirit in which they offered advice to me.

Advice can sometimes be a little contradictory. I am never certain whether the remarks are directed to me, as a Minister in the Department responsible for the Post Office, or to the Chairman of the Post Office Corporation. I suspect that some of the remarks are for me and some are for him. I take note of the remarks which are directed at me, and I am sure that the Chairman of the Post Office Corporation will take note of the remarks which are directed at him. I have said repeatedly that I am not the Chairman nor do I seek to be.

My hon. Friend the Member for Thornaby (Mr. Wrigglesworth) said that during the year that he has been in the House we have had a number of discussions on the Post Office. I do not think that such debates necessarily do much good for the morale of the Post Office staff. However, a debate in which helpful comments are made, as they were made in this debate, is useful.

Members of the House should not take it upon themselves to try to manage the Post Office. It I were the chairman of a nationalised industry, or of a large public company, I should not like to have anyone constantly looking over my shoulder, as we seem to be doing with the Chairman of the Post Office Corporation. Those who accept the task of serving on the boards of nationalised industries will be heartened by the comment of my hon. Friend the Member for Thornaby that, they having been appointed, Members should allow them to get on with their job.

I see the hon. Member for Tonbridge and Mailing (Mr. Stanley) shaking his head as though there were something wicked in the suggestion that the Chairman of the Post Office Corporation should be allowed to do the job he has been appointed to do. He was appointed by the Tory Government and he was re-appointed by my right hon. Friend the Secretary of State. I am sure that the Chairman would appreciate it if he were allowed to get on with the job without constantly being offered advice by members of the public. Everyone has an interest in the activities of the Post Office.

Mr. Tom King

We did not ask for this debate. We are having the debate because the Government want permission to recover losses made by the Post Office. It is the Government who brought forward this motion which is being discussed in an hour and a half.

Mr. Mackenzie

I hoped that I was being complimentary to the hon. Gentleman earlier. I hope that the House will accept that it is difficult to manage the Post Office and that the House should be showing its confidence in the Chairman and his Board.

I was asked whether I would demonstrate how the effects of price restraint added up to the same figures as the deficits. I have taken some trouble about this, for I must confess that figures sometimes trouble me. It may come as a great surprise to the House but it is true that I can be troubled by figures, as can other hon. Members.

We are not claiming that the calculation of the effects of price restraint on the costs and revenues of the Post Office would produce a figure equal to the actual deficits incurred by the Post Office businesses. The concept on which the Post Office demand for compensation for price restraint is based is that in its absence the Post Office would have fulfilled its statutory financial obligation of securing that its revenues were not less than sufficient to meet all charges properly chargeable to revenue account, including allocations to general reserves, taking one year with another. In other words, being a law-abiding organisation, the Post Office would have set its prices at levels that would have ensured that it did at least a little better than simply breaking even. Price restraint prevented the Post Office from doing that.

Thus, it is reasonable to compensate the Post Office up to the limit of the deficits, as the Act allows, unless there are identifiable reasons for not doing so. Thus, it would be wrong for the House to withhold compensation of the full amount of the deficits unless it were clear beyond doubt that factors other than price restraint had materially contributed to the deficits.

I was asked to set out the effects of price restraint on both costs and revenue. Hon. Members know perfectly well that to be meaningful such a calculation would have to work its way through from the very beginning of price restraint, because the effects of price restraint are cumulative and therefore it would be artificial to consider within the compass of a single year what the Post Office would have done had the circumstances of preceding years been entirely different from those actually prevailing.

Therefore, with complete freedom to determine its own price levels, the Post Office would have expected to remain in surplus. Any calculation of the loss of revenue due to price restraint and forgone opportunities would certainly show that price restraint cost the Post Office substantially more than the sum we are discussing tonight.

Mr. Tom King

This is the crucial point. The hon. Gentleman is saying that because the Post Office is a law-abiding organisation, it would have been able to make a good profit but for price restraint. There are plenty of good companies that are law-abiding and that unfortunately, because of the way in which the economy moved, or for some other reason, did not do what they hoped to do. That answer will not do.

Mr. Mackenzie

I am sorry to disappoint the hon. Gentleman, but it is the only answer he will get.

My hon. Friend the Member for New-castle-under-Lyme (Mr. Golding) asked me about manufacturing in the Post Office. I have made many speeches on this subject. My right hon. Friend the Secretary of State has received definite proposals from the Chairman of the Post Office about manufacturing arrangements. They are now being studied and I will let my hon. Friend have my comments on them later.

My hon. Friend asked me about the telecommunications side. I can say that the Post Office's long-term plans envisage the integrated system that he and I have been discussing for many years. However, such a system, as we are both aware, requires many years of forward planning and massive investment, and it is complicated by an ever-changing technology and the need to satisfy various demands as they arise. Those plans will be evolved gradually and steadily.

My hon. Friend mentioned the pension fund, as did the hon. Member for Ton-bridge and Mailing. I cannot add to what I said in my opening comments. I accept that this is a contentious subject. I know that the hon. Gentleman has been concerned about Consols for some time. This matter must be fully considered. The Government are considering it now. I am anxious that we should not say "We introduced it in 1969; the Conservatives carried it on between 1970 and 1974; now we are being called on to make a decision." This will take some time. I am sure that the hon. Gentleman would not wish us to take a decision in haste.

I was surprised at some of the comments of the hon. Member for Tonbridge and Mailing about the increased charges which were introduced in June 1974. That was one of the first—some people thought that it was unpopular—acts of the Labour Government, but I thought that we were right to do so. I supported that policy when the Labour Party was in opposition. On taking office I consulted my senior colleagues in the Department and the Government at the earliest opportunity, so as to ensure that the measures were passed as quickly as possible.

I was asked whether the Government hoped to ensure that there would be no further compensation orders after the 1975–76 Order. Nobody promised that there would not be a further order.

Mr. Stanley

In the debate on the Statutory Corporations (Financial Provisions) Bill the Chief Secretary said that it was not envisaged that the 1975–76 Post Office compensation would exceed £70 millions. Will the Minister give us an assurance that the ceiling still stands?

Mr. Mackenzie

That is the ceiling at which we are still aiming. It is too soon after the introduction of the latest tariff increases to make any assessment. Those increases were brought into being a month or so ago. It is therefore not possible to give the categorical assurances for which the hon. Gentleman asks.

My hon. Friend the Member for Thornaby asked about the Post Office inquiry. Despite the doubts of Members of Parliament, union representatives and others, the Government responded to the suggestion of the Post Office Users' National Council. There will be a wide-ranging inquiry. However, an inquiry provides no magic wand. It will not enable the £300 millions about which we are troubled to disappear overnight. However, I hope that the inquiry will be of value to this House and to the Post Office. The Post Office will give every co-operation to the review body, once it has been established.

I am sorry that time does not permit me to answer all the points made in the debate. However, I have taken a note of all the points made and shall provide answers to them.

Question put and agreed to.

Resolved,

That the Compensation for Limitation of Prices (Post Office) Order 1975, a draft of which was laid before this House on 27th October, be approved.

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