HL Deb 09 November 1955 vol 194 cc449-72

5.43 p.m.

THE EARL OF LISTOWEL rose to call attention to the Report on Post Office Development and Finance (Cmd. 9576); and to move for Papers. The noble Earl said: My Lords, a discussion on the affairs of the Post Office is bound to be something of an anti-climax after a debate on Defence, but I am sure we all look forward to hearing from the Front Bench the maiden speech of the noble Lord, Lord Chesham. I wish him good fortune when his turn comes. I think a newcomer is particularly welcome when he is obviously in a position to repair the ravages which age makes on every Front Bench. At the same time, I am sure that the noble Lord will appreciate what I say, and indeed understand my point of view, if I say that we are sorry that the noble Earl, Lord De La Warr, is no longer in charge of the Post Office. I say that both because it is always an advantage for a Minister to be in a Department, as he is bound to be better informed than any Minister outside the Department, however competent that Minister may be, and because we on this side of the House have learned to appreciate keenly the noble Earl's thoroughness, fairness and courtesy in debate. I hope that, like so many ex-Ministers, he will in due course reappear with an even more distinguished ministerial title.

The White Paper to which I am directing attention was published a fortnight ago, and I think enough time has passed for those of your Lordships who are interested in the Post Office to form an opinion about the important changes it sets out in Post Office policy. First of all, I must frankly express some regret about the timing of these changes and the way they were announced in Parliament, If they had been published before or after the Budget the public would have had a far better chance of realising their great importance. I personally should much have preferred a full and detailed statement by the Postmaster General, the responsible Minister, to the passing reference of the Chancellor of the Exchequer in the course of his Budget Speech. I think that would have been a far more satisfactory Parliamentary procedure. It is true, of course—this no doubt was the Chancellor's argument—that these changes will affect the economy of the country as well as of the Post Office and the millions who use its services. On the other hand, their effect on the Post Office and the general public will be much greater than their effect on the balance of payments.

Referring directly to the White Paper, I should like to start by saying something about the new charges. If we accept the principle, as I think everyone now does, that the Post Office must pay its own way like any other commercial undertaking, its charges are bound to keep pace with the rising cost of its services. The cost of labour and materials has been rising steadily since the war. Your Lordships will remember the increase in postage fees and, more recently, in the rates for inland telegrams. But these increases have not been sufficient to meet a mounting bill. The Post Office is now faced with the prospect of a deficit of £3 million next year unless its charges go up again. With this prospect in front of it, I do not think anyone would blame the Post Office for increasing its charges again before it gets into the red, or for budgeting for a modest surplus of £5 million, which I think is quite small on an annual turnover of about £300 million. What I think the public is entitled to expect in return is that the Post Office will do its utmost to make its services cheaper and more efficient. The White Paper shows quite clearly that this is intended. The references to the introduction of trunk dialling and further postal mechanisation indicate that the need for economy and efficiency is fully realised. It is encouraging to know that these and other improvements are well under way. I hope that this aspect of the White Paper will not be overshadowed, as there is a risk that it may be, by the new charges and the new financial arrangements.

I think I ought to say one word of caution. It is easy for an economy campaign to go too far. Fresh technical developments, such as those mentioned in the White Paper, will be checked—it is these technical developments which will make a good contribution to greater efficiency—if less money is spent on scientific research. Those of your Lordships who have visited the Post Office research station at Dollis Hill are familiar with the admirable work it has done and is still doing. This work ought to go on. It is always a false economy, in the long run, to cut expenditure on research. I hope that the noble Lord, when he comes to reply, can tell me that this will not happen.

I should like to make one brief comment on the effect of the proposed charges and capital savings on our national economy. I do so mainly because I take a different view from, and I am not nearly so sanguine as, Mr. Butler. It may turn out, as Mr. Butler expects, that the reduction in the programme of capital expenditure on the telephone service will release labour and materials for the production of exports. I certainly hope it will. But as we have not been told the amount of the reduction, or the industries that will be affected, it is really impossible for us to form any opinion. For example, the electronics industry provides equipment for the Armed Services, the B.B.C. and the I.T.A. There is no guarantee that if labour and materials are released by smaller Post Office demands, more of its products will go to export.

Dealing with other aspects of these changes and their impact on the national economy, I am fairly certain that the higher telephone rentals and increased charges for local calls will not mean that people will spend much less money on telephones. The average person with a telephone is not going to make fewer calls or have his line disconnected and removed just because he has to pay more for his telephone. I think noble Lords will agree that that is not his likely reaction. He is far more likely to draw on his savings or to ask for a better wage or a higher salary to cover the extra cost of the telephone. The higher cost of the telephone in the homes of thousands of skilled workers (for it should not be forgotten that the telephone is far from a middle-class luxury) will, I fear, add to the temptation to make further wage claims. I agree with what was said by my noble friend Lord Pethick-Lawrence in our debate last week on economic affairs, that high prices for what people regard as necessities are not likely to mop up purchasing power; they are far more likely to increase inflationary pressure on wage and price levels, and that is exactly what we all, on both sides of the House, most want to avoid.

