Postal Services Bill

HL Deb 02 May 2000 vol 612 cc956-86

Second Reading debate resumed.

4.41 p.m.

Lord Dearing

My Lords, in rising to speak I must declare an interest as a Post Office pensioner and as someone who has many friendships and much regard for people in the Post Office and in sub-post offices. We are discussing today an issue that concerns all of us; namely, the excellence and cost-effectiveness of our postal services, as well as the long-term well-being of what has over the past two centuries been a major national asset in a world where no business, whether public or private, however much regard it has been held in by the public and however illustrious the service it has given, can look to the future with confidence.

My concern is that this Bill should provide a framework that will give the Post Office an opportunity to emerge in a very uncertain world as one of the main players in Europe. The Minister was my predecessor at the University for Industry (the UFI). We dedicated ourselves to the service of people and in equipping them to be effective throughout life in terms of work in a rapidly changing world. The latter affects the Post Office very much. The Minister referred to four factors in that change. The one that comes immediately to my mind is the awesome advance of information technology and, equally awesome but even more surprising, the ability of people to use it.

In this world of change, I am very much aware that there is a movement in the Commission to liberalise postal services across Europe. I am concerned that Britain should emerge as one of the successful nations in providing postal services to Europe.

I have had a particular worry about this matter which goes back 20 years. I have in mind the uncertainty that has, to my knowledge, persisted during that period about the framework within which the Post Office will be able to operate. This was highlighted by the Trade and Industry Select Committee in the other place when it criticised that uncertainty and referred to the damage that it was causing to the prospects of the Post Office. Therefore, even though it has taken them a little time, I am grateful to the Government for seeking to resolve that uncertainty.

However, in expressing that appreciation, I have nevertheless a few points to make. Whether the Post Office is able to be successful in this new environment depends very much, as I said, on the framework within which it will operate. Fundamental to that is the strength of its balance sheet when it is set up as a company. For example, will it have the resources to enable it to be a major player, or will the Treasury play it careful and thereby ensure that it is not?

I noted with interest the provisions in Clauses 68 and 69 for government loans and guarantees. I should be much happier if they were not there and if the Post Office's balance sheet made such provisions unnecessary. I say that because all my experience in working on public corporations is that the more arm's length the relationship with a government, the more the latter are concerned purely with creating a framework and in discharging those functions that are proper to a shareholder, the better for government, the better for the public and the better for the organization—in this case the Post Office. Therefore, could the Minister tell us, if not this afternoon then perhaps on a future occasion, what the Government have in mind for this balance sheet?

I note that Clause 67, for reasons that I totally understand, provides that there shall be no disposal of shares or share swops without the approval of both Houses of Parliament. However, as the Minister knows well, decisions often have to be made swiftly in the commercial world. Those who are in the front-line must be able to act with confidence and conviction. When these matters are brought before Parliament, I urge the Government to do so swiftly and not to spend ages working out a position with the Treasury. In those circumstances, Parliament will respond decisively with either a yes or no to the proposals. So much for what I see as the big issue for the Government. I say to them, "The more you stand aside and discharge your responsibility as the setter of a framework and as shareholder, the better for everyone".

I turn now to Clause 102, which deals with subsidies to what are called "public post offices". I did not note a definition in Clause 117 of "public post offices", which is a new term to me. I noticed a definition of "post offices", but I imagine that what I used to call "post office counters" is what is meant by that term. I realise why the Government are introducing this provision, but I very much regret the need for it. I assume that it comes from the decision that social security benefits will in future be paid through automatic credit transfers. I believe that that came from the calculation by the DSS that the cost to it of such transactions could be reduced, so I am told, to one penny as compared to 48 pence, thus making a saving of £350 million. I have no doubt about: the accuracy of any such calculations. However, I learnt long ago that it is not the arithmetic that matters; it is the thinking that underlines the arithmetic.

What worries me is whether those responsible for taking that decision have done a total cost-benefit analysis regarding the cost to society as opposed to the benefit to the DSS in making this change. Did the Government calculate those sums? If so, can the Minister tell the House the outcome? Did the Government ask the banks whether they wanted this business? Further, did the banks say that they would do it for nothing, or is it possible that they will charge? Is it not the case that bank charges are no light matter? In making such savings, could it be that the DSS is transferring the costs to people who can ill afford them—for example, pensioners or families with children who draw family benefits—or is it transferring them to the Post Office? There will be costs, and they will be big costs.

I am pleased to know that the PIU has been invited to look at the future and at how the future might be secured for the network of post offices, but I wonder whether it has also been asked to do the total sum, because it is the validity of that total sum which should first concern the House before we move on to the issue of subsidy. There is no security in subsidy. I would say to the Minister, for whom I have a warm regard, that I understand why he should have referred in his speech to an unhealthy reliance on the payment of benefits, but perhaps the 8,000 sub-post offices that have that unhealthy reliance might see it rather differently.

I referred earlier to the regard and respect in which I hold many people in the Post Office. I had particularly in mind the courage shown by many postal workers and especially lonely sub-postmasters and sub-postmistresses who have had to resist with great courage armed attacks which, in my time as chairman, sometimes occurred at a rate of 10 or 20 per week: little people, old people, mature matrons, pillars of the Church, wrestling on the floor of the post office to safeguard public moneys. I remember the immense courage of people in Northern Ireland. I remember going into a sub-post office at the entrance to a housing estate in Belfast. When I entered I was faced with a one-way mirror as protection for the staff in that sub-post office, which had been raided 10 times. Behind the counter was a ladder so that they could shin up to the loft if they were attacked again. The courage of these people was awesome. In a recent letter to the Minister I quoted Mark Anthony: The good [that men do] is oft interred with their bones;… Let us just remember, in taking these decisions, the good service that these good people have given.

To sum up, I ask the Minister about the balance sheet. I ask him to give great public service by using his energies and knowledge as a businessman to ensure that the Government, in the administration of this Act, are "hands-off". I ask the Government to reserve their role to that of a shareholder. I also ask the Minister to tell the House about the total costs and benefits of the change regarding social security benefits. I would also like to ask the Minister, as he was asked by the noble Baroness, Lady Miller, how the subsidy scheme will work and if we can be sure that it will work in a way that will help to re-establish the competitiveness and the ability to get business of these sub—post offices and Crown Offices. We would all wish it to operate in a way that is uniform throughout the land and is not subject to local decisions which will impair it. It is a great national service—a mass provision of post offices throughout the land in the service of the common people.

4.53 p.m.

Lord Clarke of Hampstead

My Lords, in my view this Bill signals the beginning of the end for our world renowned postal service. Let me declare at once my interest. It began 54 years ago when, at the age of 14, I joined the GPO, as it was then, as a telegraph boy. That interest continued throughout the following 51 years until I retired as a trustee of the Post Office pension funds. The period in between included employment as a postman and a sorter and for 36 years I was a representative of the Union of Post Office Workers. I spent the last 14 years as a national officer of the union and served for 10 of those years as its deputy general secretary. I am in receipt of an occupational pension from my union.

I was reminded earlier by the noble Baroness, Lady Miller of Hendon, of the silver salver that she presented to the staff of the Post Office. That salver was placed in a cabinet in my office at the union's headquarters, and it was not until I entered this House that I realised the connection. I just hope that my successor is looking after the salver as well as I did.

I am sure your Lordships will understand that speaking in this Second Reading debate is a sad and painful experience for me—painful because of what I firmly believe will happen to our great Post Office and the service it provides to every part of our islands and abroad. It is particularly painful for me to criticise my party in public for the first time in my life.

