Post Office

HL Deb 14 July 1989 vol 510 cc551-60

1.23 p.m.

Lord Cocks of Hartcliffe rose to ask Her Majesty's Government whether they will identify the factors which are currently influencing the Post Office Board's failure to achieve satisfactory quality of service standards and what representations they have received in respect of plans by Post Office Counters plc to close or downgrade some 750 Crown offices.

The noble Lord said: My Lords, in asking this Question I am particularly concerned about the quality of the Post Office service and staff worries over the plans of Post Office Counters.

I have an interest to declare. I am a stamp collector; I specialise in British stamps. The year 1990 will be very important—the 150th anniversary of the introduction and use of the penny black stamp. There will be a large exhibition at Alexandra Palace and throughout the country philatelists will be organising all kinds of events to celebrate the occasion. I hope that people visiting this country for the celebrations will find a Post Office that is rendering good service.

I do not want to imply that the deterioration in the service is an entirely new phenomenon. Noble Lords are not allowed to bring exhibits into this Chamber but one is allowed to bring in correspondence and quote from it. I have with me a letter with a penny black stamp which was posted in January 1841. It is addressed to Cullompton, Devon, However, it was mis-sent to Liverpool and another stamp on it shows that it was then mis-sent to Exeter. So even in those early days there were little infelicities.

Today, the quality of the service has been criticised in a report by the Mail Users' Association and by the Association of Mail Order Publishers. They describe industrial relations in the letters business as a shambles and go on to pinpoint low staff morale and inefficient or inept management as key problems which must be resolved to improve what is described as a "wretched quality of service".

I approached the main union concerned in Post Office affairs—the Union of Communication Workers—and asked for its comments on the service and suggestions about it. The union described it in very much the same terms as did the Mail Users' Association. One problem is the high level of industrial stoppages from which Royal Mail Letters has suffered over the past few years. Indeed, disputes in Royal Mail Letters have accounted for 40 per cent. of all disputes and some one-third of all working days lost in the country as a whole. My contacts in the union point out several reasons which they feel are largely responsible for that situation. The first stems from reorganisation in 1986 which split the business into several parts: letters, parcels, counters and Giro bank. That led to structural confusion and contradictory management strategies.

My contacts also mentioned decentralisation. This had not brought the economic liberalisation of monetary budgets at district level which had been hoped for. The finances of Royal Mail Letters are rigidly based on a national budget which, in its execution, has a constraining effect on district budgets thoughout the country. I was told that one consequence is that if there is an unnaturally large amount of mail coming into the office to be disposed of, local managers do not always have the necessary financial clout to be able to engage the extra staff to cope with it. So that is an inhibiting factor.

The Royal Mail letters section also argued in 1985–86 that reorganisation of the Post Office structure would bring about an enhanced enterprise and that decentralisation would bring dedicated managers to the fore and lead to the introduction of many service improvements. Unfortunately, there is as yet no strong evidence to show that that has happened. The general public do not believe that improvements in the quality of service have taken place. In fact, the Post Office's own figures do not support it.

The watchdog of the service, the Post Office Users' National Council in its 1987–88 annual report referred to three surveys that it had carried out to monitor performance in the delivery area. The chairman of the council commented on the poor quality of service, relating it to under-investment by central government in the Post Office over the past five years. He said; We also believe that the target set for the improvement of efficiency has been unchanged over such a period that the only way it can now be reasonably attained is by cutting services rather than improving efficiency".

The union raised with me the question of financial controls and said that the extraordinary application of the Government's external finance limit, which accounts for about half of the Post Office's total profit each year—in other words, it is clawed back—is very inhibiting. That is one of the reasons why Post Office Counters in particular is feeling the deleterious effects—a factor mentioned in the fifth report of the House of Commons industry and trade committee for the Session 1981 to 1982 when it concluded: The application of negative External Financing Limits is not appropriate to the Post Office. We recommend that the Government should cease applying them to the Post Office".

