Post Office (Hansard, 25 June 1990)

§ Mr. John Marshall (Hendon, South)

Since my success in the ballot, my argument has been strengthened by two events. First, yet another industrial dispute in north-west London has affected postal services; secondly, increases in postal charges have recently been announced.

The sad, sorry saga of industrial relations in the postal service has given many of my constituents a deep sense of frustration. Only this morning, I received various letters: I shall quote, briefly, from two of them. One of my constituents asked: Is there any means of making accountable to the public those responsible for the sporadic, sometimes prolonged, always disruptive and damaging postal strikes which bedevil north-west London, of which we are a part? A second wrote: I have lost count of the number of times I have been denied this most essential service for my profession recently. What sort of Government is it that cannot control a postal service, and discipline or dismiss the left-wing agitators who terrorise this district? Those are two examples of constituents' complaints about the constant interruption of postal services suffered by the people of north-west London over many years.

The second event—the Post Office's announcement of a series of increases in charges—underlines its weakness and inefficiency. I understand from the Post Office business plan, provided by the Mail Users Association—the Post Office was kind enough to give it to the association—that last year the inland letters service made a pre-interest loss of £37 million, and that the most profitable part of the postal service is interest-receivable. The international letters service made a profit of £41 million on sales of £331 million. In the letters business, 64 per cent. of pre-interest profit comes from 10 per cent. of turnover. Interest receivable in the year 1990–91 will be twice the profit from inland letters.

My remarks are not aimed at the chairman of the Post Office, its board or its employers; I believe that the Post Office's problems are an inevitable consequence of nationalising a monopoly. It is no coincidence that the part of the Post Office that is relatively efficient—the parcels operation—is the part that has to operate in a competitive world. I congratulate the chairman of the Post Office on securing the freedom of Giro to prosper in the private sector, and on "divisionalising" the Post Office into Royal Mail, Post Office Counters Ltd. and the parcels service. Those three divisions are a privatiser's dream.

The chairman has also performed a major public service by ensuring that the Post Office lives in the real world, instead of the world of make-believe statistics that dominated public comment on the subject for so long.

Post Office Counters operates in a large number of prime sites, but suffers from several basic problems. First, there is a declining market. The 1987–88 report of the Post Office said that growth was in danger of petering out; certainly, Post Office Counters, basic business is providing pensions and child benefit, and in future many people will want to be paid by Giro rather than in straight cash. Secondly, Post Office Counters lacks the property expertise to redevelop the sites, and the present financial arrangements make it rather unnecessary for it to do so: if 157 it were to redevelop, the money would go straight back to the Treasury, and would not be reinvested within the business.

When the Monopolies and Mergers Commission looked into Post Office Counters, it was critical of what it saw. It said that working practices and clerical procedures were outdated, that there was less than a full workload for the hours paid and that overtime was institutionalised and often unnecessary. As a result, Post Office Counters operates in many of the prime sites in our high streets, but its open for far fewer hours than many retailers. Apart from Post Office Counters, no other high street retailer shuts on Saturday afternoons. If Post Office Counters were privatised en bloc tomorrow, the result would be greatly beneficial to a large number of its employees and to its customers.

There are many complaints about the cost and quality of postal services. Hon. Members know of the apocryphal evidence. During the Pete Murray programme last week, a listener telephoned to say that a card that he sent for Easter 1989 arrived just in time for Easter 1990. Another listener telephoned to say that a letter that was posted in March arrived elsewhere in London in mid-June. One of the prime cases was of a letter that went 15 miles during five days. At three miles a day, pigeon post would be somewhat more efficient.

When the Select Committee on Trade and Industry examined the Post Office, it referred to the present deplorable performance of the first-class mail service. The Chairman of the Select Committee, my hon. Friend the Member for Hastings and Rye (Mr. Warren) said that, over the years, the Post Office had not organised itself as effectively as it should.

When the Consumers Association investigated the Post Office in September last year, it pointed out that the first-class mail service had deteriorated since 1985. Only 85 per cent. of first-class mail was delivered the next day, and only 53 per cent. of long-distance first-class mail was delivered the day after it was posted. That is a much poorer record than the Post Office aims at, and it underlines the difficulties with which the consumer must contend.

It is not only first-class post that is a source of complaint for many consumers. The Which? survey found that a large amount of second-class mail was not arriving by the third working day after posting. The survey came to certain conclusions, one of which was to avoid posting first-class mail on Friday or Saturday because it has less chance of arriving on time. Of mail that is posted on Friday, only 50 per cent. would arrive on time.

Not only Which? has shown how bad the first-class postal service is. The mail users survey of March 1989 showed that first-class and second-class mail services were quite inadequate. It estimated that the cost of postal delays to industry was £4 billion.