When the Government published the Bill earlier in the year, many people, both inside and outside the Post Office, welcomed the fact that at long last commercial freedom was to become a reality. The noble Lord, Lord Dearing, mentioned the long period of indecision leading to the problems that have been faced by the Post Office. At the time the Bill was published I had my doubts about the method being suggested to bring about that freedom. I believed, and still believe, that the proposed creation of the plc will eventually lead to private shareholding in the Post Office at some future date.

Of course commercial freedom is essential to the future of the Post Office. That has been glaringly obvious for many years. In my maiden speech on 1st December 1998, I said: Commercial freedom will allow the Post Office to plan outside the Government's public expenditure cycle. It will give it freedom to borrow and invest, freedom to enter into acquisitions, joint ventures and strategic alliances, and freedom to allow the workforce to share in the success of the Post Office".—[Official Report, 1/12/98; col. 410.] I firmly believe that all these freedoms would have been possible without the need to create the plc. I shall say more on that point later.

The Bill will replace the old-fashioned EFL, the external finance limit, with the new, commercially based shareholder dividend. It will give freedom to borrow at commercial rates up to £75 million per annum for acquisitions, joint ventures and business investments, for the fast-track process for investments in excess of this amount. These measures are to be welcomed.

The inclusion of the universal service obligation for letters and parcels to all the 26 million addresses in the United Kingdom at a uniform price is also to be welcomed. However, it will require some safeguards for the Post Office when the question of a monopoly limit is addressed. The regulator will be charged with reviewing the scope of the letter monopoly and reporting to the Government within one year. If that report does not fully accept that the universal service obligation will need a reasonable monopoly limit, then I am afraid that the excellent service now provided by the Post Office will be put at risk. We shall have to wait and see what the newly created regulator recommends.

This House needs to know the exact role and powers of the new postal services commission. It is essential that the House be made aware of the level at which the regulatable recommended monopoly is to be set. Commercial freedom and exposure to greater competition will require a sensible, gradual and controlled liberalisation of postal services, not just in the United Kingdom but throughout the European Union. Perhaps my noble friend the Minister can give the House an assurance that the Government will take steps to ensure that this will happen. I am confident that the Post Office and its dedicated staff will meet whatever challenges are set by the new regulatory machine in respect of the collection, distribution and delivery of letters.

The Bill has a very important bearing on the future of the Post Office Counters network. We await the report of the Government's Performance and Innovation Unit. The unit was asked to identify the contribution made by post offices to the vitality of local communities and to consider how the Post Office can best contribute to the Government's objectives in the future and, in the process, formulate objectives for the Post Office network.

During the Third Reading debate in another place on 18th April, the Secretary of State for Trade and Industry expressed his regret that the PIU report was not available for Third Reading. I also regret that. The Secretary of State said that he hoped the report would be given to the Prime Minister soon after Easter. Following that, an announcement would be made on his view of the PIU's work. There is not a Member of this House or of the other place who could not quickly have given the answer to the first part of its remit. I refer to the identification of the contribution made by post offices to the vitality of local communities. Their role is essential to community life. The value of the Post Office network has been well rehearsed in your Lordships' House. We have heard today from the noble Baroness, Lady Miller of Hendon, about the vital part it plays in our community. At times of crisis, such as the passport fiasco last year, the closing by Barclays Bank of some of its branches, and on many other occasions, the Post Office has fulfilled an essential role— a role that is not confined to rural sub-offices. Crown offices are also vital to the communities they serve.

The Post Office has been able to meet these needs simply because it was there when needed. Any further reduction in the network can only go against the interests of communities which the Post Office has served for centuries. Perhaps my noble friend the Minister will today give the House an assurance that the Government are determined to maintain the network at its present level. Perhaps the Minister can give the House more detail about the subsidy proposed at the time of Third Reading in the other place.

Members of this House, myself included, have from time to time sought assurances from the Government that arising from the decision they have taken to pay benefits directly into claimants' bank accounts from 2003 instead of over the counter in cash at post offices, no one who wants to retain the ability to receive his or her benefits in cash will be denied this facility. A number of assurances have been given. I again ask my noble friend whether he will give a guarantee that no pressure advertising will take place in an attempt to woo claimants away from their chosen method of payment.

Last September the Trade and Industry Select Committee said that the decision to pay benefits into bank accounts would mean the Counters business facing annual losses of £ 100 million. In a Statement in another place, and repeated by my noble friend the Minister in this House, the Secretary of State asserted: Taken together, our proposals for greater commercial freedom will bring over £600 million into the Post Office over the next three years".—[Official Report, 8/7/99; col. 1028.] That statement was repeated at his press conference on publication of the Bill. I would appreciate it greatly if my noble friend the Minister could confirm that the figure of £6 million is made up of two elements.

Am I correct in assuming that the £125 million per year reduction in the negative EFL together with the £75 million per year borrowing accounts for the £6 million over three years? Am I also correct in saying that the £75 million is not money available to improve services but will constitute loans to fund acquisitions and will need to be repaid with interest?

Set against this extra money will be substantial financial drains on the Post Office's resources. Will my noble friend confirm that the revised Horizon project—the automation of Counters offices—is likely to cost the Post Office £100 million per year and that the estimated loss on accumulated EFL surpluses amounts to £107 million per year in 1998–99? Will my noble friend also confirm that if the monopoly was reduced to 50p (and 150 grams) it would lead to the Post Office facing a further reduction of profits of approximately £100 million? Following the recent merging of the two Post Office pension funds, does the Minister agree that the contributions holiday that the Post Office has enjoyed for many years is unlikely to continue? If my understanding of the situation is correct—I am confident that I shall be told its that is not the case—the seemingly advantageous position is not quite so attractive as one might have been led to believe.

I am conscious of the length of my speech. As I said, I am fearful for the future of the Post Office. So, too, I am sure, are other noble Lords. I wish therefore to return to the part of the Bill that causes me great distress and not a little disappointment; namely, the whole question of the plc status and the shareholding concept that will allow a partial share sale in Post Office plc in order to further a joint venture or partnership. I believe that by creating a plc and introducing the concept of shareholding the Government have made a grave mistake. The benefits to the Post Office contained in parts of the Bill, especially those that provide the much needed commercial freedom, could have been obtained by the creation of an independent publicly owned corporation (IPOC), as mentioned by the noble Lord, Lord Razzall.

On 8th July last year, I asked my noble friend the Minister where, in the Labour Party's manifesto for the 1997 general election, I would find any reference to making the Post Office a plc. My noble friend replied: I do not think the question of a plc was covered in the Labour Party manifesto, but things do happen in this world that were not covered in that manifesto".—[Official Report, 8/7/99; col. 1033.] Today, in referring to share ownership, the terms "plc" and "shareholding" were linked together by the Minister in almost the same sentence. Of course the question of a plc was not included in the manifesto. No one in their right mind would have thought that the Labour Party would make such a proposal. After all, the Labour Party, the public, many institutions and the trade unions had campaigned vigorously against the previous government when it was suggested that the Post Office should be privatised. Therefore I was not surprised that the question of a plc could not be found in the manifesto. I am surprised, however, that the matter has appeared in the form now before us.

I respectfully suggest that if the proposals contained in the Bill, as they refer to the creation of a plc, had been proposed by a Conservative government, the Labour Party would again be campaigning against such a proposal. Those within the Government who are determined to have their way will say that the proposals in the Bill do not constitute privatisation. I agree that they do not at this stage but I believe that this Bill, if enacted in its present form, will make it a simple exercise for the shares to be sold at some future date.

