HC Deb 08 January 2002 vol 377 cc516-24

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

10.20 pm
Mr. Colin Challen (Morley and Rothwell)

I begin by thanking you, Mr. Speaker, for giving me the opportunity to raise the important issue of competition in postal services. This is the first Adjournment debate of 2002 in this Chamber, and it could not be more opportune.

We have just come through a record-breaking Christmas period, in which the Royal Mail delivered 50 million more items than in the same period of the previous year. That took the total number of cards and letters delivered to well over 2 billion. The tens of thousands of post men and women achieved that in all weathers, generally without any significant hitches and generally on time. They should be congratulated.

However, it is also important to raise this matter in the House now because alarming reports—subsequently denied—have emerged in recent weeks that tens of thousands of post men and women were to be sacked. There has also been the ongoing Postcomm consultation on competition in postal services, the responses to which were published on 28 November. Notwithstanding that consultation, I note the concern of the Communications Workers Union that Postcomm had pre-empted the conclusions by beginning the process of issuing licences to competitors. Some consultation that is turning out to be.

Since the general election, there have also been two early-day motions—one in my name—supporting a universal postal service. They have attracted widespread support. Last but not least, there are continuing and disturbing reports that, although Consignia's postal business has been granted a 15-year licence, it is being considered by some as ripe territory for that worst of all privatisations—dismemberment by outsourcing.

Before I look at some of those issues, I want to acknowledge the support that the Government have given to the Post Office. Although I shall be talking primarily about postal services, I confess that I shall use the shorthand term "Post Office" instead of Royal Mail, Parcelforce or Consignia, as that is how my constituents recognise and refer to the business. Perhaps I and they are being old fashioned but, if so, I offer no apology. Some of the standards that we expect from the Post Office are decidedly old fashioned—if that means quality as opposed to mission statements, mail delivered on time as opposed to value-added services, or a universal postal service as opposed to a system based on "you pays your money and takes your choice".

For the first time, the Government have enshrined in law the principle that there should be something called the universal postal service. I admit that the proposal is not that the universal postal service should be publicly owned, nor that it should necessarily be delivered by one business.

I share the concerns of Age Concern, which have also been expressed by Postwatch. Age Concern sought clarification of what Postcomm meant when it used the term "universal postal service" in its consultation document. The minimum definition provided by the Postal Services Act 2000 seems clear enough, but the fear is evident that the universal service could merely become what some people might call the "bog standard" service and that it could be, as Postcomm suggests, in need of subsidy. A minimum level of service is just that—a minimum: like a speed limit, it is not necessarily a target to be worked towards.

Thankfully, the Government have kept faith with the British people by rejecting the Tories' proposal for outright privatisation of the Post Office. It comes as no surprise that the Conservatives want to sell off a service that has been part of the fabric of our country for more than 350 years, and it will come as no surprise when they return with the same policy in a couple of years' time, as they no doubt will. I understand that the Centre for Policy Studies is working on it already.

The Government can be congratulated too on maintaining the current licensed area—that is, the limits on competition for items under £1 in value, or under 350 g in weight. They are also to be congratulated on lifting some of the borrowing constraints on the Post Office and on lifting the external finance limit, which had effectively prevented the Post Office from investing in new machinery, buildings and information technology.

Giving the Post Office more financial freedom was the biggest step forward in allowing it further to develop and enhance its services. For too long, it had been a milch cow for the Treasury, delivering billions in revenue. Since the 1970s, we had been beholden to the idea that somehow the Post Office had to pay back earlier subsidies from the taxpayer from the time when it was, in effect, a Department and run like one.