I am more worried about the effect of curtailed capital development on the telephone waiting-list, and should like to try to analyse what the effect is likely to be. We are told in the White Paper that the number of new applicants is now running at about half a million persons a year. Under the revised capital development programme the Post Office expects to install about 1½ million new telephones in the next three years. If my mathematics are right (this is a fairly easy sum, though I often go wrong on simple calculations), it follows that, unless the new charges put off a very large number of new applicants, there will be no appreciable further reduction in the waiting-list during that period of three years. This means that the waiting-list, after having fallen steadily from the peak figure of 500,000 to 600,000 applicants a few years after the war, will be frozen at or near the current figure of 380,000 applicants. When one remembers that 40,000 of the current applicants have already been waiting for three years or longer and that 70,000 of them run small businesses in towns or in the country—shopkeepers, small farmers and so on—it is obvious that the delay is already causing very serious and considerable hardship. In many households and small businesses a telephone is an acute need and I am surprised that, in view of this situation, Mr. Butler gave the Post Office telephone service such low priority. I dare say that public reaction since his announcement will make him think again about this before the Spring Budget.

While personally I regard the total amount required to be raised by the new charges as probably inevitable in view of rising costs, I think that more than one opinion could be held about the way in which the new charges are divided between the postal and telephone services and also about their incidence upon the user. Let me give your Lordships one example. The small shopkeeper and other business users will be particularly hard hit. They will pay the higher charge for local calls and the all-round increase of £1 in rentals on top of the new differential between business and residential subscribers. It seems particularly unfair to make the businessman in London and other big cities pay more now, as the Post Office is already taking a profit on his telephone. There is a much stronger case in regard to residential subscribers on whose telephones the Post Office have been making a loss.

I should like to make one suggestion which perhaps the noble Lord opposite will be good enough to consider and pass on to the Minister. Why not scrap altogether the differential between business and residential subscribers, instead of just reducing it by £1 as was done in the White Paper? Do not let us forget that this differential was introduced to stimulate the demand for telephones. That was its purpose. Obviously now it is ridiculous that a difference should continue to be made when the demand considerably outstrips the possibility of supply. It is complete madness that this differential should he retained. I should have thought that this would have appealed to Her Majesty's Government as a matter of principle for another reason, for the Government believes in helping private enterprise. Here, surely, is an opportunity to give real help to the small man and to stimulate healthy competition which all of us, on both sides of the House, regard as a good thing in the right place.

The most welcome change in the White Paper is the restoration to the Post Office of its pre-war financial relationship with the Treasury. Your Lordships will remember that the Bridgeman Committee regarded the principle of "self-contained finance," which has been suspended ever since the war (it was thrown over at the beginning of the war) as the most important of the reforms it recommended, and I am glad that Her Majesty's Government have decided to go back to this principle and to limit the amount that the Treasury can take in any one year from the revenue of the Post Office. The new arrangement will enable the Post Office, after it has paid a fixed sum to the Treasury, to keep the surplus, as I understand the White Paper, in a credit account. In return for an annual payment of £5 million for the next five years it will be allowed to keep whatever net profit is left after this charge has been paid.

I should like a little explanation from the noble Lord opposite as to whether the Post Office will be free, as it was before the war, to use this or any surplus it may get from its revenue from year to year, in any manner it likes, including the improvement of its services; or whether this surplus will now be treated as a reserve fund which can be used only to meet a deficit. If it is no more than a "nest egg" against a rainy day, the new arrangement will give the Post Office much less financial freedom than it had before the war and much less freedom than the B.B.C., which also makes a fixed annual payment to the Treasury. In one respect these new arrangements with the Treasury are a real improvement on the pre-war scheme. The Bridgeman Committee failed to find any, yardstick to measure the amount of the annual payment to the Treasury. The White Paper relates the payment to tax liability. It is not unreasonable that the Post Office should pay a lump sum in lieu of tax and this will certainly be a useful yardstick for the measurements of future payments, although a fixed amount cannot be a precise equivalent of tax.

Reading between the lines of the White Paper, I find it easy to see the Treasury side of this bargain. Here I come to my most serious criticism. This is a really extraordinary provision. The first section of Appendix 2, which sets out the new arrangement with the Treasury, suggests a trial period of five years. I quote the words of the White Paper: These arrangements will have effect for a trial period of five years commencing 1956–57. From these words it would appear that the new relationship between the Post Office and the Treasury is no more than an experiment, and that if the experiment is unsuccessful it will, presumably, be dropped. Nothing of this kind is mentioned in the Bridgeman Committee Report. It recommended a review of the amount of the Post Office payment to the Treasury after three years, but there is absolutely no. suggestion, in that Report, of a trial period for the principle of "self-contained finance." I very much hope that the noble Lord will tell me that the "trial period" does not refer to the new relationship with the Treasury and that he will be able to explain exactly what is on trial. The words are there and they must be explained, otherwise they will, I think, lead to all sorts of misunderstanding.