The warm words of comfort that say, "Trust us, we do not intend to sell private shares", are meaningless unless there is an unequivocal statement that we shall never sell private shares. Of course, my noble friend cannot commit future governments for ever. He can, however, say that a Labour government will never come back to this House and another place with proposals to go further than the Bill as at present drafted allows. So far such a statement has been missing. My noble friend can assure the House that the words of the Secretary of State for Trade and Industry on Monday 7th December 1998, repeated in this House by my noble friend on the same day, are no longer part of the Government's thinking. I refer to his comment: I should make it clear that we certainly do not rule out the possibility of introducing private shareholding into the Post Office—for example through the sale of a minority stake in it—at a later stage".—[Official Report, 7/12/98; col. 744.] Today I respectfully ask my noble friend to say unequivocally that there is no suggestion, now or in the future, that a Labour government will ever sell private shares in the Post Office. Of course my noble friend cannot bind any future government to this principle. The Bill makes it only too easy for a future Conservative government to have in place the means for secondary legislation to be swiftly introduced that would effectively kill the publicly owned Post Office. Or, perhaps, has my party reached the stage where it believes that it will remain in power for ever? I should like to think so. However, history tells us that all good things come to an end. I cannot believe that we, in my party, are so arrogant that we believe that there will never be another Conservative government.

Any reading of the provisions of Clause 67 shows that the Treasury will always hold the ace cards in any share dealings with prospective partners in any joint venture. It is also clear that there is to be no limit or cap on the disposal of shares. At present, unless it is amended, there is an open ended provision which in itself brings into question the oft-repeated statement that the Post Office will remain publicly owned. I suggest that my noble friend gives consideration to introducing a statutory limit of 10 per cent of the total share capital of what will be Post Office plc. By providing such a cap on what can be disposed of, or swapped, or traded in a joint venture, some credibility could be restored and the public would see that the Government's statements about keeping the Post Office in public ownership might be better believed. It would certainly help me to believe what is being said.

I expect that someone will ask, "What if the prospective partner with whom we want to go to bed wants 10.5 or 11 per cent?" That argument could be pursued up to the 50 per cent plus figure that would take the Post Office out of public ownership altogether. It would be better to introduce a limit in the first instance and then examine any problems that may arise if the cap is found to be too low. To my knowledge there is no experience anywhere in the world of a "share swap" arrangement between operators in the postal business. That is not surprising given that so few postal operators are at present in the private sector or have plc status. There is evidence of such deals in the field of telecommunications. There is the case of the deal between France Telecom and Deutsche Telecom. In that case each company has given the other 2 per cent of its shares. If it ever came to pass that the Post Office were to enter into a similar arrangement, 10 per cent of shares available for such dealings would be more than sufficient to arrange such a marriage.

What is more common within the telecommunications industry is the establishment of a joint venture for a particular range of services. In such cases some of the assets of the two partners may be transferred into the new joint venture. A good example of how the arrangement could work for the Post Office in the future is the announcement made in early March that the Post Office had signed heads of agreement with TPG in the Netherlands and Singapore Posts. The form of the alliance is a global joint venture in which TPG will hold a 51 per cent stake with the British Post Office and Singapore Posts each taking a 24.5 per cent stake. What is significant in this case, which will provide cross-border mail services, is the fact that the alliance does not involve any assets of the three respective partners. I am sure that my noble friend is aware of these facts. I believe that the Government should look at providing for a limit as I have suggested.

The word "democracy" and the concept of democracy are often heard in this House. Along with countless thousands of ordinary Labour Party members, I value and have worked hard for democracy within the Labour Party—a democracy that gave its support for a resolution at the 1999 party conference which stated that the Post Office should remain a 100 per cent publicly owned service. It also stated that, there must be no uncertainty or ambiguity both now and in the future about the commitment of a Labour Government to the continued public ownership of the Post Office". The resolution also urged that, a commitment to full public ownership of the Post Office is clearly contained in the Labour Party manifesto for the next General Election". Some parts of the Bill are welcome but, in my view, a number of clauses stand the decision of that democratic conference on its head.

I said at the beginning of my remarks—I apologise for the length of them—that this is a sad day for me. To misquote a phrase made famous by my good friend Neil Kinnock, The sight of a Labour Government, a Labour Government, bringing forward proposals that will eventually destroy a valuable public service, a public service that has served our country so well for over three and a half centuries. fills me with great concern". I hope that before the Bill leaves this House it will be amended in a way that gives some comfort to the Post Office, its staff and the public that it serves.

5.11 p.m.

Baroness Byford

My Lords, the Postal Services Bill is a compromise to allow the Post Office some of the freedoms of privatisation while, at the same time, maintaining ultimate government control and ownership of the parent company.

At this stage, I should declare an indirect interest as a member of VIRSA, an organisation which is working with the Government and sub-post offices to try to promote their future.

In her opening speech, my noble friend referred to the many concerns that we have on these Benches. I should like to add my weight to three in particular. My first concern relates to the relationship between the regulator, the consumer body, the post offices and the Government. This is an issue we shall certainly discuss at Committee stage. My second concern relates to the £75 million limit—which, as other noble Lords have said, sounds like a huge amount but which, in today's business world, is very small. Again, we shall have to return to this issue if we are to make some sense of it. My third concern relates to the discretionary subsidy, an issue which many noble Lords have already mentioned and to which, I suggest, others will speak later. I am concerned about how it will work, whether there will be even-handedness and whether it will enable all areas to work within the same framework—a theme to which I shall return later.

While I share these worries, my main concerns today are much narrower and centre on the effect of the Bill and on the associated pronouncements made, for instance, in the July 1999 White Paper on low income communities in rural areas and in towns and cities.

My most serious concern is in relation to the effect of the intention to abandon the Horizon smartcard system in favour of payment of benefit through the automated credit transfer system into bank accounts. The situation was confused—I think it still is—and I, like many others, have continued to table Questions about it. Only recently, the Minister responded to a debate in the House on the issue. I hope that when he responds to the debate he will refer to the matter again.

For the people out there, the situation is still very confused. The information given by the Government has been provided in a series of statements which contain no actual conclusion. On 2nd February the Prime Minister stated that: We should … modernise so that benefits are paid into bank accounts for people who want that, but we shall make arrangements for those who do not want that to enable them to continue collecting in cash".—[Official Report, Commons, 2/2/00; col. 1036.]— not necessarily at post offices, but in cash.

However, Mr Rooker had stated in January: Following the move to ACT from 2003 customers will have their benefits paid into a bank account but will continue to have a choice of where they access their cash, with those who wish to collect at post offices still being able to do so".—[Official Report, Commons, 24/1/00; col. 83W.] Mr Rooker had earlier stated in October: As at August 1999, about 65 per cent. of all benefit recipients were receiving payment in cash by order book or girocheque at the Post Office".—[Official Report, Commons, 26/10/99; col. WA 842.] In his evidence to the Trade and Industry Select Committee, Alistair Darling said: About 85 per cent of those who receive benefits have bank accounts". If only 15 per cent of those who receive benefits do not have a bank account, but 65 per cent of benefit payments are claimed at the Post Office by giro or order book, it appears to me that 50 per cent of benefit recipients prefer not to use banks, for whatever reason. There are many reasons for that and perhaps I may mention some of them.

