Community Postal Services: ECC Report

HL Deb 28 June 1996 vol 573 cc1128-55

11.15 a.m.

Lord Geddes rose to move, That this House take note of the Report of the European Communities Committee on Community Postal Services (10th Report, HL Paper 81).

The noble Lord said: My Lords, I move this Motion on behalf of my noble friend Lord Elibank, and I must begin by conveying to the House my noble friend's regret that ill health prevents his being here. I know that he is particularly sorry to have missed this occasion as it was likely to have been the last report he would present to the House as chairman of Sub-committee B of the European Communities Committee. I spoke with Lady Elibank about half an hour ago and got the good news that my noble friend is recovering well and is leaving hospital today. I am sure that the whole House will join me in wishing him a speedy recovery.

Noble Lords

Hear, hear!

Lord Geddes

My Lords, there are two other matters with which I should deal before turning to the principal subject of the debate. First, in concluding the inquiry on which the report is based, the sub-committee received oral evidence from an unusually large number of overseas witnesses, including representatives from three other Community post offices and two different branches of the Commission. The assistance of those witnesses deserves full acknowledgement. The report is, I think, broader in its outlook as a result of their assistance.

Secondly, our thanks are very much due to our specialist adviser, Mr. Chris Nicholson of KPMG; and to our clerk, Dr. Andrew Mylne, and his secretary, Miss Valerie Bath. Without their joint and several efforts and expertise neither our deliberations nor the report would have achieved the very high standards that we believe they attained.

As I said, we heard evidence from two directorates general on the Commission's plans to harmonise and introduce common standards for Community postal services. The reason we felt that to be necessary was that we started our inquiry with two separate documents: a draft directive, which aims to lay down some new rules for the postal sector, and a draft notice, which is meant to provide guidance on how existing Community competition rules apply to the sector.

The sub-committee felt from the beginning of the inquiry that the combination of those two documents was not a happy one. That view was shared by many of our witnesses. The notice seemed to go much further than its stated purpose, laying down policy rather than merely interpreting the existing law. Many witnesses also found inconsistencies between the draft and the directive. Because of those problems we welcome the fact that the notice has now been suspended until the directive is issued.

The directive starts with two basic principles: that everyone in the European Community should have access to the same level of service and that such a universal service can be guaranteed only if national post offices are given some monopoly protection. Virtually everyone accepts those principles. The difficulty is that the countries of the Community vary widely in the services currently available and in the efficiency of their post offices. The different interest groups in the postal sector—post offices, unions, customers, governments and private operators—have different views on the crucial question of how much competition can safely be introduced into the sector.

The basic problem is simple. Some parts of a universal service are expensive to provide and this loss-making; others are cheap and therefore profitable. A single operator can only afford to provide a universal service if it can be sure of getting enough of the profitable business to offset the cost of providing a loss-making service elsewhere. There are also significant economies of scale. The sheer volume of mail that post offices' monopolies handle is an important factor in keeping costs down. Too much liberalisation carries the risk of letting private operators cream off all the profitable business, leaving post offices unable to provide a universal service at a price that everyone can afford. Too much monopoly protection risks denying other operators any commercial opportunity and denying customers the benefits of cheaper prices and improved service that a competitive market can bring. The liberalisers also point to the growing competition that postal services face from faxes and electronic mail, saying that a vigorous entrepreneurial approach is necessary if post is to keep its share of the communications market.

That, then, is the challenge the Commission faces with its draft directive. It was never going to be possible to please everyone. Nevertheless, much of what the Commission has proposed the committee welcomed and found sensible. First, there are rules governing the extent of the universal service and the quality of that service. Those are quite modest compared with the standards which the better post offices, our own included, already achieve. For example, the Commission proposal only requires post offices to collect and deliver once a day, five days a week and only demands that 80 per cent. of mail reaches its destination the following day. When not disrupted by strike action, the UK Post Office delivers six days a week, twice a day in most places and achieves well over 90 per cent. next-day delivery of first-class mail. Incidentally, only the UK Post Office within the Community offers two classes of mail. Other Community post offices are less efficient. For them the Commission standards are a tough challenge.

We conclude in the report that the Commission has, on the whole, struck a sensible balance so long as those universal standards are seen as a minimum by those post offices which already exceed them. There are other aspects of the directive which we regard as moderate and sensible; for example, rules requiring transparency of accounts and the establishment of independent national regulators.

The key aspect of the draft directive concerns the rules about which services can be reserved to those operators prepared to offer a universal service; in practice, national post offices. In other words, how much monopoly protection are they to be allowed? As I said, the aim is to introduce some liberalisation without jeopardising the financial viability of national post offices. The Commission wants to introduce liberalisation in two stages. The first opens to competition items of domestic mail weighing more than 350 grammes or costing more than five times the basic tariff. In practice, that leaves around 98 per cent. of domestic mail within the reserved sector. In the UK it will have virtually no impact since the Commission's price-and-weight threshold is roughly equivalent to the Post Office's existing monopoly limit of £1.

Also proposed for liberalisation at the first stage, which means six months after the directive is approved, is outgoing international mail. That will have no real effect as such mail is in practice already open to competition. The first stage of liberalisation, then, poses no great threat to the universal services. In fact the only witnesses who did not like it were those most enthusiastic for liberalisation and for whom the proposal did not go nearly far enough.

The real controversy arises over the Commission's second stage of liberalisation due to begin in 2001. That will open to competition incoming international mail and what is called "direct mail"—junk mail to most of us. Although we may curse the ever larger quantities of such post that lands on our doormats, it is a highly profitable part of post office business. Incoming international mail, though a small segment of the market, is also important. We heard many views on that crucial aspect of the Commission's proposal. In the end we concluded that those types of mail should not be liberalised. We felt that there was too big a risk that to do so would undermine the post offices' need to survive. We were also concerned that distinguishing the mail that is open to competition and the mail that is not by reference to its contents raises difficult problems of enforcement. How could we prevent mail that is supposed to be carried only by post offices from being diverted into liberalised mail streams?

Another issue that concerned us was that no one seemed very sure of the effects of the second-stage liberalisation. Yet the Commission—this is the crucial point—expects the member states of the Community to agree now that the second stage should go ahead just a few years after the first stage. The directive requires the Commission to conduct a review in 1998, but it will be for it alone to decide whether, as a result of that review, the second stage of liberalisation goes ahead as planned. We prefer a more open approach which would allow the whole Community to see the evidence before a decision is taken. In our view that is particularly important given that liberalisation measures are in practice irreversible.

The Government's response to our report was, unfortunately, received only three days ago and has not been discussed by the committee. My reaction to that response is therefore a personal one. It is pleasing that the Government agree with nearly all our recommendations but I am concerned by a paragraph which reads, A start must be made on the liberalisation of European postal services and a clear timetable set for the second stage in order to ensure that the necessary re-structuring of some of the public postal operators takes place and that growth in the sector is stimulated. To achieve this there must be a compromise. We [the Government] believe that an efficient and competitive Post Office such as our own can accommodate liberalisation of direct mail in 2001 without a threat to the universal service. For these reasons the Government now believes that the right course is to strongly support"— I hasten to add that I am in direct quotes and find myself unable to avoid splitting an infinitive— the Italian Presidency's proposal". That proposal is, A review of the reserved area in 1998 with a view to further liberalisation but provision for direct mail to be liberalised in any event from 2001". To elaborate, the Government believe that the right course is to support that proposal as a means of trying to reach political agreement in the Council. I understand that a Council of Ministers meeting was scheduled for yesterday. In her reply I ask my noble friend to advise the House of the outcome of that meeting in the context of our report and of this debate.