Apart from postal services being unreliable and slow, a significant amount of post is now lost. The Mail Users Association has estimated that 5 per cent. of letters disappear. Regardless of whether we judge the postal service on the basis of price increases or reliability, it is inadequate.

Post Office representatives have periodically referred to the difficulty that the service faces. They have so far failed to produce the goods. The 1978 Carter report concluded: If the service becomes much worse than the public expects, it would become impossible to defend the monopoly against those who might offer a better service. 158 The Post Office has failed to deliver the goods at the speed that it promised. A competitive service would produce a better deal for the consumer.

I have no doubt that my hon. Friend the Minister will make international comparisons. He will compare the British monopoly with the German monopoly. We do not want to say whether one monopoly is better than another—Conservative Members believe that all monopolies are inherently bad and inefficient—but we want to know whether a competitive service would not be better than a monopolistic service. The record of the Post Office in recent years demonstrates that a competitive environment would be better than the present environment. The conclusion can be only that the present position is unsatisfactory.

On Saturday my right hon. Friend the Prime Minister made it clear that her enthusiasm for privatisation and greater competition for the state industries continues apace. My hon. Friend the Minister's belief in competition and the evils of monopolies was frequently demonstrated in Strasbourg and on the Back Benches of the House before he became a Minister. I look forward to his reiterating the speeches that he made before the burdens of office came on to his shoulders, where they sit so lightly.

§ The Parliamentary Under-Secretary of State for Industry and Consumer Affairs (Mr. Eric Forth)

I congratulate my hon. Friend the Member for Hendon, South (Mr. Marshall) on obtaining this debate this evening. I acknowledge the fact that my hon. Friend the Member for Edmonton (Dr. Twinn) has been present during the debate, as have the right hon. Member for Blaenau Gwent (Mr. Foot) and the hon. Member for Falkirk, East (Mr. Ewing). I think that the hon. Member for Glasgow, Garscadden (Mr. Dewar) was here earlier. As ever, my hon. Friends on the Treasury Bench are keeping a close eye on what I say and, I suspect, on how long I take to say it.

This is an important subject, of interest to every citizen. It is one in which my hon. Friend the Member for Hendon, South has shown a consistent and expert interest since he came to the House. As he is aware, the Post Office is not an ordinary nationalised industry. Whereas many of Britain's nationalised industries came into being only relatively recently, the Post Office's links with the Crown go back a long way. The Post Office has long been at the forefront of the development of global postal services. It is especially appropriate at this time to mention, as an example of that tradition of innovation, the introduction of the adhesive postage stamp and with it the universal delivery and single tarriff postal system, which were introduced in Britain by Rowland Hill 150 years ago and which are now taken for granted throughout the world.

We should also remind ourselves that the Post Office is a very successful organisation. As my hon. Friend anticipated. I shall mention briefly—it is important to do so—that the quality of the letters service in this country is significantly higher than in most other European Community countries, Indeed, the Post Office recently announced that, according to a survey that it commissioned of the quality of the letters service in six European countries, including the United Kingdom, our Post Office now offers the best quality of service of all 159 those countries. In addition, I remind the House that, unlike many European postal administrations, the Post Office has throughout the past decade generated profits.

We cannot expect an organisation as big as the Post Office to be without its difficulties and there are several areas in which we would all like improvements. I shall touch on some of those now, and in doing so I shall address the issues that my hon. Friend raised in his speech.

While the Government do not have day-to-day responsibility for the quality of service in the Post Office—that is, of course, an operational matter for the Post Office—I and my colleagues are aware of how important that is to users of the Post Office's services. I say that bearing in mind the point, which my hon. Friend stressed, that the Post Office enjoys a statutory monopoly on the carriage of ordinary letters—a subject to which I shall briefly return later. The Post Office chairman has made it clear on a number of occasions that he regards improvements to the quality of service as a key priority, and I welcome that. I thank my hon. Friend for his tribute to the chairman and his colleagues, and I join him in that. They discharge a difficult task with great vigour and dedication.

For some time, there has been a perception among mail users, including my hon. Friend, that the letters service is perhaps not as good as it should be. Indeed, judging from my hon. Friend's remarks tonight, he may well think that to be an understatement. I remind the House of the protracted national postal strike in September 1988. More recently, we have been faced, particularly the constituents of my hon. Friend and my hon. Friend the Member for Edmonton, with the difficulties caused by the unofficial—I stress that they are unofficial—strikes in the north-west and west London letters districts. The Government consider that industrial relations, while primarily a matter for the Post Office, its employees and the trade unions, are something about which we share my hon. Friend's concern.