Banks reserve the right to apply monies entered into a customer's credit to the overdraft. Trite but true. Many benefit payments result from the payee's financial distress caused by circumstances such as job loss, which tends to result in overdrafts. Secondly, many recipients have shared bank accounts and at times of financial stress they need the facility to apply benefit payments to their own needs. Thirdly, one of the most difficult times for many people is the breakup of a marriage or of a long-standing relationship. Whichever parent has responsibility for caring for children, he or she may need to have a source of ready cash which does not involve using family bank accounts which may not be immediately available to them.

Other noble Lords have spoken eloquently on the subject. I look with great admiration at the noble Lord, Lord Dearing, and wish that I could speak without a note.

Alistair Darling also quoted to the committee the comparative costs of paying benefits, and other noble Lords have referred to this. Giro cheques cost 79p per payment; order book costs 49p per payment; the payment card would have cost 6'7p; to pay by ACT costs about a penny.

It may cost the Government one penny under whatever system they plan to operate, but I beg leave to doubt that it costs one penny in toto. I am left wondering where and how the remaining cost elements will be recouped by those providing the service. Bank accounts are notorious for accumulating charges—just as banks prefer to operate in areas not noted for the presence of benefit claimants.

I turn now to my other major worry, which is the effect on sub-post offices of the loss of government revenue from servicing the benefit payments system. We should remember that many small, privately-owned sub-post offices have been bought by people who have left their careers early, either through redundancy or early retirement. They have been relying on the sale of those businesses to top up their interrupted pension provision. If the Government's moves threaten the viability of those businesses, it is unlikely that they will be readily saleable. I pose these questions to the Minister: have the Government kept this matter in mind? What will they do about it?

The Government have responded to the worries of the sub-post office franchisees by proposing a subsidy. We await, as other noble Lords have said, the report of the PIU. Even for this modernising government, the length of time they have taken to bring this report to light beggars belief; it should have reached us earlier. Still we await the report on the detail of how the subsidy will work, but in the interim I should like to quote from the press release of the General Secretary of the National Federation of Sub-Postmasters, Colin Baker, following an amendment at Third Reading in another place. It states: We are however encouraged that the Government are looking for ways of supporting a network of post offices and if matters get to such a point then clearly subsidies particularly temporary ones may help to get the network through a very difficult phase. We would set our face completely against local authorities giving or administering subsidies because we think that we would rapidly lose control over the network as different local authorities will most certainly deal differently when faced with the need to subsidise and we must not forget that different local authorities may be under different political control"— and have different vices and different hopes. We cannot therefore work up any enthusiasm for that prospect. We would say the answer to the network is investment, not subsidy allowing us time to get through this difficult period and out the other end". It wants to see a long-term prospect of business success.

It is worth noting that so many of our people, whether or not they have bank accounts, choose to claim their money through post offices. It is also worth noting that 95 per cent of the population live within one mile of a post office compared with 60 per cent living that close to a bank. I am sure that I do not need to say anything further about the level of bank closures in rural areas and towns. Indeed, a bank closure was recently announced which we hoped would not take place, but it has now taken place. In rural areas, only 9 per cent of villages have a bank but 60 per cent have a sub-post office.

I shall not go into greater detail today because Second Reading is not the time so to do. But Second Reading is the time to make clear to the Government the fears held by many vulnerable and frail people. Such people are hardly able to get to post offices, let alone to banks—which may no longer be there. They are extremely concerned about the future of their local sub-post offices. If something is not forthcoming from the PIU report, the 8,000 post offices that are likely to be closed will be under a great threat.

I have three questions for the Minister. Is the suggestion of subsidies just one option? If it is, perhaps he will enlarge on that a little more. If it is not, and although we do not have the PIU report, will he enlarge on what some of the other options for the survival of these sub-post offices might be? Finally, can he give us a greater indication of when the report will be available?

These are difficult times for those whose livings are very much under threat. I, like, I am sure, other noble Lords, went to the rally at Central Hall which followed the presentation of a petition of 3,128,000 plus signatures. This is not a small item. I know that it is a small item by comparison with the whole Bill but it is extremely important. The Bill should not be just about making the framework work for the Post Office's sake. It should also serve the people who will be using the Post Office. I hope that when the Minister comes to reply he will be able to do so positively rather than say, "We will hear, we will hear, but we do not know when".

5.22 p.m.

Baroness Miller of Chilthorne Domer

My Lords, I wish to touch on two issues with regard to post offices and sub-post offices, particularly in rural areas. The first concerns reasonable access and the second concerns how small sub-post offices will be kept going when they face a 40 per cent cut in their income.

If I were a cynical person, I would think that the PIU report had been delayed deliberately. I am sure that the Government did not intend that, but it is regrettable that the PIU report and the White Paper have both been so delayed. No doubt the reason is that some of the questions that need to be answered before the Bill passes through the House are particularly difficult. The question of access to services is one of them. I looked recently at the attempt of the Index of Local Deprivation to define what access means. In an extremely good and jargon-free report it said that it is very difficult to define access to services, because it may not necessarily be a question of physical proximity to services. For example, someone without a car and with poor public transport options could have more difficulty reaching a post office that is one mile away than someone with a car or good public transport options who lives five miles away from the nearest post office. Range, cost and frequency of public transport are a key". Unfortunately, the best measure that the Index of Local Deprivation can come up with is an "as the crow flies" measure. When the Post Office comes to look at how reasonable access will be measured, I fear that it will have no greater success than the Index of Local Deprivation.

Noble Lords have touched on the issue of access to small sub-post offices and the services that they offer. The Third Reading debate in another place also concentrated on post office services. For rural areas and many urban neighbourhoods, the post office is a means of delivering a wide range of services, not all of which are post office services. I wish therefore to move to the question of subsidy. How much of the subsidy will be for post office services? That is clearly what the Government must intend as it is in a Postal Services Bill. But if it is okay to subsidise government services, how is that not an unhealthy reliance on one form of government service? How is it that, suddenly, a subsidy for providing information through small sub-post offices is permissible and is not to be regarded as unhealthy?

How will this form of subsidy deal with multifunctional premises where perhaps the sub-postmaster also runs a garage? He may be receiving a healthy income from the garage, but he may have to deal with much paper work in the evening and spend much time in order to run what is very much a charitable service for his community as the sub-post office would not provide a meaningful income without the subsidy. How will the Government begin to test sub-post offices for viability?

In endeavouring to put the question of post office services into one small pocket and look at a subsidy for that—and in advance of the White Paper on rural matters and the PIU report—the Government will struggle. I hope that the PIU report will be available before the Bill completes its passage through this House. From which pocket of money is the subsidy likely to come? The Treasury, so it thinks, has made a large saving of £400 million. In order not to spend vast amounts of its now saved money, will it think of taking the subsidy for rural post offices out of its matched funding for the rural development regulation money, thereby diminishing that pot? Perhaps it is thinking of taking it out of some other pot earmarked for rural areas. I should be interested if the Minister believed that the subsidy would come out of new money. The history of Treasury subsidies for rural areas does not lead me to think that that is in the slightest way likely. What stage have the discussions with the Treasury reached? What understanding is there with the Treasury as to whether this money will be found by regions or areas from money already allocated to them, or will it be genuinely new money?

5.27 p.m.

Lord Harrison

My Lords, where Heseltine hesitated, Labour has acted. Where the second-class Tory plans for the Royal Mail were lost in the post for 18 years, Labour has delivered. This first-class Bill has arrived on time and on form to match the challenge of rapidly changing national and international markets; above all, the single European market.

Labour is modernising the Post Office in a sensible and reasoned way; providing a firm basis for greater competition in the industry; giving the new plc greater financial freedom to expand and innovate, while retaining this much loved institution in public ownership—because that is what the public wants—and so producing a better deal for consumers, including the blind and the socially disadvantaged. This Bill has the stamp of authority and, I might add, of common sense.

