HC Deb 13 June 2002 vol 386 cc1016-32 1.21 pm
The Secretary of State for Trade and Industry (Ms Patricia Hewitt)

I should like to draw the attention of the House to my declaration of interests contained in the register.

With permission, Mr. Speaker, I shall make a statement to the House on postal services in Britain. This morning, Allan Leighton, the chairman of Consignia, announced the second phase of the company's restructuring plans. He announced that the Royal Mail would save £350 million a year by moving to a single delivery at a consistent time, six days a week, and that those plans would result in a further 17,000 redundancies over the next three years. He said: The underlying loss from operations … graphically shows why we need to restructure the company and embark on a three-year renewal programme to restore profitability".

Thousands of postmen and women now face an anxious and difficult time. These are very painful decisions for the work force, who have shown their commitment to serving the public and who have often been frustrated and angered by poor management and failure to invest in better ways of working. Allan Leighton has made it clear that the company aims to achieve the reduction in jobs on the basis of voluntary redundancy and by offering alternative jobs within the company. Early indications from the Parcelforce restructuring, which I reported to the House on 25 March, suggest that that can be achieved. We will, of course, do everything that we can through Jobcentre Plus and other agencies to help people who leave the Royal Mail to get new jobs as quickly as possible.

The need for radical action is underlined by the company's financial results for the last financial year, published today, in which it announces a £1.1 billion pre-tax loss. Much of that loss comprises exceptional costs from restructuring, but the company made an underlying loss of £318 million on its day-to-day operations.

Central to the programme to restore the Royal Mail's business to profit, and to improve customer service and efficiency, is the reorganisation of mail deliveries that Allan Leighton announced today. The Communication Workers Union has said that it, too, supports the ending of the second delivery.

Twenty years ago, 15 per cent. of all mail arrived by the second delivery; today it is just 4 per cent. But that 4 per cent. of mail accounts for 20 per cent. of delivery costs and 30 per cent. of delivery time. Most other European countries, with far higher postal prices, make only a single delivery each day and none of them has a target of delivering before 9.30 am.

In future, customers who regularly receive 20 or more items of mail a day will get their delivery between 7 am and 9 am. That will include people working from home as well as businesses. All other customers will receive their mail by lunchtime. These changes will mean that 1 million more first-class letters every week should arrive on time. The changes will also mean that within a six-day delivery system, postmen and women will be able to work a five-day, instead of a six-day, week.

Let me put Consignia's announcement into context. This morning, Allan Leighton said: These losses did not happen overnight. Unresolved issues and problems stretching back for up to a decade are reflected in these results".

When this Government came to office in 1997, we immediately took steps to fulfil our manifesto commitment to give the Post Office what management and unions had long been arguing for—greater commercial freedom. The Postal Services Act 2000 completed that process, creating a public limited company and giving it the freedom to borrow for growth investment. We cut the dividend to normal commercial levels and announced the appointment of a new finance director in October 2000.

In April 2001, Lord Sawyer was appointed to look at deep-rooted industrial relations problems in Royal Mail. This year, we strengthened management further by appointing a new chairman, Allan Leighton, and securing a new chief executive for the Post Office network.

Greater commercial freedom is the right policy, but in exercising those new freedoms, decisions were made that, with the benefit of hindsight, we can now see were wrong. In his announcement, Allan Leighton said: management mistakes have been made over a number of years". The company decided, for example, to expand internationally, a strategy that was supported by many distinguished observers, including the Select Committee on Trade and Industry. But other European postal operators were already ahead of the game, and in the meantime, disastrously, Consignia lost control of its costs at home. Costs went on rising at a time when revenue growth was slowing. In 2001, the growth of mail volume, at 3 per cent., was half that of 1999.

The financial results published today show that, over the past year, overall turnover grew by 3.6 per cent., but that was outstripped by a 4.8 per cent. rise in costs. The result is that the company is now running at an underlying loss of £1.2 million a day. Those losses cannot continue, and over the next three years, under the renewal plan, the losses will be eliminated and the company returned to profit.

I can also inform the House that the company announced this morning that the group chief executive, John Roberts, will retire later this year once his successor has been appointed. The search for his successor will begin immediately.

Let me stress that today's announcement, like the Parcelforce restructuring, is not the result of any decision by the regulator. Both announcements are about stemming the losses and creating an efficient company. Today's announcement would have been made whatever the decision by Postcomm. However, I would like to put on record the fact that I welcome the announcement by Postcomm a few weeks ago about the adjustments to the timing of its proposals for market opening, the change in the definition of bulk mail and the decision to monitor the market closely to ensure that the universal service, its first statutory objective, is not put at risk. In reaching its decision, it is clear that Postcomm has listened to the many representations made by hon. Members as well as by other stakeholders, including the CWU. The challenge now for Consignia is to improve the quality and reliability of its services, so that it can keep its customers rather than losing market share.

Let me deal next with the financial issues associated with today's announcement. I have agreed a package of measures to put the company on the right financial footing to enable it to deliver this renewal programme.