There is one other aspect of the directive that I should mention because I know it concerned many of us on the committee. I refer to uniform tariffs or, rather, the lack of any mention of them. As I said, the directive lays down very precise rules about what level of universal service must be available within each member state. But there is no requirement that everyone within that state should pay the same price for that service. Instead, the Commission merely says that postal services must be "affordable". Affordability of course is not defined, and is probably undefinable. We felt fairly strongly that that was not good enough. To most of us, I think, a universal service without a uniform tariff requirement is pretty meaningless.

In the course of our inquiry we heard much interesting evidence. In particular, I mention the witnesses from the Swedish and Dutch post offices. Those countries have gone further than most—the Swedes in particular—towards liberalisation. They are convinced that it can bring nothing but profit. I have to say, however, that we were not entirely persuaded. Sweden Post has no legal monopoly at all, so that in theory any rival can set itself up to cream off all the profitable mail. One such rival did appear in Stockholm for a while but never succeeded in making much profit. It does, to the best of our knowledge, still exist but has gone bust more than once and was, at least for a while, partly owned by the Swedish post office. So this is not a success story for competition.

Nor were we convinced that the Swedish case showed that monolopy protection was unnecessary. Sweden is smaller than the UK. It has a different population distribution; postal prices are significantly higher; and the level of service poorer. The Swedish post office also used fairly vigorous methods to see off its rival, including lowering its prices to Stockholm customers while keeping the same high prices for everyone else. In the process it got into trouble more than once with the competition authorities. So we did not feel, on reflection, that that was a route that either the UK or the Community should follow.

Our own Post Office, by contrast, comes out rather well from our report. We felt it combined efficiency and profitability with a higher level of service than in any other country. Significantly, perhaps, in view of recent events, that was a view that was persuasively argued not just by the Post Office itself, but also by the Union of Communication Workers. It, among other witnesses, impressed upon us the great dangers faced by competition from other means of communication. Its recent actions, sadly, seem almost calculated to persuade the Post Office's customers to use faxes and e-mail. In response, the Government seem ready to threaten to remove, temporarily or permanently, the Post Office's monopoly protection and let in the competition. We can only hope that common sense prevails on both sides. Postal services are vital to us all, for their social role as well as their economic importance. That is why we must take great care to ensure that changes to the rules under which they operate—whether those changes are proposed in Whitehall or in Brussels—are considered soberly and carefully and implemented gradually so that we can be sure they will not undermine the service that serves us well and which so many of us so often take for granted. I beg to move.

Moved, That this House take note of the Report of the European Communities Committee on Community Postal Services (10th Report, HL Paper 81).—(Lord Geddes.).

11.33 a.m.

Baroness Dean of Thornton-le-Fylde

My Lords, as a member of the committee, I am pleased to take part in the debate and also to commend the report to the House. It is regrettable that our chairman, the noble Lord, Lord Elibank, is unable to be with us because of ill health. I should like to join the noble Lord, Lord Geddes, in wishing him a quick recovery and return to the House. I should like also to support the noble Lord in his thanks, which he has put on the record, to our staff and special adviser. I should like equally to thank the noble Lord, Lord Geddes, who stood in for the noble Lord, Lord Elibank, at one of our meetings during the course of the review.

I am sure that when the noble Lord, Lord Elibank, reads in Hansard the noble Lord's presentation of the report to the House on his behalf he will be fully satisfied with the wide ranging comments made by the noble Lord, Lord Geddes. I, too, am satisfied. I would have said fully satisfied until he referred to the dispute—a point to which I shall come later. The noble Lord, Lord Geddes, has done the committee a good service in the way in which he presented the report this morning.

Of course our postal services in the UK and debate about them are not new. It is something which has been ongoing over the past few years. They have been extremely emotional debates on occasions and ones in which parties—the Government, in particular—have not always had their own way. It is a debate which is very much at the heart of our community. The very first paragraph of the report refers to the fact that changing the rules governing postal services is controversial. That may be an understatement.

The Post Office is a large industry. It is a large employer and a major public service. However, in major parts of our country it is also a social service, with the free delivery of prescriptions, rural buses provided by the Post Office, free services to the blind, and a whole range of services which a business person might say are not related directly to the delivery of mail.

The report shows that the committee took evidence from a wide range of providers of services, and those involved in the distribution and delivery of them, both from the Post Office and the private sector. It was that wide-ranging evidence and that contained in a number of presentations from users of the service that led the committee to conclude in paragraph 185: The United Kingdom Post Office combines efficiency with a high level of service". It is against that background that we need to judge the draft directive and the, fortunately now suspended, draft notice which have come from the Commission. I suggest that the key issues for the public in this country with regard to postal services are the same as they have always been: a universal service in these islands at a universal cost, irrespective of where one lives; to have deliveries as near as possible to the next day; for them to be as frequent as possible; and of course, at the cheapest possible price.

The efficiency of the postal services is central to the achievement of the public's wishes for good deliveries and a universal service at a uniform tariff. As the noble Lord, Lord Geddes, said, there are major differences between the UK and our partners in the Community in the whole area of efficiency, cost and universality.

The committee welcomes the Commission's decision to bring forward the proposals for postal services and the five declared aims of the draft directive. But in my view, and if noble Lords read the report, in the view of the report, the Commission has some of the framework and detail of the draft directive badly wrong. The first area is to use the telecom model of liberalisation, superimpose it onto postal services, and believe that it will work. I shall return to that point later.

The key issue addressed by the Commission is the universal service, which it accepts as necessary and which plays a central role in postal services in all nation states. However, the Commission does not deal with a uniform tariff, which is central. It is the other arm of having a universal service. In the draft directive the Commission proposes that the universal service be linked to one of two measures, and it puts forward both—five times the basic rate within a country which, in the UK would mean that the reserved universal area would be limited to a cost of £1.25—£1.30 from next month because of the Treasury's demand that the Post Office return more of its profits to it—or five times the basic rate, or 350 grammes. It is messy. One takes one or the other.

In Britain we have a limit of £1. The reserved services figure was set in 1981, and I gather today is worth about 88p. It has not been increased since 1981 and so its value has gradually reduced. I suggest, therefore, that the reserved services themselves de facto have reduced.

In that time there has been a 60 per cent. increase in mail and an increased delivery. Today in Britain more than 90 per cent. of first-class mail is delivered the next day. That is very different from the situation in Italy where it is approximately 14 per cent. How many of us still go abroad and find that we are back home before our families have received the postcards which we sent to them?

It is against that background that we must judge the draft directive and the suspended notice. In Germany, for instance, the reserved mail area equates to approximately £4.50 for the monopoly to be maintained against our £1. Indeed, fewer than 50 per cent. of the member states in the Community have a six-day delivery. In the rest there is a five-day delivery. We want to maintain our six-day delivery and many of us would like to see a return to a seven-day delivery.

Perhaps I may say as an aside that we have a home in Cornwall. Some years ago we received a card which was posted at 12 noon in Truro, some 20 miles away, and delivered at 3.15 that afternoon. My goodness, that was a good quality of delivery!

The omission in the directive to deal with a uniform tariff for the reserved area greatly flaws the proposal. The noble Lord, Lord Geddes, referred to that. That omission means that one could have a legal universal service requirement but could charge different tariffs in different parts of the country for that service to be provided. That is a great flaw in the draft directive and it must be addressed.

The Committee addressed that point by asking the Post Office for figures. We were told, "If we take the first-class letter here in the City of London, for instance, you could probably deliver it for 8 pence less than the 25 pence that is charged. But, of course, if you live in Scotland that same letter could cost between £2.50 and £3 to deliver". One of our committee members lives in Scotland and was horrified to hear that. I suggest that it is essential to maintain the universal delivery with the uniform tariff.

Most postal services in the Community are still within public ownership, albeit that some are at arm's length trading as agencies—in some instances agencies independent from the government. But we wanted to look at alternative models, which was why we looked, among others, at Sweden. Sweden stated that it did not have a monopoly in any area and had been deregulated in that sense. The report touches on the issue but perhaps does not go as far as I would. On closer looking we found that in Sweden it is a monopoly in name only. We found it impossible to find any functioning competitor to the Swedish postal services and therefore it is not an appropriate model with which to compare.