I must repeat what I said to the House last week: every time unofficial industrial action is taken that prejudices the level of service offered by the Post Office, it strengthens the argument of those who would like to see radical change in the present status of the Post Office. I hope that Post Office employees will bear that in mind before taking such action.

I am pleased to be able to tell the House that the number of days lost through industrial action in the year to March 1990 was 20 per cent. lower than the corresponding figure for the previous year, even when the effects of the national stoppage in September 1988 are taken out. I look forward to seeing that improvement maintained in future.

Recruitment and retention have been a problem for Royal Mail recently, particularly in London and the south-east of England, and this too has inevitably had an effect on quality of service. I am glad to be able to say that Royal Mail is responding to this problem with imagination and vigour. Regional pay supplements in areas of difficult recruitment area now a well-established feature of Royal Mail's pay structure and their introduction has proved to be a significant benefit.

Royal Mail has also taken a series of direct steps designed further to improve the quality of its services. During 1990, we have seen the reintroduction of Sunday 160 collections, and by the autumn that part of the programme will be complete. Improvements are being made to Royal Mail's transport network, which will enable mail to be moved around the country more quickly. The airborne network, which moves first-class mail around the country, has recently been strengthened by the addition of four new routes, and more mail is now being moved locally by road.

In the sorting offices, state-of-the-art optical character recognition sorting machines which can read typewritten postcodes are being introduced. In addition, we have seen the introduction of the sale of postage stamps through about 40,000 retail outlets throughout the country, and I know what a popular measure it has proved to be.

Complementing those developments, the Post Office introduced for the first time last year an end-to-end quality of service measurement system which measures the quality of the letter service as the customer sees it. At the same time, the Post Office made a public commitment—agreed with the Post Office Users National Council—to improve the quality of the first-class letter service on average by 3 per cent. during the year to the end of March 1990. I understand that, while problem areas still remain—they were highlighted by my hon. Friend—this overall target was slightly exceeded. According to the Post Office's statistics, compiled for it by independent consultants, nationally, 78.1 per cent. of first-class letters were delivered the next day during the year to the end of March 1990 compared with 75.4 per cent. in the previous year.

I hope that my hon. Friend will join me in congratulating the Post Office on this improvement and in encouraging it to continue to work for further improvements. On this point, I welcome the announcement last week that the Post Office has agreed with the Post Office Users National Council a further set of district-by-district quality of service improvement targets for first-class mail for this year of an average of 3 per cent.

I am pleased to say that the improvements that I have outlined are not confined to Royal Mail. Hon. Members will have noticed the relaunch of the Post Office's parcels business under the name Parcelforce. Considerable investment is being made in Parcelforce to enable it to meet the needs of its customers. Hon. Members will be aware that Parcelforce has no monopoly protection—my hon. Friend mentioned this—and has to compete for its share of what has become a very competitive market.

Overall, these developments represent a considerable investment package. In this year's public expenditure White Paper it was announced that the Post Office was planning to spend more than £1 billion over the next three years, about 60 per cent. of which will be spent in Royal Mail. The total planned capital expenditure of around £350 million this year is more than twice as much as was spent in 1987–88.

It is my belief, and I hope that the House will agree, that the package of measures that I have described provides encouraging evidence of the determination of Royal Mail, and of the Post Office as a whole, to meet the needs of its customers by improving the quality of service it offers them. These improvements do not, however, come free of charge. In order to help to fund the major programme of investment that I mentioned a few moments ago—as my hon. Friend acknowledged, or rather criticised—the Post Office has recently consulted the Post Office Users National Council about a proposal to increase the first and second-class letter tariffs by 2p in September. Although none of us welcomes such price increases, we must 161 recognise that they are needed to fund improvements in quality of service and even after the increases, stamp prices will have risen by considerably less than inflation over the past five years.

I know that there are some, however, like my hon. Friend, who feel that the only way to have a Post Office which is efficient and genuinely responsive to consumers' needs is to subject it to full competition. That was the burden of my hon. Friend's argument. He wanted to abolish its statutory monopoly for the conveyance of letters or to subject it to market disciplines by other means, such as privatisation.

I should say immediately about the monopoly of letter services in general, that the Government attach great importance to the continuation of a letter service which enables letters to be sent from anywhere to anywhere in the United Kingdom at the same reasonable tariff rate. In particular, we fully recognise the significance of such a facility for those living in isolated communities or wishing to communicate with them.

Post Office services throughout the world have traditionally been afforded the protection of a mail monopoly to help them to achieve the twin objectives of universal delivery at a uniform, affordable price. The extent of the letter monopoly varies from country to country, but it may be worth repeating the classic economic arguments for having one.