Consignia plc has reserves on its balance sheet of £1.8 billion, which represents accumulated past dividends and cash generated by the business. These are more commonly referred to as the gilts. We now propose that the £1.8 billion of gilts will be held by the group holding company as reserves while the business is being turned around. Those reserves will be available to back the investment required in the mails business to implement the renewal programme and to support the nationwide network of post offices, subject, where necessary, to the relevant state aid clearances.

As I explained to the House on 25 March, the Government have agreed to forgo the projected dividend for 2001–02, releasing an additional £64 million for the company. I told the House then: A decision on dividends for other years … will be taken in the context of the strategic plan."—[Official Report, 25 March 2002; Vol. 382, c. 571.] I can tell the House today that the company will be allowed to retain the notional dividends for the previous year, as part of the overall £1.8 billion of reserves.

In addition, in case there is any doubt, I can confirm that the Government do not expect to take cash out of the business by way of future dividends during the three years of the renewal plan.

As part of the decision on the gilts, we have agreed to fund the Post Office network's historic losses. David Mills, the new chief executive of the Post Office, is working up a strategic plan for the network that will look at new ways of increasing revenues from commercial activities. As we informed the House on 26 April, we have also committed up to £210 million for compensation for sub-postmasters in the urban networks who are planning to leave the business, and for investment to improve urban post offices. The House will have a further opportunity to debate this when state aid clearance is granted.

I welcome today's announcement by the company that it intends to change its corporate name to Royal Mail Group by the end of this year. I can inform the House that Her Majesty the Queen has agreed in principle to this name change. I do not think that any of us will mourn the disappearance of the name Consignia.

Allan Leighton and his colleagues have shown that they are willing to make the very tough decisions that are needed to turn the company round. But the company is now set on a course for renewal and recovery. It will not be easy, as today's announcement shows, but it is essential if we are to have a Royal Mail that the work force can be proud of and that delivers the service that customers deserve.

Mr. John Whittingdale (Maldon and East Chelmsford)

I thank the Secretary of State for giving me good notice of the statement that she has just delivered. However, does she agree that the figures that have been announced by the Post Office today are truly shocking?

Three years ago, the Post Office was making annual profits of about £500 million. The then Secretary of State was boasting that it had a golden future in the public sector and that it was set to become a major global player. Instead, its performance has steadily deteriorated, morale and industrial relations have plummeted and it is now losing, by its own admission, £1.2 million every trading day. Yet this disastrous collapse has occurred during a period when the Post Office still has a monopoly in its core business, and when the volume of mail has gone on rising every year. It is an extraordinary achievement to have turned a highly successful business into a financial disaster, when turnover has gone on rising and it is protected from any competition.

As the right hon. Lady says, part of the blame lies with weak management. It lies also with militant trade unions. Ultimately, however, responsibility must rest with the Government, who remain the sole shareholder in the Post Office and who have been interfering in its management on a daily basis. Yet in her statement there was no acceptance of any blame on the part of the Government. Instead, as usual, she tried to suggest that somehow the fault all lay with the last Conservative Government. Will she at least accept that her Government must take some responsibility for this disaster and express some regret?

The measures that have been announced by the Post Office today are undoubtedly necessary. They will not have come as a surprise to the work force, who learned before Christmas that up to 30,000 redundancies were in prospect. At the time, we were told that that was speculative arithmetic. We now know that that forecast was entirely accurate, although we welcome the fact that it has been stated that it is intended to achieve the redundancies by voluntary means.

The Secretary of State said that the cost is to be met by utilising the money invested in gilts by the Post Office over many years. However, until now, that money was regarded as a payment to the Treasury under the requirements of the negative external finance limit. Will the right hon. Lady confirm that in essence the Government are giving the money back to the Post Office? Will she confirm also that that will require clearance by the European Commission under the provision for state aid?

I turn to the other elements of the restructuring proposals. The Secretary of State did not even mention that the Post Office has applied for a price increase in the cost of first and second-class mail. Will she give an indication of the Government's attitude towards that application? Is she satisfied that the Post Office will not simply try to increase its prices in the area in which it still has a monopoly to subsidise its heavily loss-making operations in areas where it is subject to competition?

The Secretary of State said that the changes would mean that in future up to 1 million more first-class letters should now arrive on time. I have to say that that is not much of an accomplishment if the target time for delivery is to be moved from 9 am to lunchtime.

The Post Office has sought to justify its decision to drop the second delivery on the ground that it accounts for just 4 per cent. of the mail, but 20 per cent. of its costs. Will the Secretary of State acknowledge the fears of some small firms, many of which operate from home, that rely on the post for their cash flow and orders and are worried that the decision may lead to a significant drop in the standard of service that they receive and add a significant extra cost? Will she ensure that people who are concerned that they may not qualify for the protection and additional priority given to those who receive 20 items of mail a day have some capacity to apply to the Post Office for priority treatment?