Pleasing, too, is the Government's response to two decades of rural neglect, inherited from the previous government. The sub-post offices of Britain are being updated and transformed by the Horizon Programme, giving our loyal sentinels in the countryside sub-post offices the weapons to defend rural values while opening up new horizons in expanding a panoply of new services: 3,000 new cash machines installed; 1,500 rural lottery ticket sales points started; vehicle licence transactions doubled; and 6,500 sub-post offices, selling telephone pre-payment cards, delivered this month. These rural post offices, the quintessence of satisfying public/private partnerships, will be the focus of further commercial opportunities. The Government's announcement of the possibility of subsidy to retain such post offices for social need, determined against new statutory assessment criteria, is a master-stroke entirely unforeseen by the philosophers on the Benches opposite. Your Lordships might be readier to listen to the collective wisdom of the Opposition if the hue and cry for rural post offices were matched by a complementary concern for sub-post offices in inner-city areas. Isolated communities are not found solely in the wide, open spaces of rural Britain.

Baroness Byford

My Lords, I hesitate to intervene, but the noble Lord follows me quite closely. I mentioned the inner cities as well, so I hope that he does not think that we do not equally consider the problems of inner-city post offices, as we do the problems of those in rural areas.

Lord Harrison

My Lords, I am glad to have that reassurance. However, when colleagues opposite speak on the issue a little more balance might be welcome.

In addition, I welcome the introduction of ACT, which will eliminate losses of £200 million through theft and fraud. Does the party opposite?

My principal remarks relate to the origins of the Bill, which enacts the provisions of the 1997 EU postal services directive. The attempt to establish a single European market in postal services is wholly laudable. The 1997 directive points the way, not only in supporting a gradual and orderly liberalisation of postal services, but also in insisting on a universal postal service delivered at a uniform tariff. That must be right if we are to implement the twin objectives of establishing an efficient and effective market to support British and European business and commerce, while at the same time providing our citizens with the medium to communicate with family, friends and fellow citizens from addresses right across the Continent—from Lapland's Father Christmas to Greece's farthest climes. This is another practical step in making Europe work for each and every one of us.

However, perhaps I may express my regret that the first-class stamp in Britain can no longer be used to send letters to other parts of the EU. Having a uniform rate was part of a building block of a Europe of the people, by the people, for the people. The present E-stamp compensates in some measure, and makes people's lives easier. While I am speaking of a people's Europe, let me repeat that I hope the use of the E-stamp will continue to expand as a complementary service for the convenience of customers. However, I should be sorry indeed to lose national stamps, whose variety, colour and display wonderfully illustrate the splendour and diversity of Europe. We should celebrate such diversity, which, culturally and commercially, is Europe's secret weapon.

But on Europe, as ever, the party opposite is divided and disparaging—none more so than Mr Peter Lilley, who, in debating the Bill in another place on 15th February, attacked the Government thus: Labour's main bogey is the threat of international involvement in our Post Office, or its involvement overseas. No group is more xenophobic than the Labour Party. Mr. Haider could take lessons from it. By contrast, the Conservatives believe that free trade and free investment maintain and build links between countries"— [Official Report, Commons, 15/2/00; col. 825.] Your Lordships may excoriate such racy language and, even more, toy with the challenging thought that the Conservative Party, in contrast to Labour, vies to be part of an international brotherhood. But Mr Lilley's main thrust is that the liberalisation of the EU postal market should be total and immediate. Even single market commissioner Frits Bolkestein is not so daft or dogmatic. But in proposing to open up the market to letters and material weighing 50 or 75 grams and above, he is playing with fire. He and Mr Lilley should note that Sweden, in liberalising its market too precipitately in 1993, has seen the cost of the standard stamp rise by 60 per cent. Everywhere else in the European Union the cost of the standard stamp declined during the same period by 2 per cent under a regime of state-owned mail delivery.

Last month, in Lisbon, EU leaders rightly called for the speeding up of postal liberalisation. But a 50-gram limit would be breaking the speed limit. The European Commission estimates that national post offices would lose 38 per cent of profits if 50 grams were the threshold. I believe that the revenues lost would be even greater if attractive mail flows were cherry-picked commercially and the universal service obligation remained the duty of governments. A 150-gram limit, to come in by 2003, is a more equitable ambition; 50 grams would be to gild the lily.

I conclude on a positive note, and one that illustrates Europe and its postal services at their best. I refer to Letternet, a scheme to get school students across the European Union to exchange letters with each other by finding new pen-friends quickly and easily. My 14 year-old daughter was offered the opportunity to participate in Letternet at a school in Chester. She and her friends have successfully done so, and now letters are winging their way par avion and Luftpost to and fro between Britain and Germany. Tellingly, the innovation was the idea of Deutschepost, the German post office. I am sure that our own postal authorities will be as imaginative as our continental colleagues in creating a Europe for all its citizens, young and old alike. This is the time and the Bill by means of which to sound the "Last Post" on Euro-scepticism, which serves only to separate people and not to bring them together—the complete antithesis of a modern, vibrant postal service which allows citizens to speak peace unto citizens across the face of a United Kingdom and a uniting Europe.

5.37 p.m.

Lord Skelmersdale

My Lords, listening to the noble Lord, Lord Harrison, I was reminded of a prep school jingle, which went: If Moses supposes his toeses are roses; Moses supposes erroneously While on the educational theme, the fourth Starred Question today was on tertiary education in the West Country. Listening to the Minister's speech, I rather wondered how, if I were an academic, I should mark it, or what comment I should make on it. I found it long on "what", medium on "how", and very short indeed on "why".

That said, the noble Lord, Lord Razzall, is right in his view that it is hardly surprising that much of the debate on the Bill, both today and in another place, has surrounded the issue of post offices, especially sub-post offices, urban or rural. This is, of course, a serious issue. It is so serious that in the time I have been connected with the retail mail order business—in which I declare an interest which I hope the rules of the House, and indeed your Lordships, will allow to last through all stages of the Bill—I have seen them decline from 22,672 to 17,255. That is a reduction of nearly 24 per cent, roughly 1 per cent a year. That is serious indeed.

There are many reasons for the reduction. Changing patterns of rural life, the growth of supermarkets—one wonders whether the noble Lord the Minister is a poacher turned gamekeeper—and more and more commuting to work are some of them. Governments, and to some extent the Post Office corporation itself, have failed to appreciate that they are a service industry: they need to provide services that people want, and to be open when people need them to be open. The Horizon project will help a little. But why is it, for example, that one does not find a post office counter open after five o' clock in the afternoon? Perhaps the Minister can tell us. I had a suspicion that this was a matter of government regulation, but I have been informed recently that it is part of the rules of the Post Office. It is certainly the fault of the Government that one cannot get a passport application form in any but a Crown or franchised post office.

The Government are also at fault in their mishandling of the issue of the payment of social security benefits and pensions. having given the impression that they will enforce payment by direct automated credit transfer into bank accounts rather than in cash over the counter. As I understand it, this is simply untrue. Like my noble friend Lady Byford, I hope that the Minister will confirm that when he comes to wind up. Whatever his answer, it comes out as a muddle, as did the proposed, and short-lived, reduction of the monopoly ceiling. It is quite likely that the intensive restructuring and promises about the corporation's financing will turn out the same way.