In New Zealand, the land of total deregulation, there is a charge of 40 New Zealand dollars for the delivery of mail in rural areas. I do not believe that we want that here. Indeed, in New Zealand it was proposed that, on the post office being privatised, the delivery payment in rural areas should rise to 80 New Zealand dollars a year. Unfortunately, that was at a time of a general election campaign and the government soon found that they had to run away from that proposal. However, it lifts the curtain on what can happen if one moves away from guaranteeing a universal service with a uniform tariff.

Of course, to believe that competition does not exist in the UK is wrong. It does exist in a whole range of postal delivery areas. One of the key new areas of competition is the new communications field on which the report touches. Fax transmission and e-mail are two such areas. I understand that 70 per cent. of all letters are processed by computer. How easy it is merely to press a key or to touch a switch to send that letter by e-mail rather than through the post. I suggest that that is a major area of competition.

The noble Lord, Lord Geddes, rightly touched on other areas of the second stage of development which cause us serious concerns and are referred to in the report. I mentioned the telecom liberalisation model as being one which we state in the report is inappropriate. However, the draft directive goes further in that. Taking that model, it suggests that the postal services should be four businesses: collection, sorting, transport and distribution. It states that a competitor should be able to latch into any of those four areas at a payment which is agreed—it does not say by whom—in order to use the postal service. In telecoms it is called interconnection and has caused a great deal of trouble in the privatisation. There have been major arguments about what the real costs should be and what should be paid to British Telecom. I gather that in the postal services it is called "downstreaming" and it is an area of major concern.

Finally, when we had completed our work, and were in the drafting stage of our report having agreed our conclusions, we learnt of the opinion of the Economic and Social Committee of the Community which had been consulted on the draft proposals. Its views are printed at the back of the report and are useful reading. Its views very much coincide with ours, approaching the issue from a different angle. I agree—it is a personal view—with that committee's opinion in paragraph 5.2.1 that as regards people employed in this whole sector: Before any further moves towards liberalisation there should be a thorough investigation into the effects on wages and working conditions". The noble Lord, Lord Geddes, at the end of his presentation referred briefly to the current postal dispute: the strike that took place during the past 24 hours. I am pleased to hear that the Union of Communication Workers has stated that it does not intend to call any more strikes. It is not a matter that is before us today in the sense that we are discussing the report. Furthermore, I suggest that industrial disputes of that nature are never settled by a third party in the form of government intervening. I do not suggest that the Government have directly intervened, but it is down to the union and the Post Office to resolve the problem.

I too ask the Minister to comment on this week's reports about the proposed liberalisation, privatisation, of direct mail. It is an issue that we looked at and we do not support the privatisation of direct mail. We hope that, despite what we have read in the press, the Government will support that view. I shall listen with a great deal of interest to the Minister's reply. I commend the report to the House.

11.47 a.m.

Lord Bridges

My Lords, I thank the noble Lord, Lord Geddes, for the careful, admirable and impartial way in which he introduced the committee's report. We greatly regret that our chairman is not here to take part in the debate but I entirely agree that the noble Lord did admirably in his stead.

The Commission's proposals are in many respects unusual. First, they do not follow the customary trend which is common to so many Commission proposals by suggesting more measures of centralised control and ever more tightly regulated markets. Rather, the move suggested is in the opposite direction by seeking to promote deregulation and greater commercial freedom in postal services, a sector which is still owned by governments in every member state. Thus, the Commission's initiative may be said to be inspired at least in part by the privatisation initiatives of the Conservative Government of the past two decades.

The proposal is also unusual because the Commission does not, as is normal, present a united front. There is an evident difference of opinion between Directorate-General 13, which is responsible for telecommunications and postal matters and produced the draft directive, and Directorate-General 4, which is responsible for competition policy and which produced the draft notice. That difference of opinion was confusing not only to our sub-committee but to all member states which considered the document. I believe that some confusion remains despite the withdrawal of the draft notice.

A third unusual aspect of this subject is the current labour dispute in this country between the Post Office and its labour force. According to newspapers, the Government believe that they may have to introduce some of the measures which are discussed in our report. That factor makes this debate of greater topical interest than would otherwise have been the case.

The broad approach taken by the Commission is to introduce more competition into postal services in member states, particularly in some sectors such as direct mail which have hitherto been reserved to postal administration. The general attitude of the sub-committee, which I share, was to find that approach unsatisfactory because it proceeded on the basis of economic theory and tended to disregard the social consequences and benefits which flow from the kind of efficient universal service which we normally enjoy in this country.

I agree with that reaction. Having spent much of my life away from the home base and having depended greatly on the speed and regularity of postal communications within my family, it has meant a great deal to me, when living perhaps several hundreds of miles away from home in different parts of the country, to know that a letter posted at three o'clock on Sunday afternoon would normally reach me early the next day. There are few if any other countries in Europe where that can be depended upon. Yet surely that is part of life in a civilised country and society.

In our view, it would have been better for the Commission to have concentrated on improving postal services throughout Europe to the level which we enjoy here. Indeed, as has been remarked, some member states have inadequate postal services. When I lived in Rome some 10 years ago, it could take up to a week for a letter to go from one part of the city to another. I do not believe that the situation has improved much since.

In southern Europe, the main political importance of the post office is as a large employer of unskilled labour rather than as the provider of an efficient service for all citizens. I suggest that that would have been the right target for the Commission to aim at.

But even if some European postal services are slow and inefficient, they are still very important from a social viewpoint. That importance takes different forms in different countries. We all know what it means here and we are all aware of the contribution which a friendly postman may make to the life of a small community.

I give a different example. Some 30 years ago, when living in Greece, we spent a happy summer holiday on a remote island in the Cyclades. The postal service there was an eye-opener. Communication with the rest of Greece depended on the arrival of a steamer from Piraeus, a journey which took some 14 hours and reached its destination in the small hours. Nevertheless, the island postman was on hand and rowed out to the ship with a bag containing the outgoing mail, exchanging it for the incoming mailbag.

I should explain that the Greek word for postman taxidromos means the fast runner and the Greek word for post office, taxidromeion, means the fast-running department. But on an island like the one we were on which was rocky and hilly, the best way in which to proceed was on a donkey. Therefore, for the next six days the postman travelled around the island on his donkey visiting each settlement in turn. On arrival at a small hamlet, he would tie a donkey to a pine tree—once I actually saw a notice saying, "Do not park your donkey here"—take off his satchel and extract a post horn from it which he blew. All the inhabitants would then arrive and he handed out the mail to them. In general, the envelopes were perused with interest but also in general were handed back to the postman so that he could read the letter to the recipient. After a pause and much discussion, the recipients of the letters might then invite the postman to inscribe their replies in return for a bottle of fizzy lemonade. That was the procedure. At the end of the week, the postman travelled back on his donkey and handed in the outgoing mailbag to the steamer.

The point of the anecdote is to illustrate that the social service provided by the post in isolated communities is important and, for them, the liberalisation of direct mail would mean nothing at all.

In our society, direct mail is of course of great importance, particularly for those offering services and products and other means of introducing them to the public and to the market. There are other means of doing that by advertising in all its various and competitive forms. It happens that since our report was completed, I received a letter from an organisation representing such firms which regrets that the committee's report favours leaving the postal system in this country much as it is. The letter says that customers will not benefit from that and regrets that we did not address further the needs of the private sector.

I disagree with that view. Individuals are well served by the present system and most of us do not wish to be deluged with unsolicited mail, much of which is thrown away after the most cursory examination. That seems to me to be a colossal waste of resources and I have even sometimes wondered whether we should not reintroduce the 18th century system of a tax upon paper. That would at least spare some of our forests, save money on unnecessary imports of paper; economise on newsprint, reduce the size of newspapers, and help to restore the essential link between communication and thought which seems to me is too often lacking in our society.