The Secretary of State made brief reference to the regulator's proposals to open the postal market to competition, which is clearly a crucial factor in the Post Office's long-term prospects. I welcome the fact that the Government have resisted pressure from Labour Back Benchers to abandon the commitment to introduce competition and that the revised timetable issued by Postcomm involves only a slightly longer delay before full liberalisation takes place.

Does the Secretary of State agree that liberalisation offers considerable additional opportunities to the Post Office, including new sources of revenue, by allowing other operators access to its delivery network? However, if that is to be achieved, it is vital that sensible network access charges are agreed, so does she share my regret that the Post Office has so far been unwilling to negotiate realistically with those who wish to set up competing services? Does she agree that if there is to be true competition, it should be on an equal basis, which requires the issue of VAT to be addressed? Does she accept that, under the present arrangement, the Post Office has a 17.5 per cent. cost advantage over its competitors for about half its business, which acts as a barrier to the development of fair competition?

What are the Government's long-term intentions for the Post Office? When the Postal Services Act 2000 was passed, we were assured that it would remain a fully state-owned corporation, yet we now know that just a short time afterwards, negotiations were opened to sell it to the Dutch post office, TPG, and that that would have happened had negotiations not broken down. Are any negotiations currently under way and are the Government still willing for the Post Office to be sold to a foreign operator such as Deutsche Post? What do the Government intend to do to maintain and sustain the post office network, particularly in rural areas? The Secretary of State barely mentioned that in her statement, yet it is now just nine months until payment of benefits across post office counters ceases, which will deprive sub-post offices of up to 40 per cent. of their revenue. Even now, the Department for Work and Pensions is preparing letters to benefit recipients informing them that in future they should get their benefits via bank accounts.

The recommendations of the performance and innovation unit report have not been implemented. The "Your Guide" project was successfully trialled in Leicestershire, but has now disappeared completely. The Postcomm report on supporting the rural network has been sitting on Ministers' desks since December, yet nothing has been done. The Government must make clear what they intend to do to maintain the rural network and prevent the closure of thousands of sub-post offices that are under threat.

Finally, I welcome the one piece of good news that has been announced today—the decision to drop the name Consignia and revert to Royal Mail. Will the Secretary of State admit that the decision to drop a name trusted and respected across the country and replace it with an utterly meaningless name that has become the object of mockery and derision was one of crass stupidity? Is it not typical of the Government that, rather than tackle the underlying problems, they preferred to waste money on a re-branding that has cost millions and persuaded no one? Is it not the case that when the history of the Government is written, the name Consignia will always be remembered, along with the Jo Moore e-mail, Tony's cronies and the millennium dome, as a symbol of all that is rotten about them?

Ms Hewitt

Until that last comment, I felt that the hon. Gentleman was treating this matter with exactly the seriousness that it requires.

The hon. Gentleman asked about the £1.8 billion of gilts. As I have said, we made it clear to the company that we had pledged that money to back the investment in Royal Mail's business to turn it round and to support the nationwide network of post offices. I can add that we have said that we will work with the company to help it to ensure that its borrowing requirements for working capital will be met from the national loans fund on appropriate commercial terms.

The point about the gilts is that, particularly under Conservative Governments, the company was forced to exchange the dividends—at a rate of 90 per cent. of the profits—for gilts. That reserve was never available to the company so that it could invest in the modernisation that was required. We are now making it available, to support the necessary investment and restructuring.

Royal Mail is discussing the application that it intends to make for a 1p rise in the prices of first-class and second-class stamps with both the regulator and Postwatch, the consumer body. It hopes to make the application before the end of the month.

It would have been quite wrong to agree price rises in the past simply to mask and compensate for the company's inefficiency. Some years ago, Lord Heseltine, the former President of the Board of Trade, confessed to the Select Committee on Trade and Industry that in the case of a publicly owned monopoly there was always the temptation—indeed, it was a reality—to go on raising prices rather than dealing with underlying losses and inefficiencies. I hope that, now that the company has grasped the seriousness of the problem and established the necessary restructuring, the regulator will look favourably on this modest application.

The hon. Gentleman raised important questions about the need to ensure that small businesses and people working from home, who do not necessarily qualify for the 20 items per day, will nevertheless have their requirements met by the tailored delivery service. That is exactly the kind of issue that the company will bear in mind when the pilot schemes start next month.

The hon. Gentleman raised a number of serious points about market opening and the role of regulator. As we made clear in the Postal Services Act 2000, we believe that the regulator's first duty must be to preserve the universal service obligation. Subject to that, however, both Royal Mail and customers can gain real benefits from market opening and the competition, innovation and greater choice that will result from it.

In Germany, where the bulk mail sector has been open to competition for some time, there has been a substantial increase in the amount of bulk mail. That has benefited Germany's former monopoly company, not only because it is securing its own share of that growing market but because it can sell network access to its competitors. That is precisely what will happen in Britain as the bulk mail sector is opened up. The company must of course negotiate fair and non-discriminatory pricing for network access with new entrants to the market. I believe that it will do so, but if it does not, Postcomm will be able to adjudicate.