Everyone is content that Post Office has moved on from that mindset, but the question we face at present is whether we must say goodbye to the public service ethos altogether, or say hello to the service industry ethos that is, in my experience, something very different. The Post Office's competitors certainly want what they describe as a level playing field across Europe, allowing only minimum state intervention but maximum competition. That is the view of the CBI, trade bodies and others. For them, the liberalisation of trading services is a holy grail. Perhaps the only thing preventing the progress of so-called competition in postal services is that those bodies have not yet quite figured out how to dismantle the necessarily large national postal services into pieces small enough for them to digest. They also know that throughout Europe politicians—let me rephrase that: European citizens—do not want myriad services at different prices, from different outlets and with different delivery mechanisms to complicate their lives further. If they wanted such services, why have postal volumes stagnated in Sweden, where there is a fully liberalised market?

The universal postal service is as natural a monopoly as they come. That should not be seen as a failing but as a strength—suitably regulated, of course. What do we face at present? Partly in response to single-market pressures—which I acknowledge are genuine, as cross-border trade and postal volumes are increasing—and partly, no doubt, due to behind the scenes lobbying in Brussels by such bodies as the LOTIS—liberalisation of trade in services—Committee, predatory campaigns are being mounted to top slice some types of postal business and give them up to so-called competition.

My use of the phrase "so-called competition" is a reference to the type of revenue-generating business that can be handled without large overheads: urban, big-city business mail as opposed to rural, domestic mail. The arguments are well known and I do not want to go over them again; nor, it seems, does Postcomm, which clearly feels compelled to give licences to so-called competitive services, thereby denying yet more of that profitable work to the Post Office.

There is a big question that must be answered urgently: how far down that road do the Government think it possible to travel before we end up with a basket case postal service for everybody else? The loss of such revenue to the Post Office will have a disproportionately large impact on its profits.

We seem to have decided that we want a Post Office, but I am not sure that current trends would permit it to be a profitable one—unless, of course, we take the route of back-door privatisation, which is sometimes known by the euphemism "outsourcing". For example, given a full head of steam and, presumably, without any need for intervention from the Post Office's single shareholder, the management of the Post Office could choose to outsource the fleet management of their 30,000 Royal Mail vehicles and their 10,000 Parcelforce vehicles.

I am sure that it would look good on paper to create a stand-alone fleet management business, with staff sent across to the new business clutching their TUPE fig leaves. Eventually, of course, such a business would start employing new staff at lower rates of pay, with worse terms and conditions and worse outcomes. For example, that is what happened under many hospital cleaning contracts.

I have no doubt that, eventually, it would be necessary to wait longer and longer for work to be done, because the whole business philosophy of just-in-time delivery—the effort to reduce overheads—would inevitably take its toll.

Fleet management is one sector that appears to be in contention for outsourcing. Sortation might be more contentious. The manufacturer of sortation equipment might be asked to lease the equipment to the Post Office on the basis of a private finance initiative, complete with staff to run the whole process in an area. The staff, naturally, would not be Post Office employees. They would not necessarily be on the same terms or conditions or even working exclusively on the Post Office contract. That would certainly reduce the Post Office's overheads, and what a marvellous entrée it would make for competitors which might contract to use the same equipment for their own services. Is there any way of preventing that from happening, except by saying that what we mean by a universal postal service includes the word monopoly?

What I have described is not such a far-fetched proposition. Already the name of Siemens, which manufactures such equipment, has been linked with something like this scenario, except I have read that postal delivery staff may be asked to wear Siemens logos as part of a sponsorship deal.

What else could be outsourced? Everything, in reality. We could have partnership deals, sponsorship deals, holding companies—indeed, that is all that Consignia actually is. A few years down the road—15, perhaps—we would have a Post Office that was unrecognisable and could easily be 50 or 75 per cent. privatised in effect. The staff would notice the change, of course. They—those that remain after natural wastage— will not have very encouraging prospects. Let me quote from a report called "The Impact of Competition in the Postal Sector" by the Association of International Couriers and Express Services. In consultant-style speak, it addresses the impact of market features which need to be considered: Hiring qualified delivery staff and establishing a network which provides a suitable service quality can be a very time consuming exercise. Furthermore, without substantial volumes the ability to recruit full time employees is often too risky for a market entrant. Flexible working conditions are, therefore, an important factor in affecting market entry.