However, the issue of rural post offices, important though it is, had little if anything to do with this Bill. As my noble friend Lady Miller pointed out some time ago, the outcry has provided us with Clause 102. I do not want to drop boulders in tranquil ponds, but it is, after all, quite possible to run a mail service without a single post office. All one needs are collection depots, which do not even have to be in the United Kingdom. One of the reasons why the corporation has lost out in recent years is that more and more British businesses have sent their mass printing abroad. That material is then posted to individual customers in this country from foreign countries.

I agree with all noble Lords that it is high time that the Post Office was given more commercial freedom. I welcome the Bill if it works as intended. One of the current proposals is share swaps. The noble Lord, Lord Clarke of Hampstead, commented on that proposal in a very brave speech. What he did not say might well be encompassed by the phrase "his worst fears"; namely, what happens if, say, the French or German post offices, which own a chunk of British Post Office shares, are themselves privatised? In those circumstances, what happens to the shares under the Government's proposals?

None the less, joint ventures should be performed with foreign post offices. I argued for that in an article that I wrote some two years ago. I went considerably further than today's Bill and asked for a partial privatisation of 49 per cent of the shares. No government have been brave enough to go even that far, although at least on one occasion during a postal strike they went as far as to suspend the Post Office's monopoly, quite rightly. But it did not happen during the postal strike in 1971, when I was engaged to be married. I had to undergo all kinds of contortions to get letters to my future wife in Zambia. One of my friends who was a pilot posted my letters from wherever he landed. I had another friend in Ireland to whom a third would take my letters for onward transmission. I am glad that in extreme circumstances the Secretary of State can suspend the monopoly again under Clause 10.

This brings me to universal service provision. I am surprised that, as the Government claim, this Bill enshrines it in law for the first time. The Royal Mail works effectively only if there is cross-subsidisation. I doubt that anyone would send a letter to, say, the island of Colonsay in the Inner Hebrides if he was forced to pay the full cost, which I am told is about £10, but that is no reason why there should be a monopoly. I am glad that the principal job of the regulator will be to introduce competition into the current market of under 350 grammes. The £1 level is a total nonsense as it is eaten away by inflation, even in these days of low inflation. The only true point of reference is weight. Weight is equally important to Parcelforce, where there is already competition.

In passing, in my experience, that competition has not improved the service very much. My noble friend Lady Miller pointed out the continuing loss to the Post Office accounts as a result of Parcelforce. I am not clear whether the regulator is to become involved here. Will existing competing carriers have to be licensed? Will the universal service obligation apply? If the service is regionalised will it be able to apply different rates to different areas, for example the West Country as compared with the Highlands and Islands? Will an entrepreneur be able to set up a service covering only one region? These latter questions apply equally to letters and small packets as they do to parcels.

With the regulator in mind, can he prevent the total abandonment of second-class post, as an article in today's Evening Standard suggests could happen? There is to be an independent check on these matters, and many more, by the consumer council for postal services which is to replace POUNC, with which we are all familiar. But what necessitates this change? Why not simply extend its brief and give it teeth, which I fully admit are somewhat lacking in its present existence? The Explanatory Notes give no guidance on this matter or in relation to Schedule 9, which relates to repeals.

I am glad that the Minister referred to e-mail. He will recall that I have a long-running interest in Subscription Services Ltd, the Post Office's comparatively new telemarketing business. I understand that since its inception it has been prohibited by the telecommunications Acts from distributing its incoming data by electronic means; in other words, firms can send their information to the company by electronic means but the latter is not allowed to distribute it other than in printed form. Is this not now "obsolete or unnecessary" (to quote the Explanatory Notes)? It is possible—I shall discover in Committee, if not today—that that restriction is in Section 63 of the British Telecommunications Act 1981, as amended by paragraph 78 of Schedule 4 to the 1984 Act. If so, I welcome its disappearance; if not, at some point we must discuss whether the time is now right for that business to compete on a level playing field with existing businesses in the private sector. After all, Clause 110 makes clear that the corporation must make the Post Office address file available to anyone who wishes to use it. The clause does not say that it must be used for addressing mail. In this day and age that is more than a little out of date. Faxes and e-mails are just as likely to be used, or indeed required.

Despite those quibbles, the Bill is 'very definitely a step in the right direction, especially as it will, one hopes, inhibit the Secretary of State of the day from interfering as much as he has to date with the activities of the Post Office. The noble Lord, Lord Dearing, is absolutely right, and, given his experience, that is hardly surprising. "Hands off" is most definitely the cry. However, it is worrying that the scope for interference has not disappeared. The Secretary of State still has far too great an opportunity to take action by orders, only a few of which require the consent of Parliament. I hope that the Delegated Powers and Deregulation Committee will have something to say about those particular clauses of the Bill.

The history of government corporations of all kinds shows that governments run businesses extremely badly. If the Post Office must be a wholly state-owned public corporation, in the opinion of many commentators this is the way to go about it, although many who have spoken today are, to say the least, somewhat suspicious. Of course, it does not have to be. However, as my noble friend Lady Byford said in relation to another subject, that battle is for another day.

5.50 p.m.

Lord Brightman

My Lords, perhaps I may take up a moment of your Lordships' time to turn away from the substance of the Bill to the manner in which it is drafted. I refer to Clause 118, "Index of defined expressions". I congratulate the draftsman on including in the Bill this invaluable device which saves the reader so much time and trouble. He can discover immediately from the first column of the index whether a simple word such as "employee" has a special meaning or the dictionary meaning. If it has a special meaning, he can discover immediately from the second column where that meaning is to be found among the 123 clauses in the Bill.

This most user-friendly practice featured in four Bills during the 1997–98 Session; and not in one single Bill during the last Session. I submit that the device deserves more frequent consideration by the Office of Parliamentary Counsel than perhaps it receives at present. When used, it is quite invaluable.

5.51 p.m.

Baroness Sharp of Guildford

My Lords, it is my task to wind up from these Benches. Having spent part of the holiday reading the debates on the Bill in another place, I am struck by the good humour and constructive criticism of the speeches in this House in contrast to the highly politicised atmosphere in another place. As my noble friend Lord Razzall made clear, we on these Benches extend a broad welcome to the Bill. It helps to bring a major institution into the 21st century. It keeps it—as we on these Benches think fitting—as a public sector institution providing a universal postal service across the country at a uniform rate, but gives the commercial flexibility needed to compete in the age of modern digital communications, and the power to borrow directly from the market and to pursue mergers and joint ventures within limits.

In return for its public service obligation to provide a universal postal service at a uniform price, the Post Office retains, for the moment at least, the monopoly for all postal services under the £1 limit; and given the retention of that monopoly it is appropriate that this new semi-private sector organisation should be subject to regulation in that reserved area, and that there should be not only the establishment of a regulatory body—the postal services commission—to oversee competition in these areas, but also a reinvigorated voice for consumers—the new consumer council for postal services—referred to by the noble Baroness, Lady Byford.

All that we welcome. The Bill brings to an end an era of extended uncertainty for the Post Office which has already done a great deal of harm to that body and to the extended network of sub-post offices. As the noble Lord, Lord Dearing, made clear, 20 years ago when British Telecom was separated from the Post Office it was clear that if the Post Office were to compete in the new age of digital communication it needed investment and commercial freedom to pursue new markets. Far from giving such opportunities, the Conservative Party shackled it firmly within the public sector, limiting its freedom to borrow or develop its services, interfering in its pricing decisions, dictating its internal structure, milking its profits to the tune of over £1 billion and, finally, holding the threat of privatisation over it for a full five years between 1992 and 1997.

