HC Deb 23 March 1988 vol 130 cc485-92

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dorrell.]

11.32 pm
Mr. James Wallace (Orkney and Shetland)

I am grateful for the opportunity to raise on the Adjournment the issue of the Post Office surcharges, particularly on the Datapost service, to destinations in the Highlands and Islands of Scotland. The subject caused much disquiet in my constituency and, indeed, in the Western Isles and in Northern Ireland at this time last year when the Post Office announced a 20 per cent. surcharge on the Datapost service to the Scottish islands—with no mention of the Welsh or English islands—to the Isle of Man and to Northern Ireland. The issue was raised in early-day motions at that time by myself, by the right hon. Donald Stewart, who was then the Member of Parliament for the Western Isles, and by right hon. and hon. Members representing Northern Ireland constituencies. Regrettably, there was no satisfactory response or action by the Post Office.

There was a further outcry at the beginning of March this year when it was announced that the surcharge for the Scottish islands, which this time was extended to the Highlands, was to be 35 per cent., and that for the Isle of Man and Northern Ireland it was to be 25 per cent. Early-day motions in the names of the hon. Member for the Western Isles (Mr. Macdonald) and my hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan) have between them attracted 79 signatories protesting about the latest imposition.

The outcry was greater perhaps because it was accompanied by the resignation from the chairmanship of the Scottish Post Office Board of Mr. Ian Barr on the grounds that there was not adequate consultation with him, nor had he been given any costing figures for traffic levels to justify the increase. He described the increase as discriminative, arbitrary and aimed at enhancing profits without regard to the social responsibility which the Post Office corporately has placed on it. The Post Office has denied the charge of lack of consultation, and there has been a fairly acid exchange of letters in the columns of the Scottish press. I do not want this debate to be sidetracked on to the rights and wrongs of Mr. Barr's protest, but I make two observations. First, one of Mr. Barr's complaints was that the Post Office definition of "the Highlands" was not clear. It appears that it extends to what we now understand as including Grampian region, excluding Aberdeen. Few Scots would recognise that definition. Secondly, the decision that has been taken is symptomatic of centralised decision-making that pays insufficient attention to the impact of those decisions in remote areas. I say that notwithstanding the personal commitment given by the chairman of the Post Office, which I accept, to keep in mind the interests of rural as well as urban areas.

A debate such as this is not the time to rehearse all the arguments about the relative economic disadvantages of the remoter parts of the United Kingdom. But it is clear that in constituencies such as mine and that of the hon. Member for Western Isles, who may try to catch your eye, Mr. Deputy Speaker, there are economic disadvantages because of distance. Costs, especially of transport, are often higher. Surveys have shown that the two largest towns in my constituency, Kirkwall and Lerwick, are among the 10 towns in the United Kingdom with the highest costs in the shops. We fear that an added burden will be imposed on us because of the increased Post Office charges, especially for Datapost.

The Datapost surcharge is on consignments to the Highlands and Islands. It does not include dispatches from the area or within the area. When the Post Office imposed the surcharges last year, it argued that they would almost invariably be borne by those sending the goods and would not be added to costs in the surcharged area. Shetland chamber of commerce responded that, to a large extent, the costs were being passed on and that it was, therefore, a further imposition.

The Post Office has given reasons for the surcharge, and mentioned specifically the need to be competitive in what I accept is a very competitive market. But it strikes me as odd to increase prices to be competitive.

This morning, the hon. Member for Western Isles and I met the chairman of the Post Office, Sir Bryan Nicholson, and his senior colleagues who are most closely involved with the decision to increase the Datapost surcharge. We conveyed to them our worries about the impact of the surcharge on the business life of our communities and other communities throughout the Highlands. In response, they claimed that they at least provide a service, which cannot be said for all their competitors, and that is something for which we are grateful. They also claimed that, notwithstanding the surcharge, they provide a cheaper service. They accepted the point that if, as they claimed, their service is cheaper, more effective marketing of it would help to reduce unit costs.

The Post Office was able to give us some undertakings. Sir Bryan had said that he would have to think about matters before doing so, but the hon. Member for Western Isles and I are grateful to him for managing—perhaps in anticipation of this debate—to get a letter to us this evening. In it, he guarantees that, for at least three years commencing on 5 April next, no surcharge will be levied on Datapost items dispatched from surcharged areas to non-surcharged areas or within the existing surcharged area. Secondly, the level of surcharge, where applicable, will be no more than the existing 35 per cent. of standard Datapost prices. I am extremely grateful for those guarantees. It shows that our representations have had a positive outcome.