The users' council in its 1987–88 annual report also criticised the Government in these terms: In recent years the Council has been extremely critical of government's inflexible and irrational policy regarding the financing of nationalised industries and especially how that policy affected the Post Office. Some of the injurious effects of this policy are that surpluses in one year cannot be carried over to benefit the following financial year, surpluses are sterilised within the business and each year's investment is required to be financed out of cash generated in the same year".

My union colleagues went on to tell me about working conditions. The comparatively poor working conditions have to be set against a background when the Post Office's growth of letter business has burgeoned enormously at some 30 per cent. over the past six years. There are forecasts of an even greater traffic load. However, there are government restrictions which prevent the Post Office investing as it wishes. This gives rise to a situation where the majority of postal workers are having to use old, out-of-date equipment in gradually deteriorating conditions. The 1987–88 report of the Post Office Users' National Council refers to the effects that this external financial limit is having. Nothing has changed to alter our view that this policy is damaging the Post Office and greatly inhibits much needed investment. In the late 1970s mail seemed to be in long term decline and the decision was made to cut the number of mechanised letter offices to handle mail from 120 to 80. Over the last five years mail volume has soared year by year and is forecast to continue doing so for at least the next five years".

The situation is doubly unfortunate because the changes that are needed in the industry have not been resisted by the principal union which is concerned with this—the Union of Communication Workers. It has co-operated thoroughly with management efforts to improve the quality of postal services. Most recently this has been manifest in the re-introduction of Sunday collections. The union has agreed with the introduction of new technology. It has been free of the disputes and arguments often associated with the introduction of new technology in other industries. Examples of events that have happened recently are the completion of the mechanisation programme for sorting, the new computerised pre-sorting system, and the introduction of optical character recognition machines. In addition the union has negotiated efficiency schemes which boosted productivity by 25 per cent. in the five years up to 1988. Over the same period real unit costs were reduced by nearly 15 per cent., saving £463 million which was well in excess of the target set by the Government.

Nevertheless, all these agreements made on introducing changes in working practices, technology and productivity schemes are not enough to improve the quality of service. What is needed is more capital investment and greater investment in staffing.

Perhaps I may mention once more the 1987–88 annual report of the Post Office Users' National Council. It stated: Despite steps taken to improve and modernise working practices, network and services, the quality of service has not improved. We are convinced that much more investment is needed now in buildings, machinery, transport networks and other areas to secure a proper level of service and to exploit the growth opportunities".

The main union concerned with the workers in this industry has repeatedly called for an inquiry to investigate the weaknesses and associated problems inherent in Post Office structures and procedures. That request, I believe, should be granted. Although Royal Mail Parcels has now agreed a joint working party with an independent member, Royal Mail Letters is still dragging its feet and has rejected such an approach. Each time the union has put in this request, it has been rebuffed. The answer has been that such an inquiry is not necessary or that an internal management assessment is being made. This is just fobbing off. It is especially regrettable in view of the union's stated willingness to have its own organisation and procedures placed under scrutiny as well as those of management. I believe that the public deserve a much better response from Royal Mail Letters.

In conclusion, I hope that whatever influence the Minister may have in these matters can be brought to bear not only on the point of the external financial limit but possibly in suggesting to the board of the Post Office that this inquiry should be granted.

1.35 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to my noble friend Lord Cocks of Hartcliffe for raising this Question today. It is a very important issue and ranges somewhat wider than the issue of the Post Office. It is the issue of quality of service in monopoly services which cannot and should not be privatised. I am not a philatelist like my noble friend. I therefore did not know that 1990 was the 150th anniversary of the penny black. In my youth I was a philatelist, as many of us were. If ever I had a penny black, I sold it, alas, at the wrong price and at the wrong time. I wish now that I had kept it.

There is no doubt that the Post Office service has deteriorated. Forty years ago we could post a letter in the afternoon on a Sunday and be absolutely certain that it would be delivered to its destination on the Monday morning. Thirty years ago we could post at a quarter to twelve in the evening on a weekday and be assured that it would be received at its destination the following morning.