May I conclude by referring briefly to one very broad and important issue of policy. I cannot help feeling that an opportunity has been missed in the making of these new arrangements with the Treasury to review the whole background of Post Office finance. A lot of fresh thinking is needed on both sides of the House, and especially on the part of Ministers who have the inestimable advantage, which we lack, of the best expert advice. No one would wish to jump to conclusions before such a review has been undertaken. After all, the fact is that, whether under the new financial arrangements or the old, the Treasury will still in practice have the last word about the financial policy of the Post Office. But the Treasury, with its natural and proper bias in favour of economy in public expenditure and raising more revenue, is not the right authority to be charged with responsibility for any large and expanding commercial undertaking like the Post Office. Surely the time has come to consider whether we cannot give to the Post Office at least as much freedom to decide its own policy as any great industry or public utility in public ownership at the present time.

It may be the case that this degree of autonomy is impracticable while the Post Office remains a Government Department. If that is so, we should again examine the possibility of making the Post Office an independent public authority working under a statutory board. Your Lordships will remember that this method of running the Post Office was considered by the Bridgeman Committee, and that the Committee decided against making it a public utility company or statutory corporation. But, of course, the evidence received by the Bridgeman Committee as long ago as 1932 was very different from what it would have been if the Committee had been sitting to-day or last year. In the 'thirties, there were no public undertakings at all comparable in size or extent of operation with the Post Office. Now we have the coalmining industry, the railways and the electricity industry, all run as public undertakings on a national scale. Their experience might well throw new light on the management of the Post Office.

I hope your Lordships will forgive me for thinking aloud in this way. I am only trying to contribute to the general pool of critical and constructive inquiry, and I am doing it in the hope that I may encourage others with much better advice and information than I have to do likewise. Above all, I hope I shall not be misunderstood because I have said it would be a good thing if the Post Office were less dependent on the Treasury. This is no reflection on the Post Office or on the senior officials of the Post Office. On the contrary, it is because of the proved ability of the senior officials and the spirit of public service that runs right through the Post Office organisation that many people would like it to have more freedom than it has in the management of its affairs. I beg to move for Papers.

6.3 p.m.

LORD TEYNHAM

My Lords, I feel that I must apologise to the House for asking your Lordships to listen to me twice in one afternoon, but as a member of the Post Office Advisory Board I thought I might say a few words on this matter. There is no doubt that the finances of the Post Office must be put on a sounder basis as soon as possible if any proper capital development is to take place. Nearly 380,000 people are waiting for telephones, as the noble Earl said, and 40,000 have been waiting for more than three years, which of course is a very long period. I am delighted to note that a limit is now to be placed on the use of the Post Office as a revenue-producing instrument for the Chancellor of the Exchequer. With this limit reimposed since the war, I think it may now be possible for the Post Office to put its house in order, to get on with its capital commitments and give the people telephones. I think the limit before the war was £10,750,000—I believe the figure now is to be £5 million.

The noble Earl, Lord Listowel, suggested that people would not spend less on their telephones in the future, with the higher rentals and call charges. I hope that that will be so, because it is what the Post Office wants: it wants a little more money. I fully support the proposed increase in telephone tariffs. I need hardly say that the main reason for it is the increase in wages. The Post Office will have to find something like another £3 million for wage increases in the telephone service by 1956–57. It is the same story, even with minor stores, the cost of which adds to running expenses and which will have increased by £1 million in the same period.

There is also, of course, the old bugbear of depreciation. As the noble Earl knows, in the Post Office this is linked to historic replacement, which is quite insufficient to replace machines and telephone exchanges and so on at the present time. I believe that the life of the average telephone plant is only somewhere about twenty-five years, and in fact it has become necessary to raise £12,500,000 more for depreciation. The consequence of all this is that the telephone service must increase its revenue by £19 million, and I can assure the noble Earl that great care has been taken as to how this sum should be apportioned with regard to rentals, local calls, trunk calls and so on, as between London and the provinces. I understand that the biggest shortfall is in rentals, which fail to cover the costs of installation. I believe that in London the average cost of telephone installation is £9 10s. a year, and in the provinces about £12 12s., whereas the subscriber pays only £6 4s. in the provinces. That is a very large difference. I am afraid the fact is that the Post Office is being driven to increase its charges by rising costs, but from what I know of the Post Office organisation, I am,sure that its work is conducted with every consideration for economy and that there will now be a chance for the Post Office to get on a sound financial basis.