Other things being equal, there must be scale economies in letter conveyance, particularly in final delivery. It generally costs no more to empty a letter box containing 50 letters than one containing 100. If a postman must walk down one's garden path or climb the stairs to one's flat to deliver one letter, it will generally cost little more for him to do so with three. Consequently, removing letter traffic from the Post Office might not allow it to reduce its costs proportionately, and the average cost of conveying the letters remaining with the Post Office would tend to increase. The result would be either higher stamp charges or a bill for the taxpayer. Neither alternative is attractive. The consequences for the Post Office's costs would be exacerbated by the fact that anyone entering the letter market without obligations would naturally take the lower-cost traffic first.

Arguments about the monopoly are not all one way. We know from experience that the letter monopoly is certainly no panacea. It denies the consumer choice and represses innovation in the development of new types of service. It also protects the Post Office from outside influence, shelters it from the financial consequences of perhaps less-than-perfect organisation and productivity, and prevents direct external comparisons from being made.

It is worth remembering that the Post Office is already subject to some competition. The letter monopoly in the United Kingdom does not extend to letters for which less than £1 is charged. That allows competition for time-critical and value-added mail. There is no monopoly in the delivery of parcels.

Nonetheless, there is no doubt that increased direct competition in the letter market would be beneficial and that some of the financial pressures resulting from any loss of scale economies, or "cream skimming" as it is known, of low-cost traffic could be balanced, or perhaps exceeded, through improved Post Office efficiency. The challenge is to determine the manner in which and the degree to which competition should be introduced so that its benefits can 162 be realised, while allowing the Post Office to continue to fulfil its obligations at a reasonable cost to its customers. Therefore, as the Government have made clear on many occasions, we keep and will continue to keep the options for introducing further competition under review to ensure that the needs of customers throughout the United Kingdom are met as fully as possible.

My hon. Friend mentioned counters. The Post Office operates the largest retail network in the country. It has over 20,000 post offices throughout the United Kingdom—considerably more outlets than any bank or building society and more per head of population than in France, Germany, Japan or the United States of America. That means that, in the United Kingdom, post offices are easily accessible to all but those in the remotest areas. In urban areas, the aim is to have offices distributed so that no one is more than a mile from a post office, and in rural areas no more than two miles.

Only a small proportion of offices—some 1,300 out of over 20,000—are directly owned and operated by Post Office Counters. The vast majority of offices, about 19,300, are already sub-post offices, run under contract to Post Office Counters Ltd. by self-employed sub-postmasters and sub-postmistresses. That arrangement benefits both parties. The post office brings in regular customers to buy stamps, post parcels and collect benefits and pensions, providing potential customers for the sub-postmaster or mistress's private business. Overheads are shared between the two busineses. Sub and agency offices can therefore have significant advantages over directly run Crown offices.

In rural areas particularly, post offices also serve an important social function in their local communities. That was clearly recognised in the Act establishing the Post Office as a public corporation, which imposes on the Post Office a statutory duty to have regard to the social as well as industrial and commercial needs of the United Kingdom in exercising its powers. Because of that, changes in the network require careful consultation with the local community and the Post Office Users National Council as representatives of the customer.

In 1988, Post Office Counters began the process of restructuring its network, which I hope my hon. Friend welcomed, both to give a more cost-effective service and, like any retail network, to respond to movements in population and variations in shopping habits. As part of that process, it has converted about 170 Crown post offices, mostly smaller ones, to agencies. The Post Office is continuing that process. It has completed consultations on some 290 proposed conversions and begun consultations on a further 40. I shall be pressing it to move ahead with the process as quickly as possible.

Before concluding, I will mention one topic of increasing importance to the Post Office and to private sector mail operators—developments in the European Community in the context of the single market. Towards the end of the year, the European Commission plans to publish a Green Paper on Community postal policy, which will be considered by the Council of Ministers before a period of public consultation, which is likely to continue into 1991. Once the consultative process has been completed, it will be for the Council of Ministers to decide on any changes that the Community may introduce.

The Commission, with the help of a senior officials group, has been collecting information and views from member states for several months. It is too early to 163 speculate on its final proposals, but the United Kingdom takes the view that those who live in the Community should have access to a basic letter service at an affordable tariff—but beyond that, it believes that the Post Office should be subject to maximum competitive pressures. We believe that there is an important role for competition to play in increasing efficiency and improving services to the customer.

I have tried to do justice to the points raised by my hon. Friend. I hope that he accepts the balance of the 164 arguments that we see—acknowledging the improvements that the Post Office has made to its services and looking forward to yet further improvements, while being sensitive to the needs of my hon. Friend's constituents and their natural desire to see an improvement in Post Office services. I hope also that my hon. Friend and the House recognise the continuing efforts being made by the Post Office's management and employees to do justice to the confidence shown in them by the House, the Government, and users of post office services throughout the land.