Unfortunately, those guarantees do not go all the way towards alleviating our worries about the imposition of a surcharge on goods sent by Datapost to our constituencies. We have asked the Post Office for costings and figures on the level of traffic but were given to understand that such data cannot be given out because it would breach commercial confidentiality. We were told, however, that the Post Office tries to charge a sum that gives it no greater profits on the service to the Highlands and Islands than to anywhere else. The Post Office admits that the surcharge is imposed because of its competitive pricing policy, but that the additional revenue that flows into its coffers from the surcharge has not been measured, and it could not tell us what proportion of overall turnover it constitutes.

No one would readily contradict our suspicion that only a modest amount is added to the turnover by this surcharge; it would be small in terms of the whole Datapost operation. However, it is a serious imposition on retailers, and on farmers in my constituency who may have to order spare parts urgently and find the service useful for that. For them, this surcharge is a serious additional cost.

When we discuss the operations of nationalised industries in Adjournment debates, it is easy for Ministers to claim that it is not their responsibility to go into operational details. However, it was made perfectly clear to us by the Post Office that the Government set financial targets and it is asked by them to run a fully commercial operation. If it departed from that to take into account, as we hope it will, the special social and economic considerations involved in serving a community such as mine, it would need to be steered by the Government in that direction.

I hope that the Minister will give serious consideration —even if not tonight—to allowing the Post Office some discretion in deciding whether the Datapost operation to areas such as my constituency should be run at the strictly commercial rate of return that it feels obliged to adhere to at present. That would be consistent with other Government policies.

For example, the rural sub-post office network cannot be said to be a great commercial success for the Post Office, but after many representations the Government accepted that there were social reasons for sustaining it. We agree with that; the Post Office can do that because of the backing it gets for it from the Government.

Similarly, the Government are on record as recognising the problems of areas such as the Highlands and Islands. The Highlands and Islands Development Board, itself an act of faith of Government policy, helps to redress some of our economic disadvantages. There is also Government support for trying to ensure that our area will not lose out in any reform of the EEC regional development fund. The Government recognise there is a special social and economic case for helping the Highlands and Islands, and accordingly it would be consistent with their policy to allow the Post Office to reduce the surcharge it has imposed.

I hope, too, that the Minister can assure us that the surcharge is not the thin end of the wedge. A number of my constituents have told me—not least those who are in business—that they fear that this is the start of a two-tier system which could spread throughout the postal service. That fear has been reinforced by the Post Office's decision, in introducing its new parcel Superservice, to create three zones—the Highlands and Islands again fall into the most expensive one.

In correspondence with the Shetland Islands council, Ian Barr, who was still then chairman of the Scottish Post Office Board, said that the zonal pricing had had to be implemented at the behest of the Government. I know that the Minister has denied that in correspondence with that council. What did pass between his Department and the Post Office about this? Did the Post Office need to put up a zonal pricing system to his Department in order to spobtain consent for capital expenditure?

We are not asking for cross-subsidisation between the different activities of the Post Office. However, even within the three zonal bands there must be cross-subsidisation between routes. There is surely a case for cross-subsidisation within the one service, so that areas where the Post Office can make high profits because costs are low help to subsidise the postal service and the Superservice in areas where, I admit, it is far more difficult to provide a service cheaply.

We fear that what is now happening will undermine the flat-rate pricing structure for letter post. The monopoly that the Post Office has in the letter service is something that we greatly value. We have been assured by the Post Office of its commitment to that monopoly and its wish to continue it within the letter service and to have a common tariff. It would be reassuring if the Minister would say that that is also the Government's policy. We fear that the licensing of even one competitor, as has happened with Mercury in the telephone service, could undermine that service if that competitor could provide a speedy service in city areas, which, in turn, would force the Post Office to make investments so that it could compete. Such investment in the urban areas would take away resources for funding a postal service in rural areas.

However much we may grouse, we recognise the valuable service that the Post Office provides to remote areas. We greatly value it. We do not want it to be lost or to become even more costly.

11.46 pm
Mr. Calum Macdonald (Western Isles)

I am grateful to the hon. Member for Orkney and Shetland (Mr. Wallace) for allowing me to take part in this debate. He has comprehensively covered a number of points and I wish only to say a few words in support of his remarks, so that the Minister can give a complete answer to the points raised.