In the process it shut down 974 Crown post offices between 1979 and 1997 down from 1,508 to 606—and 3,482 sub-post offices. It was a record number of closures, the maximum, nearly 400, being between 1984—85. While we share the Conservative Party's concern about the network of sub-post offices, its defence would sound to these Benches a little less hypocritical if its record in office had demonstrated earlier more appreciation of the value of that network. It was the Conservatives who initiated the disastrous Horizon project. They were responsible for its original specification which is the cause of much of the aggro that the system faces.

Nevertheless, one cannot blame the previous government for all that has happened to the Post Office. The present Government have hardly helped matters. They dithered and dallied for over two years over this Post Office decision, finally producing their White Paper in July last year when the Select Committee to review it had been set up the previous November. In the meantime, we have again seen sub-post offices being closed at a record rate.

We think that the proposals are timid. They do not give the freedom of manoeuvre that governments in other countries have given their post offices. Let us take Holland, Germany or New Zealand. There are many examples of public sector institutions which have been given much greater commercial freedom than the Government propose to give the Post Office now. Freedom to borrow remains highly constrained. Other noble Lords have mentioned that £75 million is not a large sum these days, particularly when the chief executive officer of the Post Office has estimated that a minimum of £3 billion of investment is required. So one has to go cap in hand to the Treasury and say, "Please may we have a little more?"; and we know perfectly well what the Treasury answer will be.

It is all too apparent that substantial constraints have been put on all aspects of borrowing. As the noble Lord, Lord Dearing, mentioned, the opportunities for joint ventures and acquisitions are constrained not only by the Treasury but also by the need for affirmative resolution before the House. While we applaud that—we like open Government; we like the fact that the democratic part of the legislature will be asked to approve such matters—one must echo the reservation of the noble Lord, Lord Dearing, about the time that that may take. Such matters should not he stopped en route by the departments concerned, but brought as rapidly as possible before the House so that quick decisions can be made.

On top of those timid moves towards commercial freedom, the Government then dropped another bombshell. I refer to their decision last May to accelerate the payment of social security benefits directly through banks through the automated credit transfer system. If pursued, with one blow it effectively wipes out one-third of a staple source of the income of sub-post offices. That decision is a prime example of the lack of joined-up thinking by Government. The noble Lord, Lord Dearing, asked whether a full cost benefit analysis had been done. The situation smacks of the Treasury and the Department of Social Security being only too anxious to make savings at the expense of rural and urban sub-post offices. At a time when one of the Government's main issues relates to social exclusion, it is extraordinary that they should allow such a decision to be taken.

Having launched the Bill in another place, the Government dramatically changed course by introducing at Third Reading new Clause 102. The new clause changes the nature of the Bill, giving the Government the power to introduce subsidies to maintain the Post Office network. One cannot help but suspect that late in the day the Government have come to realise how disastrous were their decisions about the ill-fated Horizon project and the payment of benefits through the automated credit transfer. During the Third Reading in the other place, our spokesmen reiterated that time and time again.

What is promised in the new clause is vague in the extreme. We have no idea how the subsidy is to be paid, to whom it is to be paid, or how far it will help to keep open small rural and urban sub-post offices. We greatly welcome the fact that the Government accept that they may well have to pay subsidies, but that is where the transparency ends.

It is disingenuous for people to say that there have never been subsidies in the Post Office. Implicit in the whole concept of a universal provision at a uniform price is the concept of cross-subsidy. I am told that it costs eight times more to deliver a letter in rural areas than in urban areas. There has constantly been a process of cross-subsidisation and we are well used to that in all our public utility services. Telephones in rural areas are subsidised by the use of telephones in the urban areas. The same principle applies to gas and electricity.

The decision was, and remains so with the regulator, to use cross-subsidisation as a form of providing the social services, rather than having an explicit subsidy. As an economist, I have a preference for an explicit transparent subsidy, where people are subsidised for social purposes, rather than hiding that subsidy. Equally, our only example of an explicit subsidy for a public utility service is the rural bus service. Our local authorities must now pay an explicit subsidy. I do not believe that that is a happy example because one sees precisely what one fears might happen within the Post Office; namely, despite subsidies, the total collapse of rural services. However, I make that point as an aside.

My colleagues here and in another place have consistently argued in favour of retaining the universal public service obligation for the Post Office because we recognise the importance of the postal services to all communities in the country. We have been consistent in arguing to retain the higher £1 limit on the monopoly, at least until the regulator has had an opportunity to assess the situation. We have been consistent in arguing that the payment of all benefits through ACT should be delayed until the completion of the Horizon project and that the sub-post offices are linked into the system through which benefits can be paid. Like the noble Lord, Lord Skelmersdale, my reading of the situation is that there is no need for people to receive their benefits by automatic payment. As the Minister in the other place reiterated several times during the debates, it is open to people to continue to have their benefits paid directly to them at the local post office. Therefore, it is up to people who claim benefits to keep their post offices open and it is important that that is made known to them.

We on these Benches have been consistent in arguing that the whole process should be delayed until sub-post offices can play an active part in the new financial services network. We have been consistent in supporting the role of the sub-post offices in both rural and urban communities as focal points of community activities. Therefore, I join my noble friend Lord Razzell in asking the Minister to reassure us that this Bill is not the beginning of the slippery slope towards privatisation; that the Post Office will be kept in the public sector; and that within its framework we shall retain our network of sub-post offices.

6.4 p.m.

Lord Northbrook

My Lords, the Postal Services Bill provides for the Post Office to be converted from a statutory corporation to a public limited company, ownership remaining with the Crown. The Bill introduces a new system of licensing arid regulation for postal services or providers operating in the area of the market currently reserved largely as a monopoly for the Post Office.

The Bill gives the independent regulator, the new postal services commission, new duties and powers to protect the interests of users of postal services. In particular, it enshrines the universal service obligation in primary legislation and makes it the duty of the commission to ensure the delivery of this service at a uniform tariff.

Subject to that duty, the commission is required to further the interests of users, wherever appropriate, by the promotion of greater competition in postal markets. The Bill states that the commission will be able to promote competition through recommending changes to the scope of the reserved area and by permitting licensed competition within it.

The commission will also have responsibility for setting quality standards and regulating prices. Consumers are in theory given greater protection through replacing the Post Office Users National Council with the consumer council for postal services. The creation of that body brings consumer representation in the postal services market in line with the provision for other utilities.

We on this side of the House, while giving the Bill a cautious welcome, believe that it offers a confused half-way answer. The Government have failed to give the Post Office the freedom it needs to compete against its international rivals. Without full commercial freedom, the Post Office cannot take advantage of being the most efficient postal service in the world. We welcome the decision to grant plc status but regret the 100 per cent retention of public ownership.

We believe that the Government should have sold at least 51 per cent of the shares, enabling the Post Office to compete, particularly with Dutch and German post offices, on a level playing field. As was stated in the Economist last year, in a commentary on the White Paper which laid the foundations for the Bill: The results are an uneasy and probably unworkable political fudge. The Post Office is to be converted into a public limited company but with only one shareholder: the Government. Inside the Blair administration there is a split on whether this should or should not lead to privatisation". In addition, the Government have backtracked on plans to reduce the Post Office's legal monopoly over deliveries from £1 to 50p. The noble Lord, Lord Harrison, mentioned the Lisbon summit which asked for greater freedom for national postal services. The Government started out on that path, but they have backtracked. The saga was quite extraordinary. In December 1998, Peter Mandelson proposed the phasing out of the Post Office's monopoly over letters costing less than £1.