6.8 p.m.

THE EARL OF CROMER

My Lords, I should like to congratulate the Government on the publication of this Report. Like the noble Earl, Lord Listowel, I naturally welcome this as a step towards giving the Post Office financial autonomy. Like him, also, I should like to see this carried further. I do not altogether share his concern that it may be on an experimental basis, because even if it were not it is not difficult for Parliament to change the system hack again at any time it wishes. The Report gives heartening evidence of the tremendous work done by the Post Office in the years since the war, and I think the staff of the Post Office, at all levels, and particularly on the telephone side, deserve the congratulations of the pubic for their really remarkable achievements under conditions of shortage of equipment and stringent capital economy. In fact, the continuous developments which are taking place in the telephone service are steadily improving that service, and the part that the Post Office is playing in the development of the new transatlantic telephone cable, amongst many other developments, is a matter of considerable satisfaction to us.

We cannot, however, afford to be complacent, as in 1954 we had only 12.15 telephones per 100 of the population, and our rate of increase is practically the lowest of all heavily industrialised countries with the exception of the United States, where they are far ahead of us in their telephone service. If we were to have a telephone service in this country comparable to that of the United States—and in that country they realise to a much greater degree than we do the value of the telephone as a time-saver and as a means of increasing business—we should to-day have some 16,600,000 telephones rather than the 6,500,000 that we now have. But comparisons of that sort are of relatively little value. What really matters is that at no time should trade and industry he held up by inadequate communications, which must be kept in step with the expansion of industrial activity. For that reason I view with some disquiet the statement in the Report that, in view of the economic situation, the Post Office must accept some slowing down in the immediate future. I think it is disastrous to cut down any form of activity which might increase our production. After all, there are many non-productive activities of the Government which can well afford reduction.

The decision to increase telephone rentals is inevitable, I think, and I agree with the remarks which have been made about differentials. There is one point which has not been mentioned and which I believe is relevant to the increased rentals—that is, that the Post Office should revert to quarterly statements to its subscribers. The sums involved will be more. Every other public utility renders quarterly statements to its customers, and I see no reason why the Post Office should not do likewise, as indeed they used to do.

I have two specific suggestions to put forward, and though I do not expect the noble Lord to reply to them to-day, he may care to pass then on to the Postmaster General for consideration. They are both matters of principle. In some countries there is no charge made for local telephone calls, the rental taking into account an average number of such calls. It seems to me that there may be two advantages in such a system. One is that it would obviate a considerable amount of accounting and book-keeping, Secondly, as the rentals would have to be somewhat increased to take into account these local calls, it might reduce the demand for telephones, because, when all is said and done, presumably it costs the Post Office the same to install and maintain a telephone that is little used as to install and maintain a telephone that is used a great deal.

There is another problem which arises not infrequently in the commercial and industrial world—that is, when special installations or special equipment are required. The delay in the provision of this equipment is deplorable. It seems to me that the Post Office finds itself in somewhat of a quandary when it is asked to install these special services. The reason for this is that these jobs are often expensive and time-taking, and necessarily eat into capital allocation which could otherwise be employed in reducing the waiting list or in improving the general service one way or another. I suggest that those who want these special services—and they are quite numerous—should be allowed to employ approved private contractors to install and maintain such equipment, subject, naturally, to approval and inspection by the Post Office to make sure that it is up to the required standard. This system is in use to a certain degree in some applications to-day, but I think there is room for it to be widened. If that were done, the Post Office, the public and the specialist user would all benefit. One other reason sometimes put forward for the delay in these special installations is that the Post Office is unable to obtain deliveries from the manufacturers. One extraordinary fact comes out, however—the private purchaser does not seem to suffer the same delay in delivery of equipment as the Post Office does.

A short time ago, some alteration to the telephone at my home necessitated a visit from a Post Office telephone sales representative. I happen to live about a mile and a half from the village, which resulted in the sales representative having to travel about fifteen miles by bus from the town where his office is situated and then having to walk to my house. He did not complain, but it struck me as wasteful. It is clearly a question of cost, but it seemed to me that the time of a qualified telephone sales representative—and they are of no use unless they are qualified—would justify the provision of cars in rural areas for this purpose. There is one point on the general services of the Post Office which I find disturbing, and that is the amount of work the Post Office does free of charge for other Government Departments. According to the Commercial Report of the Post Office for 1953–54, the Post Office carried out services amounting to £17½ million without payment from the other Departments. The Report indicates that these other Departments are to make an added contribution of £2 million this year, but it seems to me that the situation next year will be that if the other Government Departments continue to use the Post Office services at the same rate—and there is no reason to suppose that they will use them less—the Post Office will be making a contribution of £5 million directly to the Treasury, under this White Paper, and will also be carrying out work for other Government Departments amounting to £15½ million. That seems to be an unnecessary burden on the Post Office. There is a slender hope that if the other Government Departments had to pay for these services out of their normal Treasury grants, they might be encouraged to economise.