We now have to post by five o'clock, or in some districts by 5.30, to have any chance of delivery the following morning even in the neighbouring postal district. There are some hopeful signs, as my noble friend has said, that there will be restoration of Sunday collection services. We are told that in some areas letters posted before 9.15 in the morning will have same-day delivery in neighbouring postal districts. We note that, following pressure from consumer associations and others, the Post Office has followed the clearing banks in Saturday morning opening in some places. Nevertheless, as my noble friend has pointed out, there is a general level of public dissatisfaction not only by individuals but also by businesses in the operation of the Royal Mail. It is that question which we have to address today.

Nobody believes the figures of the Post Office. The Post Office Users' National Council certainly does not believe the Post Office figures. When it produced its own figures about following-day delivery, the figures were 10 per cent. below those of the Post Office. The target of the Post Office on first-class mail is 90 per cent. delivery on the following day. POUNC has not endorsed that. Indeed it has-produced figures that cast a great deal of doubt on it. I hope very much that the Post Office and the Post Office Users' National Council will get together to try to establish a proper statutory basis for the quality of service that the Post Office is producing.

There is equally no doubt, as my noble friend has said, that the Post Office is under an enormous financial squeeze. It is certainly not true that the decentralisation of budgets has introduced a new flexibility into the system. What happens is that in an average sorting office there may, on a Wednesday for instance, be a dump of mail. The manager's budget for the week has run out, and he does not have the authority to engage extra staff to sort it out. If a local firm happens to produce a large load of mail on the Thursday, that overturns the whole system. There is no flexibility for the manager of that sorting office to call in extra staff. It therefore remains uncleared.

In addition we have the phenomenon known as junk mail. Junk mail, as your Lordships will know, is mail that is produced ad infinitum to be directed at random at whoever happens to be in the telephone directory or on the electoral roll to advertise certain services or to communicate certain information which may or may not be useful or which may or may not be useless. That is a great profit to the Post Office. Nevertheless it overloads the system. It would be extraordinary and sad if the arrival of junk mail were to reduce the level of service that the private and proper business correspondent is offered by the Post Office.

Lastly, as was referred to by my noble friend, there is what is known as negative financial external limits. Negative external financial limits are a very odd phenomenon. We understand external financial limits, which are the limits imposed by the Treasury on the Post Office to borrow. Negative external financial limits are the cash return which the Treasury insists on from the Post Office. If it were in the private sector it would be called dividend stripping. The profit made by the Post Office is stripped out by the Treasury in the form of what in the private sector would be called a dividend.

The problem with this, quite apart from the difficulty or the generality of it, is that the Post Office cannot carry forward its surplus from year to year. Whereas in the private sector it would be possible for the Post Office or any other company to accumulate reserves on which it could plan its investment programme for the following two years, that is not possible under the annual external financing limits or the negative external financing limits that the Treasury has imposed.

The problem is that investment needs over the years, which have been properly planned by the Post Office and all identified, cannot be met because the Treasury insists on dividend stripping. Now we have a situation where many sorting offices in the Post Office system are trying to handle double the traffic for which they were designed. I am afraid that the result is chaos.

My noble friend referred to the reorganisation in 1986. There is no doubt that that reorganisation has led to low staff morale. It was insufficiently planned. It was inadequately carried out. The Post Office staff feel that they are the cinderellas of the business. After all, they have to carry the burden of public complaints. They are the people who are sworn at by the public when letters are not properly handled or delivered on time. They are the people who bear the brunt.

The House ought to recognise that that is a severe burden to be laid on the staff of the Post Office. Furthermore, particularly in major urban centres such as London, they see the rise in courier services which lead to this extraordinary profusion of kamikaze motor cycles running around London, smashing themselves up and smashing everybody else up because there is in some way some virtue in privatisation. It is the Prime Minister herself who encouraged this industry by saying that this was a new example of private entrepreneurship. Anybody who has driven around London—I know the noble Lord does not drive around London because he is far to rich to do that—

Lord Strathclyde

My Lords, I ride a bike!