The hon. Gentleman clearly forgot that his question about VAT was dealt with in the sixth VAT directive, which I am sure he knows well. It requires VAT not to be levied on public postal services.

The hon. Gentleman asked about long-term intentions. As the then Minister for E-Commerce and Competitiveness, my hon. Friend the Member for Paisley, South (Mr. Alexander), made clear to the Select Committee some weeks ago, the company was reviewing all its strategic options last year, including partnerships with other companies. As part of that, it entered into discussions with the Dutch mail, TPG, about the possibility of a merger. It was not possible to reach an agreement or common ground and no decision was made by Ministers because no proposal for a merger was put to us. The vision and the intention is simple: we want a successful, publicly owned postal service.

I stress that imposing on the company a duty not to close rural post offices, except when unavoidable because no one can be found to do the job, has slowed down—indeed halved—the rate of sub-post office closures in rural areas. Contrary to what the hon. Gentleman said, we are implementing the important recommendations of the performance and innovation unit report. The universal banking service is on track for next year. It is important to remember that when people cash their benefits at the sub-post office, whether through the new post office card account, a basic bank account or an ordinary bank account using one of the automatic teller machines, the sub-postmaster or mistress will receive a transaction fee and benefit from the fact that customers are coming to the post office.

As the hon. Gentleman said, there was a useful pilot of "Your Guide" in Leicestershire and Rutland. It is currently being evaluated, and I expect to receive the report in a few weeks. We shall shortly announce our decisions on payment, which cannot be met commercially, for the social services that rural sub-post offices provide.

The hon. Gentleman acknowledged that we are considering major decisions by a company that is determined to turn itself around. I hope that he will recognise that the source of the problems that have caused today's great losses goes back a long way. It is important not to indulge in finger-pointing, name-calling or trying to allocate blame but to support the company in its difficult decisions, and support the management and, above all, the work force in taking the company forward. The Government and Labour Members are doing that; I hope that the hon. Gentleman and Conservative Members will give the company the support that it deserves.

Mr. Martin O'Neill (Ochil)

I welcome my right hon. Friend's announcement, and emphasise that some of us who argued for according greater commercial freedom to the Post Office underestimated its management's lack of commercial awareness at the time. That is a major consideration in Allan Leighton's new approach, which most of us welcome.

Does my right hon. Friend appreciate that the redundancy targets are ambitious? In London or Edinburgh, which have a high staff turnover, it may be possible to secure the figures through voluntary redundancy or even early retirement. However, in places such as the town of Alloa in my constituency, where working for the Post Office continues to be regarded as a good job, albeit not an especially well-paid one, people will hold on to the jobs desperately. The package must contain far greater flexibility to ensure that the trust and commitment of people in areas of high unemployment, who look to the postal services for secure employment, will not be betrayed at the stroke of a pen.

Ms Hewitt

My hon. Friend makes an important point. This morning, Allan Leighton again underlined that he is determined to achieve the job losses through offering people other jobs in the company or through voluntary redundancies. We all know that the problems are not the workers' fault.

I understand the specific problem of securing the redundancies in more remote areas, where fewer alternative jobs are available, and I shall discuss it with Allan Leighton. However, he is confident that all the necessary job losses, though painful, will be achieved through redeployment and voluntary redundancies.

Indeed, because the union and management have quite rightly negotiated a generous redundancy package, he rather fears that, if anything, he will he oversubscribed in relation to the number of redundancies actually required.

Dr. Vincent Cable (Twickenham)

I echo the earlier comment that our first concern should be for the families of the people who are to be made redundant. As it would appear that these redundancies will be funded from public funds, will the Minister give the House an estimate of the total cost of the redundancy package? Is it, as I believe, something of the order of £1 billion?

Is not the real scandal of today's statement the fact that the money that has been taken out of the Post Office in the form of dividends over a long period should have been invested to accumulate financial assets that are now going to be liquidated, not for investment purposes but to make people redundant? That is a terrible comment on the way in which the Post Office has been managed over many years through the Government.

I want to ask several specific questions. On the second delivery, why have the pilot studies not yet been conducted, in response to the petitions from small business? Can I have a reassurance that, when they are conducted, the concerns of many small businesses about the second delivery will be fully taken into account?

On the price increase, does the Minister acknowledge that one of the relevant factors is that the real price has actually been falling for some years? That now needs to be addressed. The price of stamps in British post offices is now significantly lower than the price in comparable European countries, including those with privatised postal services.

Does the Minister not now believe that the regulator's discussions about competition need something more radical than adjustment, and that they should probably be shelved? With the Post Office in its current dire position, it would be totally inappropriate for private sector companies to come into the industry, without paying an entry fee, and to cream off the few remaining profitable bits of the business. Does the right hon. Lady agree that it would be much more appropriate to allow the European Union liberalisation rules to apply?