Apart from the question of costs the sheer volume of work carried out by the Post Office for other Departments has increased enormously. In these same commercial accounts there is a heading "Counter Services," under which the business carried out amounts to £1,241 million. Out of this vast sum, apparently only £85 million represented the sale of postal stamps, the rest being the sale of national insurance stamps, payment of family allowances, Service allowances and the like. This seems to me to put a considerable strain on the counter clerks in the Post Office, who are expected to be mines of information on an extraordinary miscellany of subjects. It also means that if one finds a queue in the local Post Office it is likely that the people in front are carrying out any sort of business, buying a dog licence or drawing their family allowance, rather than carrying out postal business. As we have, on the whole, pretty efficient Post Office services, as I am sure your Lordships will agree, I think there is a danger of overloading them beyond their capacity, to the detriment of their primary purpose, which is to provide an efficient postal service. I welcome this Report as an objective, clear and useful disclosure of what is going on in one of our most important national businesses.

6.18 p.m.

LORD CHESHAM

My Lords, I should like to extend a warm word of thanks to the noble Earl, Lord Listowel, for the kind words he has offered to me to-day and for the welcome he has given me as a participant in what I may be justified in describing as a sort of pas de quatre. If the music can be played for a few minutes longer. I think that when it ends we shall be more or less in step. I am glad that the noble Earl has called attention to this Report I hope he will not think I am simply being conventional in saying so I really am grateful, because it gives me a chance, in my turn, of calling attention to some aspects of the Report. In so doing, perhaps I can clarify and resolve certain misunderstandings which I believe exist in some quarters.

I should like to assure the noble Earl, Lord Listowel, that I do not for a moment intend to imply that he is guilty of any such misunderstandings—I think his capabilities are rather too well known for that—and possibly I should have said that they exist in other quarters. They exist, I think, because the public service provided by the Post Office is so much and in so many ways a part of everyday life that it tends to be taken for granted, and there is not always the due appreciation of the problems of such an immense and vigorously growing institution. The White Paper (and, if I may say so, I think it is a very good White Paper) sets out a full and thorough analysis of the plans and needs of this large organisation as they are at present formulated, and I do not think it is necessary for me to go through its contents. However, I do want to take up a few minutes of your Lordships' time to discuss three main features—namely, the revival of self-contained finance, the investment programme and the development of the telephone system, and, thirdly, the pursuit of sound financial and price policies.

May we go back to 1932? The work of the Bridgeman Committee resulted in reforms which were very beneficial to the operations of the Post Office. They limited the annual contribution to the Exchequer to a fixed sum, beyond which the surplus could be used for purposes of Post Office advancement. This meant that the Post Office could run its own affairs with initiative, enterprise and economy. Consequently it had improved relations with the public, who could better understand the commercial basis of its activities. Also there was no longer need for such meticulous Treasury control, and provisions for this were set down as well. Unhappily, this state of affairs had to be suspended during the war. It is now the intention to introduce a system having precisely similar effects and advantages, although we think we have made some even more desirable improvements, and I am genuinely glad to know that riot only the noble Earl but the other two noble Lords who have spoken are generally in agreement.

The first thing I want to mention is the question of the annual contribution that the Post Office makes to the Exchequer. I do not think I need apologise for repeating what the noble Earl has said, because this is a subject on which there has been some misunderstanding and I should like to get it completely clear, and because it is one of the major factors affecting the plan to put the Post Office on the new self-sufficient basis. It is not in any way a new burden; the Post Office has always made such a contribution, and it has in fact been regarded by some opinions as a kind of affable milch-cow in this respect. In the past the contribution has amounted to the full extent of the actual surplus or, under the pre-war Bridgeman system, to the amount of some £10¾ million; and even this was arrived at by reference to the actual surplus of the three previous years, so that it may be regarded as a somewhat arbitrary way of assessing the contribution. But, what is more, the figure of £10¾ million was applying on a turnover much smaller than is the case to-day. This, in turn, is due to a combination of the rising costs of the past and the greatly increased volume of business. Your Lordships will have seen from the White Paper that the proposed annual contribution is to be £5 million, and I hope to show that this assessment is not only reasonable but properly justifiable.

For long the Post Office has been virtually free from taxation, and in this connection I would mention as examples income tax, purchase tax, profits tax and motor vehicle duties. Quite simply, then, the amount has been arrived at, even if in rather round figures, by having regard to the amount of these and other taxes which a business the size of the Post Office would normally pay. In addition, this contribution is to be treated as an expense in the Post Office commercial accounts before the balance is struck to ascertain any surplus, and the whole proposal for the contribution and its handling is therefore a sound and valuable move in the plan to allow the Post Office to stand on its own feet.