There is also the point made by the Government—and it is important—referred to in paragraph 66 of the report that: a degree of monopoly is needed to support the maintenance of the universal service and a uniform tariff structure". The only exception which I should be willing to contemplate would be the provision of an express letter service which, exceptionally, our own Post Office has not provided in my lifetime to a high standard.

In contrast I could receive from my home in suburban Washington DC an express letter delivered by US mail even on a Sunday morning. That service was of a very high standard and was extremely useful. That would be an additional useful service for us to have here, particularly since the withdrawal of the old telegram service.

I hope that the investigations which we have made into this complex subject in a rather long report will help policy makers in this country and elsewhere in Europe. I do not believe that the Commission's proposals measure up to the needs of coming generations, partly because, as I said, it is too reliant on economic theory but also because it does not pay sufficient heed to the growing trend towards electronic communication. Just as the telephone has reduced dependence on mail in our lifetime, so surely will the fax and e-mail reduce it further in the next generation. All the witnesses from whom we heard concurred with that view. Therefore, a sounder approach might be to emphasise the role of governments and PTTs in providing and regulating a national and, perhaps eventually, Europe-wide network of high quality trunk cables with access for service providers at reasonable prices. That would be a more worthwhile contribution to our future communications needs rather than tinkering with the existing postal service on largely theoretical grounds.

11.58 a.m.

Lord Brabazon of Tara

My Lords, I join with other noble Lords in sending my best wishes to my noble friend Lord Elibank, the chairman of our committee, and I wish him a speedy recovery. I should also like to congratulate my noble friend Lord Geddes on stepping into the breach at short notice and on giving such a lucid description of our report. Following the speeches of the noble Baroness and the noble Lord, Lord Bridges, I shall be able to be brief.

It is timely that we discuss this report today because I understand that the Council of Ministers—and my noble friend Lord Geddes referred to this—discussed this issue only yesterday. I shall be extremely interested to hear from the Minister about what conclusions, if any, were reached on that issue.

I enjoyed sitting on the committee for this report. I found it extremely interesting. I found out many things which I did not know about the postal service and I was extremely impressed by a number of matters which I discovered.

As other noble Lords have said, it is important to remember that the postal service is an essential business tool for business customers in this country, but it is also an important social force for good, particularly for those people living in rural areas.

As a member of the committee, I was pleased when it became clear early on in our proceedings quite how good the British Post Office is compared with many others within the Community. That was a source of pride to me, and, I believe, to others as well.

The notice, which I now understand has been withdrawn—and I quote from paragraph 14 of our report—says that the task of public postal operators, consists in the provision and the maintenance of a basic public postal service guaranteeing, at affordable, cost-effective and transparent tariffs, nation-wide access to the public postal network … including … accessible postal boxes [and] regular scheduled delivery rounds". Those are facilities which we in this country already take for granted. It is unfortunate that we should happen to be debating such a report on the day of a strike; indeed, reference has already been made to that fact. I only have one point to make in that respect. The noble Baroness, Lady Dean, told us that the unions have said that there is no need for further strike action and that talks will be resumed for the time being. However, I believe that that was said on Wednesday, so I find it somewhat strange that we are having another strike today. I hope that it will be the last one and that agreement will soon be reached.

There are two issues which arise from that industrial action. The first is something to which we make reference in our report; namely, the competition that is undoubtedly coming—and, indeed, has already come—from fax and electronic mail. I saw an advertisement in a newspaper only the other day which said, "If the post can't deliver, BT fax can". There is no doubt in my mind that such disputes are bound to encourage people to use alternative forms of mail transmission. Unfortunately for the Post Office, some of that business will not return and those people may continue to use fax machines, and so on. I do not know how much it costs, but I believe that it is a good deal cheaper than sending a first class letter.

The second aspect is the possible suspension of the £1 monopoly threshold. I hope that that does not happen. It would be unfortunate if it did. If it is to be suspended, I trust that that will be only a temporary measure. As I said, I hope that the dispute can be brought to a rapid conclusion. However, at the same time, I hope that nothing that is finally decided so far as concerns the directives or notice will remove the Government's right to suspend the monopoly if in fact there was a really serious long-term disruption to services some time in the future.

As well as being one of the most efficient in the Community, our Post Office is also one of those that offers the best value for money. If one looks at the table on page 48 of the second part of the evidence to our report, one will see that the cost of posting a letter within the EC to another Community country is 25 pence in this country and that that is the second cheapest rate after Greece. The noble Lord, Lord Bridges, has already referred to the Greek Post Office and perhaps, therefore, enough has been said on the subject. It compares very favourably with the price of 38.3 pence charged in Sweden which, allegedly, has a more liberalised system than we have.

I should like to make one further point in that respect. The table to which I referred does not use straightforward exchange rates; it uses purchasing power parities to give a more accurate comparison of the prices. I should point out to the House that that seems to me at any rate to put the prospect of a common currency and economic and monetary union somewhat further away than some people may think.

On the question of the reserved area, the Commission proposes price and weight thresholds. I believe that a single price threshold would be much easier to operate. As has been said, we have had a £1 limit in this country since 1981. That has worked well. Despite having reduced in real terms, it does not appear to have damaged the business of the Post Office. Moreover, it is probably one of the lowest within the European Union. Indeed, I saw from the table that many countries operate a weight threshold as high as 2 kilogrammes. I do not know how much a parcel of 2 kilogrammes costs to post, but I believe that it would be considerably more than £1.

There is another area where I seriously disagree with the Commission's proposals. It is a matter that has already been well addressed, so I can only endorse my agreement with what has been said. I refer to the absence of a uniform tariff. I cannot conceive of a universal service without a uniform tariff being anything other than almost meaningless. Indeed, the noble Baroness, Lady Dean, made that point extremely well. If we were not to have a uniform tariff, it might well cost £2 or £3 to send a letter from London to Scotland, whereas it would only cost 25 pence to send one from here to the City. The Commission tries to get round that with the word "affordability". But what is affordability? Is a £2 postal charge to Scotland affordable, or is it not? I fully endorse what has already been said on the subject.

The main question is whether such a universal service at a uniform tariff can be guaranteed unless the operator is allowed a monopoly. I do not believe that it can. Again, by way of a sort of compromise, the Commission proposes to impose a levy on other competitive operators to compensate the provider of the universal service. I believe that that would be very bureaucratic and not at all satisfactory, especially as far as we are concerned in this country.

If someone were to leave the Chamber at the moment and go out into the street, I would have a small bet with that person that, within five minutes, he would see at least half a dozen motor cycle couriers riding past, going about their business. Is the Commission really suggesting that all those motor cycle couriers should have to be registered, should have to produce returns of their business and, indeed, be obliged to pay some kind of levy if, of course, they are allowed to enter the reserved area of the market? I do not believe that that is a practical suggestion.

There is one further point that I should like to make on the question of private companies in this country operating outside the reserved area; like, for example, couriers. I received a letter from one of the companies concerned. It seemed to me to make a good point which I hope my noble friend the Minister will be able to address. At present, the Post Office is exempt from VAT on services which are outside the reserved area, but its direct competitors in the express distribution industry are subject to VAT. That does not seem to be fair.

In summary, I do not believe that we in the UK have much to fear from the first stage of liberalisation proposed which, after all, will only bring the rest of Europe into line with the good service that we already enjoy in this country. However, as regards the second stage—that is, direct mail and incoming cross-border mail—I believe, for the reasons that have already been given, that we should move forward with extreme caution; otherwise damage could be done to the universal service, and that is something that none of us on the committee would wish to see happen.

However, I would enter one caveat in that respect. If a post office is not offering the minimum acceptable service in terms of delivery and collection as laid down in the directive, I believe that it should be open to competition. I do not think that we would have much to fear in this country from that prospect, but there are other post offices which, after all, have an effect on the business that we do here which might. Having said that, I can only join other noble Lords in commending the report to the House.