Does the Minister acknowledge that the biggest losses—£160 million last year—occurred in the Post Office Counters network, and that, on top of that, there will be a further loss of £450 million next year because of automated credit transfer? Can she explain why the Consignia statement contains no estimate for banking income, and no mention of "Your Guide"? When do the Government intend to produce a clear business plan explaining where these additional sources of income are to come from, so that the counters network does not collapse in the same way as the rest of the Royal Mail system?

Ms Hewitt

First, on the issue of the use of the gilts and the cost of restructuring and redundancy, provision is made in the accounts that have just been published for £682 million in redundancy and restructuring costs. Further provision will be made in the current financial year's accounts, when they are published next year, for the additional redundancy and restructuring costs of the Royal Mail. The provisions in last year's accounts, just published, relate to the Parcelforce restructuring.

The hon. Gentleman's central point that the profits accumulated over many years of operation should have been used for investment and modernisation is absolutely right. On that we are completely at one. If the modernisation and restructuring had been done much earlier, the process might well have been less painful. We must recognise, however, that whenever the restructuring was done, it would have involved a certain number of job losses and redundancies in any case, because the process would have involved making the company more efficient. The important thing, however, is not to worry about the past but to determine how to get out of this situation and to ensure that the company now has access to those reserves—that £1.8 billion of gilts—to take forward its restructuring and to support the post office network.

So far as the price of stamps is concerned, we do, indeed, have almost the lowest postage costs in the European Union. As I suggested earlier, however, I do not think that there has been any justification for a price rise at a time when the company has shown itself unable or unwilling to deal with its underlying inefficiencies and with what were, frankly, appalling industrial relations. We have to remember that almost I million days were lost in strike action in 1996 and that there were very deep-seated problems, which I am glad to say that the company is now sorting out in partnership with its trade union. It is only now, in the context of the renewal plan, that the company can quite properly go to the regulator and seek a price rise.

On the broader issue of competition and market opening, I do not agree with the hon. Gentleman that the proposals and decision that Postcomm has made should now be shelved. I am surprised to hear him blowing hot and cold on competition. One might have thought that the Liberal Democrats were in favour of competition and of encouraging new entrants to the market in the interests of consumers. [HON. MEMBERS: "That was yesterday."' However, as I hear Opposition Members saying, that was yesterday; today is today, and opportunism is never far away when the Liberal Democrats are present.

If the opening of the market, which is already taking place in many other European Union countries, is done sensibly and at a sensible pace, it will benefit consumers and also the Royal Mail, by ensuring that it does not fall back into the bad old ways of a protected monopoly that relied on price rises to cover up its inefficiencies. The hon. Gentleman has got the situation the wrong way around. One of the paradoxes of Royal Mail's current situation is that, in many cases, it is making a profit in the parts of its business that are open to competition, but has, extraordinarily, none the less succeeded in making a loss on its monopoly business. Of course, that will have to change.

On Post Office Counters, as I have indicated, we are on track to create and deliver the universal banking services. The Royal Mail and the Post Office are in discussion and reaching a conclusion to their negotiations with the banks and the Department for Work and Pensions. Those negotiations are commercially confidential, which is one reason why figures have not been published. On "Your Guide", as I have said, we will get the evaluation report very soon. We will then make a decision about whether rolling out "Your Guide" across the country as a whole would provide the value for money and new income for sub-postmasters, new customers and service to citizens that it has the potential to deliver.

As I said, the new chief executive, David Mills, is conducting a strategic review of the post office network and looking not only for opportunities to provide services for government, but for new commercial opportunities. It is quite extraordinary that the household insurance that sub-postmasters and sub-postmistresses are now selling very successfully is the first new product that the Post Office has rolled out since it invented postal orders decades ago. We will be looking to David Mills and Allan Leighton to come forward with a strategy for the network that includes a significant expansion of its commercial opportunities, as well as, quite properly, a role for government in supporting its social function.

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. The House has important business to transact this afternoon, so I appeal to hon. Members to put very brief questions. I hope that they may get brief answers.

Caroline Flint (Don Valley)

The matter with which we are dealing goes back many years, and it is to this Government's credit that we have seized the issue since 1997 and tried year on year to tackle serious problems. May I ask my right hon. Friend about the provision of local post offices and, in the decisions that are being made, her views about how consultation with local communities should take place, bearing in mind low-income communities in which people do not have cars in which they can travel to the nearest urban centre? Also, can I ask her about the viability of post offices—

Mr. Deputy Speaker

Order. The hon. Lady is not getting us off to a very good start, first with a prefatory statement and then two questions. I think that that is quite enough.

Ms Hewitt

The question is extremely important. In the reorganisation of urban post offices that has just begun, we have told the company that as the restructuring is taken forward, it must ensure that at least 95 per cent. of people living in urban areas are still within one mile of a sub-post office after the reorganisation. Of course, the majority should be within half a mile of a sub-post office. But no sub-post office in an urban area will close until there has been consultation not only with sub-postmasters, but with Postwatch and, above all, the local community.