On the subject of the surplus itself, the White Paper says that it may be carried forward in the balance sheet as a revenue reserve and used, if necessary, to offset any deficits subsequently occurring, which is the point the noble Earl, Lord Listowel, was worried about. One would hope that if the Post Office is to be run on more commercial lines there will not often be any deficit, at least other than a planned one; and if this hope is well founded, I do want to guard against any impression of surpluses simply piling up in reserve. In fact, I want to make it clear that such surplus money would be at the disposal of the Post Office for its own progressive purposes and could be taken into consideration in the balancing of its budget, for which primary responsibility now rests squarely on the Post Office. With this increased responsibility for its financial affairs, and bearing in mind that its tariffs are no longer to be put to fiscal use, I could, I think, almost describe the effect, at any rate in principle, as putting the Post Office in a rather similar position to a nationalised industry. It could not be so completely and remain consistent with being a Government Department, as the noble Earl suggested.

I hope that what I have said so far does not imply that there would not be a proper measure of Treasury control, or that it might not be necessary. The noble Earl does not think it is. But I think the idea he has is perhaps a little premature. I do not want to say more than that, but naturally I shall see to it that his ideas are conveyed to the proper quarter. In the circumstances, I think that such control is obviously necessary. There must be, for instance, consultation with the Treasury on those matters of policy which, being of the kind dealt with fairly fully in the White Paper, I do not think I need go into. There would have to be a proper degree of control as well in those matters such as staff pay and establishment questions, where it is obviously essential that there should be uniform standards of Government practice. What is also important, the rate of development undertaken by the Post Office would have to be regulated by the capital investment control that might at any given time be made necessary by the nation's economic situation, in the same way as would apply to any other public authority.

The problem has really been to tie up the seemingly opposed considerations of. on the one hand, relative freedom of action, and, on the other, the required measure of control, and we think that a good answer has been found for the present situation. I would say, so far as Treasury relations are concerned, that we believe the old Bridgeman formula does embody the right spirit in well-considered terms, and will provide a good foundation on which to build a sound structure of good practices, in which I do not think I need have any hesitation in saying that we feel perfectly confident both sides will co-operate successfully. I should rather like to emphasise this aspect of building on a foundation, because we do see it as such, and not as a rigid system that could act as a brake on the progress we are trying to achieve. I think paragraph 7 of Appendix II of the White Paper provides sufficient scope for building such a workable structure, if I may so call it, and it is in rather the same spirit that a five-year trial period is proposed. We think it desirable that there should be time for the system to be carefully constructed before it is more closely defined. I can assure the noble Earl that this is the underlying intention of the trial period, and that there is no reason to fear that, because it is subject to review, it is precarious, but that the latitude which is left in this matter is a deliberate one to allow for whatever improvement may be found desirable in the light of later experience.

I should like to leave the more general question of the principles affecting Post Office finance and turn to the present programme of investment. The problem which is causing a big headache is, of course, the demand for telephones. I have deliberately said "demand," and not the supply of telephones, because on the supply side there has been notable progress, and that has involved an ever-increasing rate of installation. It has not, unfortunately, achieved a comparable decrease in the waiting list, and while I do not want to put a further mass of figures before your Lordships, I have picked out one example which I think is illuminating. On September 30, 1953, there were 384,000 applicants on the waiting list. Between that date and September 30 of this year, the Post Office connected 815,000 new telephones, and we find that on September 30 of this year the number of applicants on the waiting list remains at 384,000.

These are telling figures in indicating the size and scope of the problem. Perhaps I had better add that the 384,000 people now waiting are not the same 384,000 that were waiting in 1953, although the noble Earl has pointed out that 40,000 of them are. I am glad to be able to say to the. noble Earl that this number is already falling and, I think, compares quite well with the number of 125,000 who, at the equivalent date four years ago, had been waiting for over three years. Not only do these figures stress the size of the demand, but the fact that so many people want a telephone reflects a measure of the present national prosperity, and also points to the fact that the present charges for service are relatively moderate. I should like to come back to that point in a moment.

Before I do, I should like first to give a little consideration to the programme which is now laid out for capital development in the field of telephones, because it m 1st clearly be borne in mind when discussing the question of charges, as well as being a good indication of the energetic steps the Post Office are taking to cope with the problem. It is important that it be understood that the capital sums which are budgeted for the next three years, and which will result in the installation of 1½ million new telephones, not only represent money well and progressively spent on the new services, but also are of considerable benefit to the efficiency of the existing one. In other words, it is properly applied capital that will give a return to those whom the Post Office is seeking to serve—that is, the users of the services. I might add that there is considerable benefit as well to the Post Office organisation, in that it is now possible to make a firm plan for three-years ahead, and is much better than the present rather hand-to-mouth existence. It is the fact that this plan has been made that enables me to anticipate with some confidence the considerable progress I have just mentioned. In common with the noble Earl, we might well have liked an even greater investment programme, were it not for the fact that there is a physical limit to the expansion which can take place, apart from the other factors which have been mentioned that influence the rate of capital development at the present time.