Lord Williams of Elvel

My Lords, anybody who drives around London knows the social and economic detriments to London of that service.

As my noble friend has said, the traffic load is forecast to increase. As my noble friend has also said, the attitude of the United Union of Communication Workers has been extremely positive. It has co-operated with management in every way possible.

There is a bottom line. The bottom line is that the Government have to ensure that there is proper investment in this industry. There will not be proper investment in the industry unless the Treasury changes its view of negative external financial limits. I cannot say that more clearly than I am saying it at the moment. I hope that the noble Lord will pass on to his right honourable friend the very strong view of the Opposition that this is not the way in which to run a public service.

There is, of course, a vicious circle—we have seen it in other nationalised industries. If one cuts the amount of money available for investment, the service goes down. It is then said that the service cannot be handled by a nationalised industry and therefore it is privatised. That is strangulation. That is not the proper policy for the Royal Mail. So that vicious circle should be avoided and the Government have to change course.

The public and business require a proper service from the Royal Mail and the general postal services. The buck stops with the Department of Trade and Industry and the Treasury. I very much hope that the Department of Trade and Industry will be more successful in arguing the case with the Treasury than it has been in the past.

1.47 p.m.

Lord Strathclyde

My Lords, I should like to thank the noble Lord, Lord Cocks, for asking his Question in such a typically clear and concise way. The noble Lord was kind enough to give me a slight warning of some of the areas that he would mention and I am grateful to him for that. At the same time the noble Lord told me that he was a philatelist. When I expressed interest he replied that he could give me a lecture on it for at least 10 minutes. I am grateful that he restrained himself. However, if I do change my mind about philately I shall certainly come to the noble Lord for advice.

The point that the noble Lord made by demonstrating from part of his collection was particularly valid in showing that criticism of the Post Office is nothing new. The Post Office is not just another nationalised industry. It is an important national institution. We are all consumers of the Post Office, so everyone, quite rightly, has an opinion on it.

We take for granted aspects of our postal service, such as delivery right to our doors, which are far from the norm in other countries. The Post Office's delivery performance compares well with other European countries and its stamp prices are among the lowest. For example, while the Bundespost offers a slightly better letter delivery performance, it charges 31p to deliver a first-class letter and is heavily loss-making.

In common with other nationalised industries, the Post Office's investment and financing requirements for three years ahead are reviewed annually by the Government, following the fullest possible consultation with the industry. Once financial plans have been established, the Government wish the Post Office to be as free as possible to manage its business commercially.

The Post Office is a profitable organisation. In each of the last two financial years it made profits of well over £100 million on turnover of between £3 and £4 billion. Since its profits, which are not excessive, have exceeded its capital requirements, it seems to me quite reasonable that the taxpayer should share in the benefit through the investment of the surplus elsewhere within the public sector. This is not a one-way approach.

The Government have always recognised that, since nationalised industries are trading organisations, external financing limits cannot be immutable. It is always open for any industry to make a case for changes in agreed investment plans from one annual review to the next. The Post Office's external financing limits for this and the next two years already provided for a very substantial increase in investment aimed precisely at improving service quality. That is hardly a case of the Government tying the Post Office's hands behind its back. It shows the Government's commitment to better service quality.

Both noble Lords criticised the means of government finance. I must remind your Lordships—particularly the noble Lord, Lord Williams—that that position has not changed since the Labour Party were in power 10 years ago. I know that that is a long time ago: perhaps, if his party return to power, he might decide upon a change.

Lord Williams of Elvel

My Lords, were there negative external financial limits before 1979?

Lord Strathclyde

My Lords, all I understand is that the basis of government financing has not changed greatly.

Lord Williams of Elvel

Answer the question!

Lord Strathclyde

My Lords, I must emphasise that since the Post Office became a public corporation some 20 years ago, the Government's role has been confined to broad issues of general policy and matters of overall financial control. Operational matters are rightly the responsibility of the Post Office Board. Many of the issues raised by the noble Lord will fall into this category.