Mr. John Redwood (Wokingham)

Will the Secretary of State promise that there will be no further redundancies and no further reduction in service quality after this statement? When will the Post Office be back in profit? Does she agree that the third way idea of a not-for-profit corporation has been taken to extremes by Consignia?

Ms Hewitt

Allan Leighton made it clear this morning that there should be no further redundancies in the front line work force. He was not willing to make the same promise to management. The renewal plan that he announced this morning includes £100 million worth of savings in management and administrative overheads. I hope, and he expects, to be able to find further savings in that direction. Far from representing a reduction of service quality, the renewal plan will enable the Royal Mail to improve its service standards.

Many hon. Members know from their constituents' experience that, in parts of the country, the mail is not arriving on time and it is pretty haphazard as to whether people receive it within a few days or a few weeks. That has to change and the renewal plan will enable the company to increase its service standards, I hope dramatically, over some years. We expect the company to be back in profit by the end of this three-year renewal plan.

John Cryer (Hornchurch)

Does my right hon. Friend accept that it is very difficult to see how the universal delivery service can be maintained on the back of thousands and thousands of swingeing redundancies of this type? Does she also accept that the difference between profit and loss in the Post Office is between 2p and 3p on a first-class stamp? She says that the director of Postcomm has been listening to the comments of hon. Members; you could have fooled me. Would it not be better to clear out the director of Postcomm and his loony plans and to bring in a regulator who cares about public service?

Ms Hewitt

There is no threat whatever to the universal service from the changes to the delivery specification and, in particular, the ending of the second delivery. The second delivery has never been part of the universal service. The union itself has been arguing for the ending of the second delivery, and quite right, too. As I have said, 4 per cent. of mail is costing 20 per cent. of the total cost and 30 per cent. of the hours walked by postmen and women. That is not sensible.

I do not agree with my hon. Friend's comments about the Postal Services Commission. I welcome the fact that, as it spelled out in its decision, Postcomm has clearly listened to the representations made to it. Although, as it says in its decision, Postcomm was reluctant to reward, as it saw it, an incompetent management by slowing down the introduction of liberalisation, it none the less appreciated the real risks of introducing competition too quickly and has therefore scaled back and delayed the introduction of that competition.

Mr. Peter Atkinson (Hexham)

May I be certain that I understood the Secretary of State? Will she confirm that a business that receives an average of more than 20 items of mail per working day will receive early delivery? Will she confirm that that would apply to a sole trader and to businesses in rural areas as well as urban?

Ms Hewitt

I can certainly confirm that the early delivery-7 o'clock to 9 o'clock—will apply to a sole trader as well as a larger business. The size of the business is not the issue here. There are obviously greater difficulties, particularly in very remote rural areas, in making the delivery by 9 o'clock. That is one of the issues that the pilots in rural areas will be specifically designed to address to ensure that businesses and sole traders in our rural areas get the service that they need to succeed in their business.

Geraldine Smith (Morecambe and Lunesdale)

Will the Secretary of State explain why the Post Office has been allowed to slip from being a very profitable business for many years? Despite poor management, bad industrial relations and lack of investment, it constantly made a profit until quite recently, when it became a loss-making industry. Does she share my view that perhaps it is easier for a loss-making industry to make huge redundancies and to sack 30,000 people than it would be for an industry that was seen to be in profit?

Ms Hewitt

As I explained a few moments ago, a number of different factors have contributed to those very large losses, and my hon. Friend has referred to some of them. In addition to a lack of investment over the years and bad industrial relations, there was also a failure to appreciate the effect of the growth in e-mail, faxes and courier services. The company did not anticipate the slow-down in the substantial annual growth in mail volumes on which it had relied for years. Above all, since being given commercial freedom it has simply lost control of its costs. At a time when revenue growth was slowing, costs were rising massively, and it has now to deal with that situation. The job losses, which will be achieved through re-deployments and voluntary redundancy, are the means of eliminating a large part of the company's underlying inefficiencies, and ensuring that it is once again the profitable business that it ought to be.

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy)

The statement is rather disappointing, inasmuch as it appears to water down the idea of universal service obligation. [Interruption.] The right hon. Lady shakes her head, but in many areas in my constituency deliveries are not made before lunch as it is. With fewer postmen delivering, one wonders when—if ever—people will receive their post.

The right hon. Lady mentions redundancies. Echoing the comments of the hon. Member for Ochil (Mr. O'Neill), in areas in my constituency such as Bala and Llanrwst, the sorting offices are small, so there is no possibility of job transfers. What will happen when those employees refuse voluntary redundancy?

Ms Hewitt

As I said, today's announcement contains no threat whatsoever to the universal service obligation. As the hon. Gentleman has suggested, in his constituency the second delivery probably does not operate at all, and in any case it does not form part of the universal service. There is a very real problem with thoroughly unreliable deliveries in some parts of the country. In certain areas, the Royal Mail is perfectly capable of delivering not just 92.5 per cent. of first-class mail on the day after it is posted—the target figure—but 100 per cent. However, in many other parts of the country—sometimes because of industrial relations problems or logistical problems—nowhere near even 90 per cent. of such mail is being delivered. Reorganisation and the tailored delivery programme will ensure that customers get a much more reliable service, and that the universal service is delivered in every part of the country to the same high standards, which is what we all want.