That is the problem in a nutshell. However, I would say to the author of that piece that it does not apply simply to new entrants. Look at the way in which Post Office staff are increasingly employed. Flexible working is the order of the day and I suppose we must call a spade a spade. "Flexible" generally refers to part-time work and the very nature of such work means more casualisation and the necessity for working men and women to take on other part-time jobs to secure a reasonable standard of living, not to mention having to rely on the working families tax credit to top up their earnings.

None of that features in my vision of what a modern Post Office should look like. I realise that we may no longer be employing postmen and women who had to sign the Official Secrets Acts before they could start work or had to sign for their brass security badges, along with their uniforms. Those requirements were designed to reassure the public about the security of their mail. The idea was, I believe, that they were people who could be trusted and respected. They were not transient employees, demotivated and anonymous.

In my vision of what we should be seeking, the notion of the public service ethos still looms large. Why, when we talk about community safety, do we never assume a role for the largest uniformed service in the country, whose members walk every street in every town and every village and pass every letter box of every house every morning six days a week? Has the public service ethos of the Post Office become so invisible in this competitive age that we cannot harness sufficient imagination to see what a gem we possess?

In all my reading in preparation for this debate, I have seen no lateral thinking about how we can develop our publicly owned universal postal service. If we do not, I fear that we could witness a disaster of Railtrack proportions—a disaster for which we never intended to legislate.

10.33 pm
The Minister for E-Commerce and Competitiveness (Mr. Douglas Alexander)

I begin by paying tribute to my hon. Friend the Member for Morley and Rothwell (Mr. Challen) for securing this debate. I know of his interest and long-standing commitment to our postal services. He has raised a number of important issues, and I shall endeavour to address each of them. Let me begin my response by setting the debate in context and explaining the Government's approach to this important issue.

When the Government took office in 1997, one of our first priorities was to address the failure of the previous Administration to give the Post Office the greater commercial freedom called for by Post Office management and unions and deemed vital if it was to invest in new services and address the needs of its customers. In January 2000, the Postal Services Bill was introduced. Derek Hodgson, then general secretary of the Communication Workers Union, said of the Bill: It secures the union's major objective of securing a long-term future in the public sector for the post office, and offers the business commercial freedom we believe it needs.

In March 2001, Consignia therefore became a plc, with a newly redefined relationship with Government as the sole shareholder, no longer operating as a statutory monopoly, but in a regulated postal market. Other elements of the freedom include the right to retain a greater share of the profits to reinvest in its core business and the ability to borrow to finance strategic investments.

In addition, regulatory reforms introduced under the Postal Services Act 2000 were specifically designed to promote the interests of consumers in a framework that will ensure that the universal service, of which my hon. Friend spoke at such length, is safeguarded. In recognition of its social and economic importance, the Government have for the first time, as my hon. Friend kindly acknowledged, enshrined the universal service obligation in primary legislation.

The Postal Services Act states that the universal service consists of a postal service provided at an affordable price, determined by a public tariff, which is uniform throughout the United Kingdom and includes daily delivery to the home or premises of every individual in the United Kingdom and daily collection from access points. The Act established an independent regulator, known as Postcomm, to oversee the postal market and a consumer council, known as Postwatch, to protect the interests of consumers.

Postcomm is an independent body responsible for regulating the United Kingdom postal market. It operates through a licensing regime for the area of the market broadly equivalent to the Post Office's former statutory monopoly. Within those limits, some exceptions—for example, document exchange services—are excluded from the licensing regime. Above the limits, there is a deregulated market fully open to competition.

I emphasise that Postcomm's primary duty is to ensure the provision of the universal service. It is the regulator's responsibility to determine how the universal service obligation is implemented in the interests of consumers. It is also responsible for promoting the interests of consumers, where appropriate, through the introduction of more competition.