12.7 p.m.

Lord Kenyon

My Lords, I, too, should like to thank my noble friend Lord Geddes for introducing today's debate on behalf of my noble friend Lord Elibank. I want to take this opportunity to send my best wishes to my noble friend for a speedy recovery. I congratulate the Select Committee on a very comprehensive and searching report.

My reasons for speaking in this debate on the liberalisation of the Community postal services stems from my membership of the Committee of the Regions of the European Union, of which I have been a member since 1994, following its creation under the terms of the Maastricht Treaty.

Perhaps I may, first, give a brief introduction to the Committee of the Regions for the benefit of those noble Lords who may not be familiar with it. Article 198a of the Treaty calls for: A Committee consisting of representatives of Regional and Local Bodies, hereinafter referred to as 'the Committee of the Regions' is hereby established with advisory status". That is all it has: advisory status. The treaty further states that the members may not be bound by any mandatory instructions, and that they shall be completely independent in the general interest of the Community. The committee must be consulted by the Commission or by the Council in five key areas of policy that directly affect the responsibilities of local and regional authorities. These are economic and social cohesion, trans-European transport, telecommunications and energy infrastructure networks, public health, education and youth, and culture.

In addition, the Committee of the Regions must be informed by the Commission or the Council whenever the Economic and Social Committee is consulted and may form an opinion if it feels that specific regional matters are involved. Finally, the Committee of the Regions may issue an opinion on any subject where it considers such action appropriate. I hasten to add that we do not take that route lightly. We measure our achievement by the quality of the debate on the opinions before us and not by the number of opinions that we generate in a year.

All the members of the Committee of the Regions are elected members of regional or local government in their respective countries. My colleagues from the United Kingdom are all from county, district or borough councils, whereas my German colleagues include the presidents and ministers of the Lander. While our levels of influence in our respective regions may be vastly different, we share a common purpose to ensure that careful consideration is given to European legislation that may affect regional matters by politicians who have a regional mandate. As noble Lords will have noted from the preamble to the draft directive on the liberalisation of the postal services, this was a case where the opinion of the Committee of the Regions was sought.

The Committee of the Regions organises its work into eight sub-committees, rather confusingly referred to as commissions. In this case the opinion was referred to Commission 3, of which I am a member, which deals with transport and communicationns networks. We formed a small working group to hear representations from all concerned parties and to draft the opinion before its consideration by the whole Commission. It will come as no surprise to noble Lords to learn that the evidence that we heard and the conclusions that we reached were similar to those of your Lordships' Select Committee.

Right from the beginning we noted the absence of any mention of a uniform tariff. We heard evidence from representatives of employers' organisations arguing for complete freedom to set postal rates that truly reflected the cost of each particular delivery, with the result that a letter to the Outer Hebrides would be prohibitively priced. From a regional point of view that would set the clock back by further marginalising the more peripheral areas of the country. I am sure that I do not have to remind noble Lords that I come from Wales and that I already have an acute awareness of the implications of marginalisation. We do not want more money from the cohesion or structural funds; we just want a level playing field. Indeed, a number of members of the Commission went further and supported strongly the concept of a single European uniform tariff.

We also noted that the draft directive was surprisingly sparse in its coverage of regional and local aspects, particularly in failing to acknowledge the important role of post offices in rural areas, which do not just receive and deliver mail and sell stamps, but provide valuable community services. These are listed in the evidence at page 97 in a response from the Communication Workers Union to the noble Baroness, Lady Dean of Thornton-le-Fylde.

Many of these community services are undertaken by the Post Office at considerable additional expense, and they are undoubtedly at risk if they are not protected. Particularly worthy of mention is the free post service for the blind—the noble Baroness mentioned this earlier—which is currently subsidised by the Post Office to the tune of some £10 million per annum. Bearing in mind that blindness is one of the most debilitating afflictions—my father suffered from severe short-sightedness throughout the whole of his life, and therefore I know what I am talking about—the continued subsidy of this service is a small price to pay, and the inclusion of an explicit obligation on member states to include such a service in the universal service obligation throughout the European Union would be of great benefit to this highly disadvantaged sector of our society.

The Commission was also extremely concerned that the timescale for liberalisation was too fast and would not allow the universal service provider sufficient time to re-organise the business to be able to continue providing a satisfactory service at an affordable price. Our final opinion calls on the Commission to submit its report four years after the date of entry into force of the directive. I believe that this is in line with the views of most consultees except for the Mail Users Association.

The one disappointment I have to add is that we were unable to adopt our opinion unanimously at our plenary meeting on 13th June as the representatives from the Netherlands and Sweden felt obliged to vote against the opinion. Having heard and read the evidence of the state of the postal services in those countries, I have no hesitation in welcoming the Select Committee's conclusion at paragraph 186, that the measures taken in these countries, do not provide a suitable model for the United Kingdom or for the Community as a whole". Finally, I should like to address Article 9 of the directive. It comprises only a couple of lines which state: Member States shall appoint the entity or entities that are entitled to place letter-boxes on the public highway for the reception of postal items and to issue postage stamps bearing the name of the country". Those are only a couple of lines but they are the sort of stuff that Euro-myths are made of. The Post Office picked it up in the annex to its memorandum at paragraph 5.15 on page 61 of the evidence. I recall it from my days at school when I used to collect stamps. In those days the only words to be found on United Kingdom postage stamps were the words "Postage" and "Revenue"; never, never the name of the country.

I am quite sure that there was never any intention that this article should try to instruct us to change a proud tradition more than a century old. I would surmise that the most likely reason is that the simple article was drafted by someone from one of the 14 other member states who was unaware of this practice. But it has been drawn to our attention by the Post Office and I sincerely hope that Her Majesty's Government will ensure that the final words of that article are dropped from the final directive.

The proposed developments try to strike a balance between strongly divergent interests, as well as aiming to impose a standard of service that will mean a vastly improved service in many other member states. This will not be easy, but I too share the views of the Select Committee in welcoming the proposals and inviting the Commission to look to the United Kingdom Post Office as a model for the European Community.

12.17 p.m.

Lord McNally

My Lords, the most exciting comment I have heard in this debate was made by the noble Lord, Lord Brabazon, when he remarked that the European Commission has ambitions to control the cycle and motor cycle couriers in London. I did not think anyone controlled those free spirits. It seems an ambitious project even for the Commission to consider. I wish to associate myself with the remarks about the noble Lord, Lord Elibank. I wish him well in his recovery. I congratulate the noble Lord, Lord Geddes, on his role as substitute in introducing the debate. Indeed, listening to the speeches, I recalled a remark made to me by a senior official of the European Commission who said that the best scrutiny of Community business was carried out by the House of Lords standing committee on Europe. The quality of its work justifies that kind of comment.

Last night, attending a conference in Birmingham, I was told by an industrialist that drills used to be made in Birmingham and that the people of Birmingham were confident they made the best drills in the world. They felt they did not have to worry about competition as their drills were so good. However, one day someone produced lasers and the people of Birmingham suddenly realised they were not in the drill business but rather in the business of making holes. They realised that if someone developed a better way of making holes the people of Birmingham who made drills would be in trouble.

On the day of the last postal strike, having received a flyer from BT offering to put me without charge on to the Internet, it struck me that the intricacies of the industrial dispute are not the important factor. From the long experience of the noble Baroness, Lady Dean, I accept the advice that we on these Benches should not pontificate or interfere in the minutiae of a dispute. However, when such disputes arise in hundreds of thousands of different places individuals will discover that there are other ways of communicating. That can only do long-term damage to the postal service, workers and management alike.

The starting point of any debate on the postal services must be the finding of your Lordships' Select Committee that, the UK Post Office is a model for other Member States combining profitability with a high level of service". Given that bill of health, the first temptation is to say, "If it works, why try to fix it?" We want a postal service which is commercially successful and socially responsible and which offers universality of service at a reasonable price; and we seem to have it. So why the need to examine and ponder over our postal service and its future?