The hon. Gentleman and my hon. Friend the Member for Ochil (Mr. O'Neill) mentioned the position of postmen and women in parts of the country where few other jobs are available. Management and unions are discussing that issue, and will take it forward as part of the consultations on the redundancy programme.

Mr. Dennis Skinner (Bolsover)

Will this high-flying management of the Post Office, who have been running the show for the past few years and brought it to this sorry state, be awarded fat cat payments? My right hon. Friend referred to a fella called Roberts, who is packing it in. How much money will he get? Is this not the appropriate moment to say that, at a time when the taxpayer is having to foot the bill, the people who have managed the affairs in this way should not get fat handouts?

Ms Hewitt

There is no question of awarding fat cat payments or rewarding failure. Of course, John Roberts will receive an appropriate payment, in line with his contract. [HON. MEMBERS: "Ah!"] We are putting in place for the new chairman and the new executive and non-executive directors salary packages with a very significant element of performance-related pay. Allan Leighton has set an example in this regard by taking no additional payment as new chairman, over and above the £20,000 a year that he received as a non-executive director. The whole of his pay as chairman will depend on his turning around the company and delivering on the targets that he himself has committed to. We will expect an equivalent emphasis on performance-related pay in the appointment of other non-executive directors. Of course, with the appointment of the new chief executive, we will need a package that can attract an outstanding manager to lead the organisation through the renewal programme, but it will also have a large element of performance-related pay.

Mr. Richard Page (South-West Hertfordshire)

Will the Secretary of State tell the House why it has taken the Government five years to realise that the previous management was not up to scratch?

Ms Hewitt

As I indicated in my statement, we have taken a series of actions since 1997 to strengthen the performance of the company. We started by giving it much greater commercial freedom and then we brought in a new finance director, because one of the highest priorities was to ensure that the company regained control over its costs.

The hon. Gentleman may not be aware of the untimely death of the finance director early in 2000. Because of that, and the time inevitably taken to appoint his successor, the board was without a finance director for many months, and that contributed to the problems on which the new finance director, who arrived at the beginning of last year, has had to get a grip. We have made significant changes in the management of the company and we are continuing to do so to ensure that we get the first-rate management that we need. I hope that Opposition Members will give the management and the work force the support that they deserve to turn the company around.

Diana Organ (Forest of Dean)

What reassurances can my right hon. Friend give to my constituents about the future viability of rural post offices? When will the universal bank be fully implemented and when will other commercial products, such as house insurance, be introduced into rural post offices, to increase footfall and keep the businesses viable?

Ms Hewitt

That is one of the issues that we have asked the new chief executive, David Mills, to take forward. With a background in retail banking, he is ideally placed to ensure that the Post Office develops those new commercial products, especially in financial services, to serve communities that are often financially excluded. Sub-post offices have an important role to play in that and the success so far of the household insurance product illustrates the potential. The universal banking service is on target for introduction next year, as I have previously confirmed.

Mr. Nicholas Winterton (Macclesfield)

A sizeable part of my constituency is rural and some of it is very remote. In those remote areas, some businesses will receive more than 20 packages or letters a day. If they are to get priority service, will the other people who live in that area also get it, because it would be a nonsense to duplicate the service in those rural areas to which the reliable universal service is essential?

Ms Hewitt

The hon. Gentleman makes a sensible point and that is exactly the sort of practical issue that will be considered in the new pilots for the tailored delivery scheme. Where businesses—perhaps only one or two—are located in a remote rural area and receive 20 or 30 items of mail a day that they need to have delivered early in the morning, it may make more sense to have a single delivery for everybody in that village, instead of going out again later in the morning. That is an operational and practical issue and the company will draw conclusions on that point from the pilots that it intends to run in rural areas.

Mr. Michael Jabez Foster (Hastings and Rye)

My right hon. Friend gives cause for optimism when she tells us of the acceptance by the management of the error of their ways, including the daft change of name. Have they learned the lesson that not beating up staff is one way to create enterprise among them? Can she do anything to instil a sense of respect for the staff that has been so sadly missing in the past two or three years?

Ms Hewitt

My hon. Friend will be aware that I have previously expressed criticisms of the management in part of the business. One has only to read the Sawyer report to see just how bad the management and industrial relations had got, not everywhere, but in some of the sorting offices in particular. I pay tribute to the union, in particular, and to the new management for the way in which they have worked together since the publication of the Sawyer report. We have seen an enormous reduction in the number of days lost to strike action, from hundreds of thousands five years ago to a few hundred in the past few months.

We are going in the right direction and Allan Leighton, who has made a point since becoming interim chairman of going to the sorting offices at 5 am, visiting delivery centres late in the evening and talking to the front-line staff, has been welcomed by the work force as the breath of fresh air that the company so badly needs.