Postcomm has met its duty to ensure that a universal service is provided throughout the United Kingdom by issuing its first licence to Consignia. Under the terms of that licence, Consignia has to provide a range of services in the context of a general obligation to provide a universal postal service at an affordable uniform tariff.

Postcomm has indeed initiated early consideration of the controls that should apply to Consignia's prices from April 2003. In November last year, it issued a public consultation document to invite initial reaction to the appropriate objectives and approach that Postcomm ought to have in mind when formulating revised price control arrangements. The document outlines a number of options relating to the structure, form and duration of the revised price control, while highlighting the importance of safeguarding the quality of service. Postcomm aims to publish initial proposals for Consignia's revised price control in the summer this year.

Subject to Postcomm's primary duty to ensure the provision of the universal service, it is also under a duty to further the interests of users of postal services, wherever appropriate, by promoting effective competition between postal operators. Postcomm can therefore consider applications for other licences, provided that it is satisfied that the universal service can be maintained.

While considering how more competition might be introduced to the market, Postcomm initially published a statement of its interim licensing policy in April 2001. In its document, "Interim Approach to Licensing", Postcomm outlined that the licence applications most likely to succeed in the interim period, until it has formalised its long-term approach to the introduction of competition, are those to certain niche services, provided that they do not affect the maintenance of the universal postal service. When issuing new licences, Postcomm must be satisfied that the universal service can be maintained.

Six very specific interim licences have been issued while Postcomm consults on the framework for a longer-term policy on the introduction of competition. Postcomm has also undertaken a wide-ranging consultation on competition based on the consultation document it issued in June last year. It is expected to produce its proposals early in 2002. Those proposals should be viewed in the context of a likely European agreement progressively to reduce the price-weight limits to reservation. In developing its longer-term policy on competition, Postcomm will consider whether there is scope for the United Kingdom to open up the market further.

The proposals will be subject to a further period of consultation, with the aim of finalising a longer-term competition and licensing policy by April 2002.

As my hon. Friend said, however, competition cannot just be seen in a United Kingdom context. In 1997, in response to the developments in the wider European postal market, the European Union established a framework for the regulation of postal services that allowed certain letter services to be reserved to universal service providers, but only to the extent necessary to ensure the provision of the universal service. The EU agreed on maximum limits for the services that could be reserved, but made explicit provision for those limits to be reduced and for competition to increase.

In considering the scope and timing of further reductions, the Council has reached political agreement on a framework systematically to lower the price and weight levels. This is now being considered by the European Parliament. The framework envisages a reduction in services that may be reserved from 350g to 100g in 2003 and to 50g in 2006. Following a review in 2006 that will focus on the impact of further reductions on the universal service, the European Commission may then propose either to phase out reservation in 2009 or to take other appropriate steps. This final stage will be subject to co-decision between the European Parliament and the European Council.

As a Government, we support the European Council agreement to establish a timetable for progressive liberalisation in Europe that is consistent with maintaining the universal service. We believe that it is important to move quickly to reach agreement to provide market certainty and to allow companies to prepare and to adjust to market changes. In the absence of any agreement, the current EU postal directive will lapse in 2004 with resulting market uncertainties.

It is important that, as the UK market becomes more open to competition, the wider European market also opens up. That will provide opportunities for British companies, including Consignia. The larger European post offices, such as Deutsche Post and La Poste, are active competitors in this market. Postal services are not only a domestic interest particularly for business. Indeed, the international mail market is one of the fastest growing parts of the sector.

I shall now try to place those policy developments in context. The postal market is, in general, becoming more and more diverse. "Post" does not just mean the personal letters, greetings cards or postcards that we all send and receive as individuals. In addition to the letters market, there are thriving markets for packets and parcels and for express services and for logistics. If the market is diverse, so are postal users. Businesses—large and small—are the main generators of mail, but many of their customers are individual consumers who not only receive but generate mail in response.