Experience shows that fossilising or romanticising an industry, no matter how well respected or well loved it is, is almost to condemn that industry to die. There is a need to continue to examine the bases of that industry. In 1991, when the Prime Minister launched the Citizen's Charter he said, We believe that further benefits to [the] consumer would now flow from an additional and significant liberalisation of the domestic postal market". I give broad support to that idea. We on these Benches did not support the idea of full blown privatisation. Nor did a large number of Government Back-Benchers. The idea of postal service privatisation came when the bloom had gone off the privatisation success story and constituents were becoming suspicious of some aspects of the behaviour of the beneficiaries of privatisation in certain industries. That is a pity. Privatisation has its success stories. Having been through a number of debates as to what would happen to specific industries if they were privatised, and having then seen the outcome, I have to say that a blanket refusal to consider privatisation was wrong. BT is an outstanding example, but there are others.

I suspect that there is a need for the Post Office to spread its entrepreneurial wings, to compete, to invest and to innovate. In doing so, it needs to satisfy two conflicting concerns; the social concerns of rural communities and the blind. Like other noble Lords I have received briefing from the RNIB about the importance of the postal service to the blind. But there is also the need to make sure that competition is fair. The only criticism I have read of the committee's report is from the Association of International Courier and Express Services which states: We feel that it is regrettable that the Select Committee did not address the concerns of the private sector. We have always advocated that the Postal Administrations of Europe must be subject to the same customs procedures, VAT laws, transport regulations and other requirements which the private sector must comply with. Until private companies can operate on a 'level playing field' with the postal administrations, the consumer's existing options will be further restricted". Given the importance of the private sector, there is a need to examine its treatment when considering the broader policies. There is a record in Europe of state monopolies playing the nationalist card to defend vested interest. One has only to look at the state airlines to see how the consumer can be cheated by playing that card. On the other hand, we have to be realistic. There is a tendency by the private sector to cherry pick. If we are too dewy-eyed about the situation, we shall see cherry picking in the postal services which can undermine the service as a whole.

It is not a one-way argument. Perhaps the best summing-up occurred in a debate in the European Parliament. That is sometimes considered a rather dull place. The quotes I shall give indicate that it can have quite spirited debates. I cite first a letter from the Labour MEP, Mr. Brian Simpson. He said: it is my belief that citizens living in the Shetland Islands or the West of Ireland, or in the Pyrenees or the Greek islands, are entitled to the same universal service at an affordable price as the citizens living in London, Paris or Athens. The effect on rural areas will be catastrophic. Up will go the charges, down will go the quality of service, closed will be the small post offices, redundant will he the postal workers, finished will be such services to the community as post buses and travelling post offices". Those are serious charges, indeed. However, Anne McIntosh, the Conservative MEP said, The socialists are misguided in the belief that privatisation leads to worse services. It is blatant protectionism. The opening up of the Europe's postal market will provide new opportunities for both industry and Europe's citizens … We are creating a Europe where the consumer decides and industry competes … No one should be frightened of competition or new technologies. The socialists have no regard for consumers' interests. They seem determined to resist the advantages of liberalisation. They refuse to see the benefits for British industry and users of the [liberalised] post services". Those are powerful and sincerely held views. In some ways both are right. Despite the fact that the Government and the European Commission seem to be urging the case of liberalisation, the Post Office, taking pride in its operating efficiency—it is confirmed by the report—urges caution. As a number of the members of the committee have said, the committee want us to proceed along the path of liberalisation but with caution. Can we have universality and social responsibility, efficiency and choice? Can we have our cake and eat it? That is the dilemma that faces the Government and policy makers. The Post Office warns that incautious liberalisation could threaten postal services, not improve them. Both the European Parliament and the United Kingdom Parliament, with eyes on their own electors, have expressed similar suspicion and hostility. Yet my mind returns to the Birmingham industrialist making his drills with competition from lasers.

The postal services cannot debate their future in happy isolation. They must equip themselves in their technology, work practices and marketing for the dawning information society and the 21st century with all its demands. I hear the words of caution from all sides of the House. All I say to the decision-makers is, "Do not allow that caution to become fossilisation. Do not allow it to become a reason for total inaction." That is no friend of the postal services. I should like to see develop a Post Office which is given the maximum freedom of commercial action. If that were done, it would need an Oftel-type regulator to ensure that it behaved properly and transparently. However, that is the way ahead, not just for the postal services but for our whole approach to communications in the years ahead.

12.30 p.m.

Lord Haskel

My Lords, we on these Benches welcome the report and congratulate the Select Committee on its thoughtful and balanced work. We particularly regret the absence of the noble Lord, Lord Elibank, and are delighted to learn that he is leaving hospital today. We wish him a speedy recovery.

The committee and most noble Lords who have spoken today are absolutely right to recognise the economic and social importance of a universal service at affordable prices. This is a sensible and civilising view. They also show some insight in recognising that the competition to this universal letter service is not only from other letter carriers but from other forms of communication: fax, the Internet, e-mail and even the telephone. It is for that reason that the Commission's proposals in the draft directive for liberalising the service by the year 2001 are seen as impractical. As all speakers have said, liberalisation will undermine the universal service.

The Select Committee is absolutely right. The first priority should be the provision of a good quality universal service at an affordable and uniform price, not the promotion of liberalisation. It acknowledges that the universal service will only be provided if it continues to be financially viable and independent of subsidy. The market will not provide this universal service. It will be achieved by the Post Office having sufficient monopoly protection to support the less economic parts of the service.

As many noble Lords have pointed out, the balance between the high fixed costs necessary to provide a universal service on the one hand and the degree of monopoly required to ensure financial viability on the other will only be achieved if incoming, cross-border mail and direct mail are included in the monopoly area reserved for the national post offices.

However, as the noble Lord, Lord Geddes, told us, the Government seem to be in favour of liberalising direct mail. This poses obvious problems of verification and classification. We all get direct mail advertisements with our gas and electricity bills. How will this mail be classified? Also, once it is in the envelope, how will we verify that the direct mail is what it says it is? These questions need to be answered to prevent unfair competition.

Electronic forms of communication already provide competition to these sectors. Noble Lords who use e-mail will have noticed that their mailboxes already contain direct mail, including special shopping offers and free magazines with advertisements. We have been promised a whole lot more.

My noble friend Lady Dean reminded us that most business correspondence and invoicing is done on computers. Virtually all business computers sold today have modems already built in so that messages can be transmitted straight off the screen, without anyone having to print them out and send them through the mail. Added to that, most retailers and many manufacturers today insist that their suppliers and customers are logged onto their own electronic networks for ordering, invoicing and stock control. This applies to national as well as cross-national communication. For non-business mail, there is a huge growth in the number of people with access to the Internet. It is no longer limited to the e-mail service providers. The cable companies and BT are all offering cheap access.

There is now a set-top box costing £99 which will enable access to the Internet using a telephone and TV set—equipment which most people already have in their homes. This is where the competition will be to the letter monopoly.

The impact of all this competition on the reserved sector will have to be met by increased efficiency and excellence of service and by adapting to survive. I agree with the committee that the sector will not be helped to compete by the liberalisation steps proposed in the draft directive. It will certainly not be helped by privatisation. These steps only dilute or avoid the problem. They do not deal with it.

I agree with other noble Lords that the competition cannot be dealt with by breaking up the service. For some years this has been a fashionable formula used by business consultants for dealing with many industrial problems. Managers now realise that an end-to-end service under their control is valued by their customers and essential to provide continuous improvement—essential for any business to progress.

Here I must congratulate the Post Office. As the noble Lord, Lord Geddes, told us, it emerges from this report extremely well. Its service is acknowledged as being one of the best in the Union: a successful combination of good service, profitability and low cost.