The hon. Gentleman and I saw the chairman of the Post Office this morning to discuss the introduction of the Datapost surcharge for the Highlands and Islands. We received a sensitive hearing and he gave us the commitment that the hon. Gentleman mentioned. He made it clear that the ultimate responsibility for setting the guidelines for the Datapost service, within which the Post Office makes its decisions, rests with the Government. In applying commercial criteria to that service, the Post Office is following the Government's guidelines.

We are asking for a balance between the commercial criteria and the economic impact on the Highlands and Islands of the surcharge. A point made frequently during the past week has been the uneven economic development between north and south. During our Budget debates there have been frequent calls for Government action to redress that imbalance. It does not make economic sense and it is not socially healthy for the country. The Government appear reluctant to take the direct action needed to redress that imbalance. Even though they will not do so, we ask them to do nothing to encourage or reinforce it. We urge them to take greater stock of the economic considerations when giving guidelines to the Post Office for the Datapost service.

I should like to reinforce the point made by the hon. Member for Orkney and Shetland on the need for some figures to allow a proper assessment of the imbalance to be made. Apparently, the Post Office does not have the figures necessary to say how the added global values resulting from the surcharge compare with the overall turnover and profit of the Datapost service. The hon. Gentleman rightly referred o our suspicion that, compared with the overall turnover, the added contribution made by the surcharge is very small, but its impact on the Highlands and Islands is relatively much greater.

We call on the Minister to obtain some figures that will allow him to make a judgment. If purely commercial criteria are to be applied to the Datapost service, there is a danger that those criteria will be extended to other postal services. The surcharge warns us what will happen if the privatisation plans for the Post Office, which have been mooted by some Conservative Members, come to fruition.

11.50 pm
The Parliamentary Under-Secretary of State for Industry and Consumer Affairs (Mr. John Butcher)

I congratulate the hon. Member for Orkney and Shetland (Mr. Wallace) on the manner in which he has pursued this issue and the courtesies which he has observed in informing the House, and where appropriate me, of the progress which he has made. I am especially grateful for the updating that the hon. Gentleman gave me and my officials on the outcome of his discussions earlier today. The hon. Gentleman may have drawn some encouragement from some of the observations made during that meeting. If any questions remain unanswered, I shall observe the courtesies by writing to the hon. Members for Orkney and Shetland and for Western Isles (Mr. Macdonald) on any outstanding points.

I am pleased to respond to the comments of the hon. Member for Orkney and Shetland. He has forcefully expressed his worry about the Post Office's recent decision on surcharges on items sent to the islands and certain parts of the highlands using its Datapost services. Some of that concern may be misplaced. It must be clearly understood that these surcharges have nothing to do with the ordinary letter service. We make judgments about that service in terms of the social element, the national service to all parts of the country and the price at which it is provided.

The concern is over the Post Office's high-speed courier service, Datapost. Datapost, which is the responsibility of Royal Mail Parcels rather than Royal Mail Letters, is a competitive commercial service which is used mainly by business rather than by domestic customers. It is not covered by the statutory letter monopoly. It is in competition with the services of private couriers. Decisions about Datapost services and prices are for the Post Office to make in the light of commercial factors. It is not for the Government — these are the words that the hon. Member for Orkney and Shetland was dreading — to make these decisions, nor is it for us to intervene in decisions which the Post Office has taken.

The hon. Member for Orkney and Shetland briefly mentioned the recent resignation of the chairman of the Scottish Post Office board. I believe that this is not a matter on which it would now be appropriate for me to comment. I am aware that the circumstances of Mr. Barr's departure were well publicised in a high profile exchange between Mr. Barr and the Post Office. Appointments to the Scottish Post Office board are the responsibility of the Post Office, and the Government are not involved. The resignation of the chairman of the board is a matter for the Post Office and the individual concerned.

Mr. Macdonald

I wonder whether the Minister would clarify that point. He says that it is not for the Government to lay down guidelines for the Datapost service. Is that because the legislation says that they must not or because it is their policy not to?

Mr. Butcher

I hope to come to that point in a moment. There are overall considerations that the Government ask the Post Office to bear in mind, particularly considering the distinction between the different kinds of services—for example, the universal letter service and the more specialist services in higher added-value areas where there is competition. It is right to make that distinction.