Since I have mentioned the necessity for limitation, perhaps your Lordships would like me to say here and now that the Post Office programme is one of continuing expansion. The point I am trying to make is only that the rate of expenditure cannot be permitted to rise faster than has been already planned. You might also think me not quite honest if I did not say that, despite this continuing expansion, there may still be a waiting list of some sort at the end of the next three years. There is the question of the buildings and the elaborate equipment required, and it is not exactly easy to predict future demand. On the other hand, that demand may be affected by economic conditions, or even, perhaps, by the proposed tariff changes. It is also rather difficult to forecast what may be the effects of the new methods and processes which are now in the research stage. I know that that is a point which also worries the noble Earl, and I am glad to be able to say, that we completely agree with him that cutting down on research is the falsest of economies. I should like to state quite definitely that the amount to be spent on research has not been, and will not be, curtailed. Indeed, I think if that were done it would undermine the next three years' programme quite seriously, the programme which will represent, I think, a positive achievement in terms of efficiency and the number of subscribers connected, and in fact promises to be bigger than anything we have done before.

I have now dealt with something of the financial status of the Post Office, and of the capital investment programme. I must come on to the question of how tariffs and charges can best be brought into line with the overall conception. If the self-contained and more commercial status is to be maintained, there are two obvious primary financial tasks to be undertaken. The first is the balancing of the budget, and the second is the charging of economic prices. As I should like to discuss the budget first, I think it might be a convenient point to have a word or two—as they would be involved in budgeting—on the points raised by the noble Earl, Lord Cromer. He wants his bill a little more frequently. I can quite understand that it would be a convenience, but I do not think it would be justified at present if that practice were to be resumed, for the simple reason that it would cost something like an extra £1 million a year and would require probably some 1.300 more staff, with the necessary building for them to work in. Consequently, it is not very practicable. I would also remind the noble Earl, with reference to his suggestion that a certain number of calls should be included in the rent, that that is already the position. Residential rentals now include 100 free calls.

THE EARL OF CROMER

The point of my observation was that if you could get away from charging at all for these calls it would presumably save a lot of book-keeping. I am well aware that residential subscribers get 100 free calls, but if all local calls could be included in the rental it would save a lot of accounting.

LORD CHESHAM

It would, indeed; but I think it would lead to a great deal of trouble with accountants, because I do not think it would be practicable to include all free calls. That would be a most unfair method of subsidisation of one subscriber by another. I do not hold out much hope that we could make any substantial difference in the question of free calls other than what is already proposed. As regards the other points, I think it would be best if I simply said that I will see that they are passed on.

May I now return to the budget. The biggest problem is that of rising costs, by which I mean the rise in the actual costs, such as increases in transport charges and wage rates, and not merely the higher expenditure due to expanded business. The main item is, of course, wage increases. Largely, these are, as the noble Earl knows, rather beyond the Post Office control, as most of them stern from awards made by the Civil Service Arbitration Tribunal which we are bound to accept. Such increases will, for instance, add £17 million to the bill to be footed in the corning year, which, for a sum that does not necessarily add anything at all to the efficiency of the Post Office, at first sight probably seems rather formidable. At any rate, it would do if it was the Post Office policy just to pass on such charges as they arise; but fortunately it is not.

If your Lordships recall paragraph 32 on page 9 of the White Paper, you will remember that there is there set out, much more clearly than I could put it, the proposed method of handling this increase. It will be seen that less than half this sum yet remains to be found. Attention at this point must be turned towards the tariffs. In order once more to underline the principle which we feel must govern tariffs, I do not think I can do better than quote the words of the White Paper at paragraph 26: Prices charged should be economic and related to cost, for only on such a realistic basis can the fresh expenditure of capital be justified. Many of the present Post Office tariffs do not cover costs. I feel that the explanations that then follow are full and clear, so I want to touch on only two points that affect the telephone services. The charges that are at present made are uneconomic because they do not reflect the current value of the plant involved and the costs of maintaining and extending it at current price levels. In other words, subscribers do not pay the value of the plant they are wearing out, and our real assets are being run down in a way that can only lead to the risk of a dangerously heavy load to be borne in the future. In addition, the demand for a service that represents such relatively good value for money is stimulating the requirement to expand to a degree that is hardly justifiable if the principle we have been discussing is to be accepted. To put matters right, it will be necessary to raise another £12½ million and put it to depreciation account. Apart from the fact that this action will be helpful towards the financing of the investment programme, it carries to a logical conclusion the policy of making supplementary financial provisions which began when the noble Earl himself was Postmaster General.