As the Committee says, it has, struck a successful balance between commercial and social considerations". As other noble Lords have reminded us, included in this balance is the Freepost articles for the blind scheme. There are nearly 1 million blind and partially-sighted people in this country and the scheme is a lifeline to them. Incidentally, the draft directive ignores their needs. Neither does the Post Office ignore the express service. The noble Lord, Lord Bridges, will be interested to learn that the Post Office offers a same-day service in most major cities. In fact, the committee compares the United Kingdom Post Office with the more liberalised services in Sweden and the Netherlands and it concludes that those are not examples to follow. Indeed, the committee considers that other member states should be encouraged to use the UK Post Office as a benchmark.

The recommendations of the committee are in no way invalidated by the postal strike. Even though this is the first strike for eight years, any strike is to be regretted. Recent statements by the party opposite implying that the way to deal with the strike is to remove the Post Office's monopoly is misconceived. Other firms will not provide the universal service which is the committee's first priority. As the noble Lord, Lord McNally, said, all it will do is to allow other firms to cherry pick or cream skim, as the directive puts it. Anyway, tough competition already exists from electronic mail.

The strike is a serious matter. It affects the working and private lives of virtually all of us. Yet why politicians want to involve themselves in a dispute of this kind where they can contribute nothing defeats me. Where politicians can be effective is in ensuring that there is a level playing field outside the monopoly area. For example, is there equal treatment between the Post Office and other competing services as regards VAT or customs charges, as the noble Lord, Lord Brabazon asked? Are the Government satisfied that there is no cross-subsidy by the Post Office from its monopoly service area to those areas outside the monopoly? Have the Government considered appointing a regulator to examine the interests of the consumer and others in the monopoly sector? These are areas for political involvement, not the strike.

Meanwhile, will the Minister confirm whether the Government have or have not agreed to, or are in the process of agreeing to, the proposals in the European Commission's draft directive? I understand the matter is being dealt with by Mr. Taylor. If the answer is yes, can the Minister explain the U-turn? In the past the Government have been opposed to the liberalisation proposals. The Government's approval of the directive would, indeed, be a kind of back-door privatisation via Brussels. The irony is that they would be achieving that by qualified majority voting, which the Government have been so anxious to criticise in recent months.

So I hope the Minister will not take the view that because of the strike the opinion of the Select Committee is invalid, wrong or impractical. This strike is a matter of managing change and industrial relations; it has nothing to do with the rights and wrongs of a universal service. I hope the Minister will not confuse the two.

I agree with my noble friend Lady Dean that this dispute must be settled by Post Office management, staff and unions. Industrial change is tricky in all sectors of business, public and private.

It could well be that the Post Office is suffering from BOHICA. I see the Minister looking a little confused. BOHICA is a disease prevalent among the staff of companies where new and fashionable management techniques are continually being introduced. It is found in Britain and in many other countries. It is best cured by managers, not by Ministers. Let me explain. BOHICA is an acronym for, "Bend over, here it comes again".

I congratulate the committee on this report, and hope that the Government will accept its sensible proposals.

12.41 p.m.

Baroness Miller of Hendon

My Lords, despite the excellent way in which my noble friend Lord Geddes moved the Motion, I know that he will not mind my saying that I very much wish that the noble Lord, Lord Elibank, had been well enough to do so himself. On behalf of all those who have not had the opportunity of speaking today, I wish him a very rapid recovery.

I would like to thank the committee for the attention it has given to the Commission's proposals, the thoroughness of both its inquiry and the subsequent report, and for the opportunity it has given for a full debate. I thank the House for the excellent contributions made—even though I did not know anything about BOHICA.

I apologise to noble Lords for the delay in their receiving the Government's response. That, I am afraid, was due to the fact that the department was determined to provide the committee with a full and thorough response. It therefore took a little while to complete.

The Government fully share the committee's view that the development of a European postal policy is important and warrants careful examination. Without doubt the postal sector has great significance for both economic and social reasons. The committee's report and our debate today have rightly drawn attention to the striking record of our own Post Office.

As the report reminds us, in the mid-1970s the Carter Report anticipated only problems and predicted that the Government's likely task was confined to managing the decline of the United Kingdom Post Office. But in 1996 we can be proud of a highly successful and profitable Post Office that is the envy of many countries. My noble friend Lord Kenyon said that it was a model that others might want to follow.

And how was this achieved? In 1981 the Government took the unprecedented step of reducing the Post Office monopoly to items costing up to £1 to post. This, coupled with consistently sound management, effective restructuring with cost reduction programmes where needed, and a philosophy that put the customer first has led not just to a successful Post Office but to a thriving private postal sector.

I say that because while the Government are in full agreement with much of what the committee's report says, there is a difference between us over liberalisation and its effectiveness as a tool for promoting reform and growth in this sector.

The Government are firmly committed to the Commission's overall aim to develop the postal sector through a programme of controlled liberalisation. We share the concerns highlighted in the committee's report and repeated today about the threat from the new electronic communication alternatives like fax and e-mail, and other more sophisticated systems. The story told by the noble Lord, Lord McNally, about drills and lasers well illustrates that point. The report referred to this as a "growing challenge" and I think that that is the way to view it.

We share the committee's view, as my noble friend Lord Geddes and the noble Baroness, Lady Dean, said, that the more extensive liberalisation measures adopted in Sweden, the Netherlands and Finland do not provide models for the Community as a whole. The variations in geography, social needs and cultural expectations and the stage of postal development in each member state demand tailored solutions within a broad regulatory framework. These liberalisations are also relatively recent and longer experience of them will be necessary before definitive conclusions can be drawn. Nevertheless the vigour and imagination with which these countries have approached the problem of potential declining postal markets is to be commended.

As my noble friend Lord Geddes and the noble Baroness, Lady Dean, pointed out, we share the committee's view that postal services have a vital social as well as economic role. We welcome the fact that the Commission has now set in hand a number of independent studies that will help inform discussion and decisions in the future. Community postal statistics are also inadequate and we shall continue to press for improvements in that area. We welcome the provisions in the directive for the establishment of a committee comprised of individuals with relevant experience with whom the Commission can consult.

What the Community does not have is the luxury of time. We have to move forward, and swiftly. Too many member states still have public postal services with over-staffed monopolies that neglect the needs of their customers and require urgent reform. They need a regulatory framework that will compel them to restructure if they are to provide a universal service, achieve and maintain financial viability in the 21st century and, of course, improve the postal service throughout the Community.

I should like at the start to address the controversial issue of the second stage of liberalisation—and in particular the Commission's proposals for liberalisation in 2001 of direct mail and incoming cross-border mail. This is certainly the major issue for most member states, and the committee rightly gave it considerable attention.

We had hoped that real progress would be made at the Telecommunications Council meeting yesterday and that the directive would be adopted before the end of the year. Unfortunately, no political agreement was reached and the timetable for adoption has certainly been set back.

Noble Lords may know that at the Telecommunications Council meeting yesterday there were two possible compromises on the table concerning the second stage, one of which proposed the liberalisation of direct mail—but not incoming cross-border mail—in 2001. The hope was that political agreement would be reached and real progress made towards adoption of the directive. That did not happen and the matter must now go back to the Council working group for further discussion. That is a great disappointment.

I take full note of the committee's concern about a firm commitment to liberalisation of direct mail in 2001, referred to by my noble friend Lord Geddes and others. However, the Government have become increasingly concerned that the first liberalisation measures will not produce the level of change that is needed in some member states if the postal sector as a whole is to meet effectively the challenges of the 21st century. My noble friend Lord Brabazon commented on that point. It is for this reason that we have argued strongly for a clear timetable for liberalisation based on a Commission review in 1998 of all the options, without prior presumption, being on the table. We have now moved forward from this position in an attempt to be flexible and reach agreement with other member states.