Customers are becoming more discerning and demanding about the services that they want and most particularly about business mail services. Therefore, there is increasing demand for more targeted, faster, more reliable and better quality services and for new postal services such as through the development of hybrid mail services using other communication technologies, time delivery services and track and trace so that it is possible to know where an item is at any stage of the delivery process. There is also demand for other products that facilitate business contact with customers.

Customers increasingly have a choice. Companies make greater use of electronic services, but individuals have access to a wider range of options, whether it is to send their greetings cards electronically or to pay their bills online. Sending things by post is no longer the only option for both individuals and business consumers and postal services have to compete for their place in the market.

As well as competition from new communication services and new technologies, outside the regulated letter market in the United Kingdom there is a thriving competitive market of 4,000 companies that operate in the wider distribution market. They offer a range of courier, express and logistics services and they range from the large international carriers to small local dispatch companies. They all compete to offer the services that customers want. Many of the larger competing companies are owned by or are in partnership with Post Office companies.

As customers have more choice—whether from direct competition from other service providers or from alternative means of communication—Consignia must make rapid progress to improve its performance and to give customers what they want, namely a better range of high-quality, reliable and well-priced services. Current poor performance is the result of its failure to resolve these problems in previous years when, as my hon. Friend acknowledged, the future of the Post Office was placed in limbo following the Conservative's failed proposals. However, as a result of recent reforms, Consignia now has the greater commercial freedom sought by management and, indeed, by unions to respond to a more competitive environment.

As shareholder, the Government are obviously disappointed by Consignia's present financial performance. It is clear that the company urgently needs to improve its performance and we are taking steps actively to strengthen its management.

Early last year, a new finance director, Marisa Cassoni, joined the board. That was followed by the appointment of Allan Leighton to the non-executive team to take a special interest in the post office network. A new chief executive of Post Office Counters Ltd. is being recruited and arrangements are in hand to appoint a new chairman of the company.

Consignia clearly needs to stem its losses and improve its performance. Its proposals on cost cutting are still at an initial stage. It will be vital, therefore, that as they are developed management works effectively with the work force to achieve the necessary changes. The Government were encouraged to see that Consignia and the Communication Workers Union have reached agreement on the basis for developing a framework for handling job reductions in the company. Although industrial relations and the resolution of disputes are, of course, a matter for the management of the company and the unions, the Government have consistently encouraged both sides to work in partnership.

Since the publication of the Sawyer report in July last year, which highlighted the real problems on both sides within Royal Mail's service delivery operation and made recommendations to try to resolve them, progress in developing a partnership approach to industrial relations within the company has been encouraging and should be used as the foundation of a long-term solution to the difficulties that have dogged it for so many years. A more efficient company, providing high-quality competitive services, is in the strong interests of consumers and the taxpayer. The postal market will not stand still and it is necessary to have a framework to allow consumers the benefits of competition while ensuring that the universal service is maintained at an affordable uniform tariff.

It is for the consumer that services are provided and it is the consumer who will look elsewhere if those services do not provide the quality and reliability required. We want consumers to benefit from the choice afforded by competition, but they will also benefit from a strong postal service as represented by a competitive and efficient Consignia that is able to provide not only the traditional universal postal service that we all value, but a wide range of competitive products and services.

The reforms that the Government have put in place include in particular the introduction of a new regulatory framework to provide the benefits of competition, with the universal service at its core, the establishment of an independent regulator and a new council for consumers, and the provision of a new framework of support for the post office network. We have also given Consignia the commercial freedom that it wants and needs to develop the company. All those initiatives together provide the necessary framework for a customer-focused approach and ensure that there is a strong postal services market for the benefit of all.

Question put and agreed to

Adjourned accordingly at thirteen minutes to Eleven o'clock