Improved performance and the economic recovery of recent years have combined to create a rapid increase in demand for postal services. The Post Office now handles some 50 million individually-addressed letters every day, placing serious strains on the network, and growth is expected to continue, as both noble Lords said. That is not so much a problem but it will undoubtedly present a challenge to Post Office management and employees in meeting the need to improve quality of service targets.

The Post Office has had its fair share of problems, particularly over the last year. Most obvious has been the level of industrial action. The protracted national postal strike last September caused great inconvenience to both business and domestic users. There has also been a high level of local disruption, often an unofficial response to changes in working practices. Such industrial action has inevitably had wide-ranging and lasting deleterious effects.

But it would be unfair to attribute all quality of service problems to industrial disputes. Like many other employers, the Post Office has experienced severe difficulties in recruiting and retaining staff in those areas of the country where demand for labour is high.

The Post Office is taking a number of measures to address these difficulties. The need for an independent joint inquiry into industrial relations is, as the noble Lord, Lord Cocks, suggests, a matter for the board. However, I understand that the chairman has set up a high level industrial relations review team to examine industrial relations within the Post Office and to consider ways in which they might be improved. There are already signs of better industrial relations in the letters business. The number of days lost during the first six months of this year is one-tenth of the number lost over the corresponding period last year.

Secondly, the letters business has recently introduced local pay supplements to address the problem of recruitment and retention in areas of labour shortage. I was glad that this scheme was endorsed by the Union of Communication Workers' membership in March. I believe it is an important step to alleviating the employment difficulties which have had adverse repercussions on quality of service. The Post Office has also begun to recruit from unemployment blackspots in the North to fill staff shortages in the South-East. Finally, wherever feasible, mail handling is being moved to areas where it is easier to recruit and retain staff.

The Post Office is also taking steps to address quality of service directly. I know that this is an area of particular concern to which the chairman attaches high priority. The Post Office has announced several significant measures to improve service of which I should like to remind noble Lords. One such improvement which I believe consumers will welcome is the phased reintroduction of Sunday collections which will start in the autumn. Later Saturday delivery and later collections from selected letter boxes are also being studied. Another welcome step has been the wider availability of stamps through some 35,000 retail outlets in addition to 21,000 post offices.

Finally, the Post Office has introduced a system of end-to-end letter delivery performance measurement developed jointly with POUNC, the statutory body representing postal users' interests. Thus, statistics, about which the noble Lord, Lord Williams, was concerned, should improve. There has been no significant change in service quality over the past 12 months according to Post Office figures based on an end-to-end measurement. Performance varies widely among districts. This system will inform customers of the quality of service they can expect in their locality. The Post Office has committed itself to improving on the current figures by an average of 3 per cent. this year and to meeting within five years its 90 per cent. next-day delivery target for first-class mail in all districts.

I hope that noble Lords will agree that these measures provide encouraging evidence of the Post Office's will to devote resources to improving quality of service.

I turn to Crown Office regrading mentioned in the original Question. I should begin by saying that decisions on the precise location or type of office that is most appropriate in individual local circumstances are operational matters for the Post Office Board. However, the Government are confident that the regrading programme will allow the Post Office to fulfil its obligations—to have regard to economy and efficiency and to the social, industrial and commercial needs of the United Kingdom—and will not affect service quality. Indeed, it will help the Post Office to fulfil its obligations more economically by reducing overheads.

Clearly, there is scope for improvement in the quality of the postal service. I hope noble Lords will agree that the measures that I have outlined provide encouraging evidence not only of the Post Office's commitment to a comprehensive service of improved quality but also of the positive steps that the Post Office is taking to achieve that improved quality. We welcome that commitment.

Lord Williams of Elvel

My Lords, before the noble Lord sits down, can he answer my question? How will the Post Office plan its investment programme if every year it is set negative external limits by the Treasury?

Lord Strathclyde

My Lords, as I said in my answer, the Post Office's external financing limits already provide for a very substantial increase in investment. It is basically investment that we are talking about.