Direct mail represents 17 per cent. of Royal Mail's volumes and 10 per cent. (or £500 million) of its income and we have therefore had to look carefully at whether or not removal of this traffic from the reserved area could threaten its ability to provide a universal service at a uniform tariff, particularly if this was coupled at the same time with liberalisation of incoming cross-border mail. We have concluded that an efficient and competitive Post Office, such as our own, could accommodate liberalisation of direct mail in 2001 without a threat to the universal service. Furthermore, we believe that our Post Office would be a strong competitor in a liberalised market. Many of your Lordships have congratulated the Post Office today and we believe that they have the competence and ability to do that. The UK is therefore prepared to support a firm commitment to liberalisation of direct mail in 2001.

Europe needs this directive and we are concerned about the lack of progress. We believe that the postal sector needs competition, and the liberalisation of direct mail in 2001 is a comparatively modest step and a reasonable compromise. We shall continue to state our view, but we shall also strive for an acceptable compromise among member states on this crucial issue.

I was fascinated by the story told by the noble Lord, Lord Bridges, of the Greek island and the donkey. No doubt the pace of life in such communities is such that one delivery a week does meet their needs. The story illustrates clearly why the Council of Ministers finds it so difficult to reach agreement on the universal service and the reserved areas that should be adopted at European levels. What suits one place clearly may not suit another.

I shall now turn to the detail of the recommendations and try to address the particular points that have been made in debate. I want to reaffirm the Government's commitment to a universal letter and parcel delivery service to every address and household in the United Kingdom. That would certainly ensure delivery to the address in Wales of my noble friend Lord Kenyon. We also have a firm commitment to a uniform and affordable tariff and to a nationwide network of post offices. As we have said on many occasions, these are, for the Government, non negotiable.

We share the view of the committee that the universal service obligation proposed in the draft directive represents the minimum acceptable service that Community post offices should provide. We think that the weight limit for packages could be reduced from 20 kilogrammes to 10 kilogrammes without difficulty, but this too was one of the items discussed yesterday and on which there was no agreement among member states.

Of course, we would like all member states to offer a six-day service, like our Post Office, but that is unrealistic at the present time. Nor, as the report suggests, must those that currently offer a higher level of service be tempted to slip backwards. We are confident that that will not happen. The public postal operators are well organised at Community level and the successful post offices are driving up standards.

We think the reserved area proposed for the first stage of liberalisation is about right. As the noble Baroness, Lady Dean, said, the combination of price and weight makes for unnecessary complication, but it recognises that some member states define their reserved area by weight and it has the broad support of member states.

For some public operators it will mean a significant reduction in their monopoly, but I would emphasise that the directive sets only a maximum reserved area. Member states are free to set a smaller reserved area. We have further work to do on the detail but we shall not enlarge the United Kingdom's present reserved area. The advantage of our current price-only definition is that it allows for gradual liberalisation as the real monetary value reduces. We shall want to retain this feature.

We share the views of my noble friend Lord Geddes, the noble Baroness, Lady Dean, and indeed other noble Lords, that the uniform tariff concept could have received more attention in the Commission's proposals because of its importance to so many member states. The Commission's reasoning, however, is that there must be a degree of flexibility to accommodate both those member states that do not have a uniform tariff structure and future customer needs that may require some adaptation in services. There is the safeguard in the directive that requires the universal service to be affordable. On balance, we think this is an acceptable way to proceed and that we cannot impose a uniform tariff requirement on all member states.

I understand that the European Union is reviewing the public postal service exemption under their sixth VAT directive. We are well aware of the private couriers' concerns and we will take them into account when reaching a United Kingdom view. The first stage of liberalisation, however, remains quite modest and cautious. It is only a step in the right direction.

The noble Baroness, Lady Dean, referred to the notice's separate market definition of collection, sorting, transport and delivery. That has been widely interpreted as requiring open access to all but the delivery market, but the Commission has made it clear that the requirement is simply that, where a member state chooses to permit open access, it must be provided on a transparent and non-discriminatory basis. Clearly, the ambiguity in the text must be removed.

We also share the committee's doubt that the optional suggestion of a levy on other operators to contribute to the universal service provision, referred to by my noble friend, Lord Brabazon of Tara, and, I should add, included largely on account of the new German regulatory proposals, may prove cumbersome and difficult to enforce.

With regard to the Royal Mail strike referred to by my noble friends Lord Brabazon of Tara and the noble Baroness, Lady Dean, they are both right in that it is not strictly to do with this Motion today. However, we also welcome the UCW's willingness to sit down with the Post Office, in a calm and constructive atmosphere and, without the threat of strike action, come to a reasonable and acceptable conclusion.

I also wholly agree with the noble Lords. Lord Kenyon and Lord McNally, and indeed the noble Lord, Lord Haskel—I expect I may have missed out some other noble Lords—that our Post Office's free post for the blind scheme is extensive and well-established, and we are fully committed to its continuance.

My noble friend Lord Kenyon referred to Article 9 of the draft of the European Union directive. The United Kingdom is the only country which does not have to include the name of the country on its stamps. We have a dispensation from the Universal Postal Union in recognition of Rowland Hill's invention of the postage stamp as a means of pre-payment. I can assure noble Lords that this position has been accepted by the European Commission.

The noble Lord, Lord McNally, asked that the Post Office should be given the maximum possible amount of commercial freedom. The Government will look at any proposals which the Post Office puts forward that in its view will help it to compete more successfully in the European postal market. They will be considered on their merits, but against the background that the Post Office is a public undertaking. We must have regard to possible displacement of private sector activity and the need always for fair competition.

Finally, I emphasise again the Government's firm commitment to the universal postal service concept and to the development of high standard postal services throughout the Community. We believe that that can best be achieved through a programme of controlled liberalisation broadly as set out in the Commission's proposals. In the further negotiations on the directive we shall try wherever possible to take account both of the committee's recommendations and the points made in the debate this morning. I thank the committee for its valuable contribution to this important discussion.

12.58 p.m.

Lord Geddes

My Lords, I hope all noble Lords who have taken the time and trouble to be in your Lordships' House on a Friday morning share my view that this has been a most worthwhile debate, and delightfully short, if I may say so. I would particularly like to thank the noble Baroness, Lady Dean, the noble Lord, Lord Bridges, the noble Lord, Lord Brabazon of Tara, and fellow members of the sub-committee for taking part. I know my noble friend Lord Elibank will be extremely grateful for their contribution. I also thank my noble friend Lord Kenyon for an extremely interesting speech regarding the European Union's Committee of the Regions. I find it gratifying that the noble Lord, quite independently, comes largely to the same conclusions that we did. It is always pleasing when some other body looks at the same subject and comes up with the same answers.

I thank my noble friend the Minister for her comments. Perhaps to her surprise, I am relieved that no decision was reached at the meeting yesterday. As I said in my opening comments, I personally was not at all happy with the view that the Government took. While asking her to pay attention, of course, to all the recommendations made in the report, I particularly ask her to look again at the question of uniform tariff, summed up succinctly in paragraphs 162 and 163 of the report: We consider a universal service to be meaningless in the absence of a geographically uniform tariff within each Member State … We therefore regard the draft Directive as unsatisfactory to the extent that it does not impose a uniform tariff requirement on Member States". I press that point in particular on my noble friend and her ministerial colleagues.

Finally, I again emphasise the opinion of the committee, encapsulated at the end of paragraph 168: The only commitment the present Directive should impose on the Commission should be to produce a report evaluating the first stage of liberalisation … If, on the basis of that report, a second stage is considered to be justified, a proposal for legislation could then"— I emphasise the word "then"— be brought forward for the Council and Parliament to consider". We looked at that point, as my noble friend was kind enough to say, very carefully. That was a very strong and unanimous decision of the committee.

With those remarks, I commend the Motion on the Order Paper in the name of my noble friend Lord Elibank.

On Question, Motion agreed to.