There was a clue in what was said by the hon. Members for Orkney and Shetland and for Western Isles, who voiced veiled misgivings about the opacity of the accountancy practice. The Post Office would dearly love to have more and clearer data— that is accountancy information—service by service, on which to make more detailed management judgments. I suspect that the Post Office is determined to put that deficiency right. It is improving its management systems very effectively and, when all is said and done, it is one of the few postal services in western Europe—indeed, in the OECD countries—that are not just breaking even but making a small profit.

Therefore, my answer to the hon. Member for Western Isles is that the Government can indeed legitimately make observations on what he has called guidelines. What we do not do, however, is cut right down into individual tariffing policy. Another day, or perhaps in correspondence, we can examine the assertion of the gentleman who resigned in such a high profile manner and perhaps the Government's position, which may not entirely agree with the way in which the reported remarks were made.

In the time available to me I report that I asked questions parallel to the questions that the hon. Members for Orkney and Shetland and for Western Isles have asked about the pattern of traffic to the Scottish islands since last year's surcharge, since that may give us some clue about the effect of surcharges. We cannot judge the effect of the present surcharge, but since last year's surcharge traffic to the Scottish islands has been extremely buoyant. Traffic on the routes rose by 25 per cent. between April and July and by 50 per cent. between April and November. Even after taking into account the strong growth rates in Datapost generally, that suggests that adverse customer reaction was negligible and that the service remains highly competitive in terms of both price and reliability.

Traffic on other Post Office services to the islands has also grown steadily, although generally in line with the growth rates for the United Kingdom as a whole. Therefore, it would not be accurate to assert that thus far there is evidence of a deterioration in the general or business traffic.

Mr. Macdonald

That is is not the point.

Mr. Butcher

The hon. Gentleman says that it is not the point, but I think that I can legitimately put the figures before the House by way of background to the general question.

Like me, the hon. Gentleman will be anxious to discover that the business community, remote as it is, and with the other high costs that it may have to bear, is still vigorously using the growing services in the Post Office. Thus far, the evidence is that it is. Given that users within the remote areas do not pay the surcharge unless they are posting to an area of high surcharge—we are talking mainly about incoming sensitive, fast-reaction business mail—it would appear that those who do business with the hon. Gentleman's constituents on that basis have thus far not been deterred from expanding the traffic by using the Datapost service.

We look to the Post Office to act commercially and, where it operates in competitive markets, to compete fairly. It has been a matter of long-standing policy that it is primarily for each nationalised industry to work out the details of its prices, while having regard to its markets and overall objectives, including financial targets set by the Government. That is part of the answer to the questions asked by the hon. Gentleman. Of course we look at external financing limits and it is that EFL, whether it is positive or negative, that drives the business plans of most of the nationalised industries where they are still reporting to the House on their performance set against those figures.

That general principle is subject to the policy that the industries should avoid arbitrary cross-subsidisation between different groups of consumers. The Post Office, like other nationalised industries, should seek to ensure that its prices are sensibly related to the costs of supply and the market situation. I should add, Mr. Deputy Speaker, as you will probably be vividly and personally aware, that none of that policy is new. It was set out in the 1978 White Paper on nationalised industries, which was produced, almost by way of a valedictory effort, by the previous Labour Administration.

That does not mean that the Post Office should set a different price for each and every item or customer, calculated on the basis of the particular costs involved each time. That would be neither practicable nor sensible. However, it does mean that in determining prices for a service such as Datapost —-or the Superservice business parcels service to which reference has been made — where there are readily identifiable differences in supplying the service to different groups of customers, the Post Office should aim to reflect this in the prices charged. I hope that the hon. Members can decode that paragraph when looking at Hansard tomorrow and get close to the answer to the question that they both raised.

The Post Office must also take account of the market conditions. That means that it must have regard to the pricing structures of its competitors. It does not mean that it should simply charge what its competitors charge. The Post Office's prices should reflect the level and structure of its own costs and, for many reasons, those might be very different from those of its competitors. In fact, there is evidence that Datapost is competing successfully in that market segment.

The two hon. Gentlemen did not go on to voice concern about the implications for postal services generally in the highlands and islands. However, I suspect that they are each aware of the fact that the general postal service is looked at in a different light and that the universal service is still the prevalent consideration.

Therefore, the Post Office has not turned its back on its proud tradition of public service and commercialism and public service—

The motion having been made after Ten o'clock on Wednesday evening, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at two minutes past Twelve o'clock.