My other point is concerned with the differential that has always existed between different classes of telephone subscriber in the matter of their respective rentals. The fact that the residential user enjoys the benefit of a rent differential £3 lower than his business colleague seems not very equitable in view of the fact that there appears to be no reason now other than tradition why he should do so. Moreover, there is no ascertainable difference of cost between their two services. Table VIII at page 11 of the White Paper shows quite graphically that the residential user is enjoying what amounts to a degree of subsidy on his service, and I think it is quite plainly right that it should be corrected in some measure.

LORD MATHERS

May I ask if that includes the party line? Is that taken into account? What progress is being made in providing individual lines instead of the party line which is sometimes most inconvenient?

LORD CHESHAM

I quite see the noble Lord's point on party lines. As I think is fairly clear, the policy of the Post Office is not to have party lines, or shared lines, permanently. It is hoped that they are a makeshift only. They will be kept in being no longer than is necessary to solve the telephone problem. Incidentally, I should like to draw the noble Lord's attention to the fact that the number of party lines in use in the United States, with their wonderful telephone system, is much greater than is the case even now in emergency in this country. Apparently they use it as a permanent system. In fact, something like two-thirds of their subscribers are on party lines, whereas only about one-third in this country are. It is purely a measure which will be wiped out when the demand for telephones can he satisfied.

Exactly what should be the extent of this measure by which the differential should be corrected is, I admit, a matter of judgment. We in this case think that the right adjustment has been made. I can quite well understand, though, that there may be other opinions that we have gone either too far or not far enough. To those who think we have gone too far, I would say that if they will refer to Table IX on page, 12 they will find that not only have the charges become more realistic, as has been intended, but that there also remains a degree of subsidisation which surely could not exist if we had gone too far. To those, on the other hand, who think we have not gone far enough—and the noble Earl expressed his views on this matter in quite logical terms, although I think he must mean that, if business users should pay less, residents should pay more—

THE EARL OF LISTOWEL

Yes.

LORD CHESHAM

I quite see his reasoning there—I would say that there are practical limits is which one can go in any one operation. This is one of the instances which I think may have to be looked at later in the light of experience, and perhaps some further adjustment would be made if it appeared to be the right course.

I do not think it is necessary for me to go into any further detail about the remainder of the proposed tariff increases, except that I must give a word or two of explanation about one exception where we have departed somewhat from the principle that charges should be realistic and services should pay their way, or at least not be unduly subsidised. There is not, frankly, much justification, on the basis of realistic costs, of raising the tariff on inland letters over two ounces. However, we feel it right to do so at present because the services that really should stand an increase—that is, the fees for registered letters and the money order poundage—would create some hardship to those members of the community to whom these services are of real value and who are not always able to carry an extra burden of charge. We want to postpone for as long as possible any increase in those services. Similarly, the foreign printed paper rate should, logically, be increased, but this is open to objection as being perhaps an avoidable obstacle in our essential need to export at the present time.

My Lords, I have spoken at some length. Even so, I have covered quite a wide field at fairly considerable speed. If I have achieved my object of justifying the new arrangement for the Post Office finances, your Lordships will realise that our tariffs will still be quite reasonable. To give one last figure, the proposals will bring the average of telephone charges to 80 per cent. above pre-war, and the average for inland mails to 98 per cent. above pre-war, both of which I think may be held to compare favourably with the 175 per cent. increase that has taken place since pre-war years in wages, and the 150 per cent. rise which has taken place in the case of plant costs. As I say, if I have achieved my object, I shall have done something to allay the fears of the noble Earl for the future development of the Post Office. I trust that my remarks, together with the constructive technical forecasts outlined in the White Paper, to some of which the noble Earl, Lord Listowel, has already referred, will have given your Lordships, and particularly the noble Earl, some evidence of the lively and progressive attitude which prevails, and which will result in the provision of the efficient services that every user has a right to expect, and it is not only the duty but the pride of the Post Office to give.

6.51 p.m.

THE EARL OF LISTOWEL

My Lords, I should like to thank the noble Lord opposite for a clear speech and a simple explanation of an exceedingly complicated White Paper: I am sure that it will have been of use to the Post Office, as well as to the House. I can assure the noble Lord that if his ability is not in time appreciated on that side of the House, we shall find a great deal of work for him to do on this side. I am also grateful to the noble Earl, Lord Cromer, and to the noble Lord, Lord Teynham, for their well-informed and constructive contributions. I beg leave of the House to withdraw my Motion.

Motion for Papers, by leave, withdrawn.

House adjourned at eight minutes before seven o'clock.