Dr. John Pugh (Southport)

Given the £1.2 million a day loss that Consignia is enjoying at present, what operating loss does the Secretary of State anticipate next year?

Ms Hewitt

The company is anticipating that its total losses next year, including exceptional items, will be about the same as this year. It is rightly making cautious assumptions in order not to disappoint on its targets as it has so often done in the past. As I said, further redundancy costs will arise from this morning's announcement and those will, of course, be included in next year's accounts for the current financial year.

Mrs. Louise Ellman (Liverpool, Riverside)

Could the Secretary of State clarify her role in ensuring that the reborn Royal Mail will provide good public services in poor urban areas, such as Liverpool?

Ms Hewitt

I am already working with the new management of the company to ensure the first-rate management that we need and to ensure that the board and the management understand the importance of delivering the universal service obligation and higher standards of customer service throughout the country but, in particular, in vulnerable areas, whether those are poor urban areas such as my hon. Friend's constituency or rural areas where the post office and the Royal Mail play a uniquely important role. Equally, I have made it clear to Allan Leighton and David Mills that we must sustain an effective and modernised network of sub-post offices so that those can continue to play their vital social role, in particular in the most disadvantaged neighbourhoods.

Mr. Michael Jack (Fylde)

The Secretary of State has just shared with the House the fact that next year the Post Office will make a further £1.1 billion loss, thus leaving only two years to return to profitability. As the owner of the company, will she tell the House what profitability targets will have to be achieved in years two and three to return to the profitability that she set, what rate of return on the company's capital she has agreed in future and, if those targets are not agreed, what sanction she will apply to the management?

Ms Hewitt

As I said, the company—rightly, in my view—is making very cautious assumptions and is allowing for the fact that in the current financial year it will have to make further provision for the exceptional costs of redundancies and restructuring that flow from this morning's announcement. The path that it has set, however, is—as Allan Leighton made clear and as the right hon. Gentleman will see from the accounts, which are being published today—for a return to profitability by the end of the third year. We will be monitoring the company's progress extremely closely on those profitability targets. If they are not met, we have made it clear to management that they will not only not receive their performance-related pay but that we will, if necessary, make further changes to the management.

Mr. Colin Challen (Morley and Rothwell)

It is always a pleasure to be behind a Front-Bench spokesman who is willing to listen and then to act. In that spirit, will my right hon. Friend listen to customers in the forthcoming years of liberalisation, revisit the universal service obligation and strengthen it?

Ms Hewitt

I have already said that the universal service obligation is at the heart of our policy. That is why we gave it statutory backing in the Postal Services Act 2000, but the biggest threat to that obligation comes not from liberalisation and market opening—provided that that is done sensibly and at a sensible pace—but from the company's own inefficiency and losses. If it had continued like that, there would have been a very serious threat to the universal service. That is why it is so important that the company, under its new leadership, has now put forward and agreed this renewal plan and is taking it forward in partnership with the union to ensure that that obligation is strengthened and that quality of service is delivered throughout the country.

Mr. Christopher Chope (Christchurch)

What is the Secretary of State going to do about the independent regulator if he says that it is not reasonable to increase the price of a stamp? Furthermore, what is the point of having an independent regulator if the Secretary of State tries to lean on him by prejudging his decision? If the price of a stamp goes up, does she agree that it will mean, in effect, that the customers are paying for this awful incompetence?

Ms Hewitt

I have made it clear several times already that I would not have supported any price rise—nor thought it justified—if it was simply masking the inefficiency of the company's operations. The regulator—the Postal Services Commission—was, rightly, set up as an integral part of the move to commercial freedom for a publicly owned company. The members of that body are reasonable people—as the hon. Gentleman would expect; they have clear statutory objectives and I have no doubt that they will continue to make reasonable decisions, as they did on this occasion. Their independence, as the chairman, Graham Corbett, recently confirmed, is under no threat whatever, but he thought it perfectly proper—as did I—that I should make my views of the risks inherent in the earlier proposals known both to the Consignia chairman and to the commissioners.

Mr. Alistair Carmichael (Orkney and Shetland)

Ultimately, the success or failure of the Secretary of State will be judged in the communities that I represent in Orkney and Shetland by the continued security of the universal service obligation. Will she, therefore, bring early pressure to bear on Postcomm to publish in detail the targets and performance indicators that it will use to assess any possible threat to the universal service obligation? In all sincerity, I have to point out that nothing in Postcomm's performance in recent months gives me any confidence that it understands either the importance of universal service to communities such as ours or, indeed, what is required to preserve it.

Ms Hewitt

As I have already told the House today, the universal service obligation and its preservation are the No. I and overriding statutory duty of Postcomm, and I have no doubt that, as Postcomm has indicated publicly on several occasions, it takes that duty extremely seriously. Postcomm will shortly publish a further report—a consultation document—on the definition and scope of the universal service, and I shall certainly draw attention to the point made by the hon. Gentleman about the need to understand not only how important that universal service is in a constituency such as his but also the steps that have to be taken to ensure its delivery.