The 1999 White Paper proposed that the Post Office's legal monopoly over deliveries costing less than £1 should be reduced to 50p and in July 1999 a statutory instrument was laid on that. However, in October 1999, a second statutory instrument was laid, the effect of which was to reverse the first. The decision on the future of the reserved area will now be taken by the new postal services commission. We believe that the failure to privatise fully and go below £1 on the monopoly is due to worries about the reaction of the Post Office workers' unions.

Another of our concerns—and I echo the comments of my noble friend Lady Byford—is that the Bill offers little comfort to those threatened with losing their livelihood following the decision to switch benefit payments to automatic credit transfers. That threatens the future of 18,500 sub-post offices and has caused the introduction of the new clause, Clause 102. As my noble friend Lady Miller of Hendon and the noble Lord, Lord Dearing, stated, we do not know how the subsidy will work or whether it will be permanent or temporary. We support the National Federation of Sub-Postmasters in its desire for income, not subsidies, for sub-post offices. As the noble Lord, Lord Dearing, stated, there is no security in subsidy.

As has been stated, benefit payments account for approximately £400 million of income—one-third of Post Office Counters' turnover. Of the 18,500 sub-post offices, only 10,000 are commercially viable. At this point, with regard to the comment of the noble Baroness, Lady Sharp of Guildford, about sub-post office closures under the previous Conservative administration, perhaps I may set out the figures for the record. Between 1979–80 and 1996–97, an average of 143 sub-post offices closed annually. Between 1992 and 1997, 99 sub-post offices closed annually. However, in the first two years of this Government the annual figure was 235 closures a year. This year, that number will exceed 500.

The change to the benefit payment system will alter the finances of so many sub-post offices. I do not believe that the Government will subsidise each and every one that experiences financial difficulty. Closures will result and due to those will be lost a focus of the local community. People go to their sub-post offices not only to buy stamps but also to shop for other items. Therefore, as other noble Lords have done, I ask the Minister to explain how the subsidy system will operate in detail in order to reassure those sub-post offices whose livelihoods may be threatened.

I should also be grateful for a response from the Minister regarding other financial considerations. First, can he assure the House that there will be transparency in the accounting structures to ensure that there is no undue hidden cross-subsidy from monopoly to non-monopoly areas within the Post Office? Secondly, how will it be possible for the Post Office to enter into a joint venture or strategic alliance with another company by way of a limited sale or exchange of equity, as detailed in Clause 67? The Bill would seem to allow for such a disposal, but how would it work in practice? Thirdly, what will be the rate of interest, mentioned in Clause 68, charged on loans taken out by the Post Office? Will it be a commercial rate, as the noble Lord, Lord Clarke of Hampstead, stated? Clause 68(2) states that it will be, at such rates as the Secretary of State may, with the approval of the Treasury, direct". In summary, we give the Bill a cautious welcome, but in particular we are concerned about the effect of the switch to ACT, which threatens the survival of thousands of sub-post offices across Britain, and which, as the noble Lord, Lord Dearing, said, is a cost to society.

Finally, as many noble Lords have said, we wait for the PIU report.

6.13 p.m.

Lord Sainsbury of Turville

My Lords, it has been a privilege for me to listen to what has been an extremely interesting and, indeed, well-informed debate. Once again, I believe that it has proved the strength of feeling that exists in this country with regard to the valuable service provided by the Post Office. This debate concerns how we ensure that it continues to provide that valuable service while at the same time responding to the major challenges and opportunities that confront it.

I am particularly grateful for the many comments from noble Lords who welcome the introduction of the Bill. I now deal with some of the points raised. I am delighted that the noble Baroness, Lady Miller, feels able to give the Bill a cautious welcome and, indeed, will approach it in a constructive manner. I felt that her criticisms were somewhat half-hearted, but I attribute that to the excellence of the Bill.

I deal, first, with the question of what I believe is currently called "regulatory creep"; that is, the issue of information required by people who are not in the licensing system. We have been concerned to provide for the regulator to have all the necessary powers to ensure the delivery of the universal service and, indeed, to promote competition and the interests of consumers. Many of those powers will simply replicate those previously exercised by the Secretary of State or the Post Office in relation to the monopoly area. There are only minor requests about information with regard to the area outside the licensing area. Therefore, I believe that there is no need for concern on that particular front.

One of the major themes of the debate has been the impact of the new ACT system. However, that does not form part of this particular Bill. The reason that we have had to take action on that matter is to clear up what has, rightly, been pointed out to be an entirely misconceived system which the previous administration introduced in a great hurry. It was well behind schedule and was believed by most people to be undeliverable.

Baroness Miller of Hendon

My Lords, perhaps I may say that we are talking about the Horizon project, to which I assume the Minister refers. On several occasions, until the last minute, government Ministers said that it would be delivered and that it was a very good service. In the end, they found that they could not deliver it. That is all. When the Minister says "misconceived", I say that it was equally misconceived by Ministers on the other side. However, I do not accept that it was misconceived.

Lord Sainsbury of Turville

My Lords, I believe that it is now generally considered to have been misconceived. The Select Committee in another place was very clear about that. Perhaps we should have spotted earlier that it was in trouble. However, it is now generally considered that it was undeliverable and would not have worked.

In that connection, I wish to make the point that we have a simple choice with regard to the Post Office systems of updating them to ones which are based in the end of the 20th century and using those systems to replace ones which were appropriate to the first half of the 20th century. The idea that we should allow the Post Office to go forward in the future with the paper-based systems which currently exist seems to me to place the Post Office in a totally defensive arid unacceptable position, particularly with regard to gaining new business.

Of course, one can always effectively subsidise a business by keeping and continuing to fund totally antiquated and labour-intensive systems. However, with all due respect to many noble Lords who have spoken on that issue, I hardly believe that that is a way to provide Post Office Counters with the means to deal with the future. We must give it modern systems which enable it to obtain new business and play a new role in the rural communities. As the noble Baroness, Lady Miller, said, it is not a question of taking away the profitable business and giving it to the banks; it is a question of bringing it up to date with the kind of systems that we should have in the 21st century.

I turn to a matter which, again, I believe has dominated this debate; that is, Clause 102. I believe that it had been made very clear that this is an enabling clause which will enable us, if necessary, at a suitable time in the future to produce a scheme to subsidise the post office network. It is not proposed to use i t at present and we have not tried to put in place a system of subsidy which would not be appropriate at this stage.

Finally, the noble Baroness, Lady Miller, raised the question of the Post Office's structure. We have put forward a structure which is necessary to enable the Post Office to compete in this new world of international competition, rather than searching for ideological purity which means that we must have at least 51 per cent in the private sector.

The question of transparency of accounts is covered by the European Postal Service Directive. That will cover the question of cross-subsidy. There will, therefore, be total transparency on that issue. A final point needs to be made in this context. It has been pointed out that Treasury consent is necessary for the borrowings. This is a simple and uncomplicated provision. Most financial provisions have it in one form or another.

I turn to the comments of the noble Lord, Lord Razzall, who described very well all the issues that need to be covered in considering the kind of structure that is appropriate for the Post Office in the future. The noble Lord suggested that the way to resolve all these issues is effectively to keep it within the public sector and with a public sector structure. I find it difficult to see how that would resolve the problem of how to keep a public sector influence in a body which also has a commercial one. Therefore, while his description of the issues was extremely good. I am by no means convinced by his argument. He certainly did not put forward any reasons to suggest that this would resolve any of the tensions which inevitably exist in such an organisation and which are reflected in structure between the public sector aspects and the purely commercial ones.

The noble Lord, Lord Razzall, raised two fundamental issues with which I shall deal. The first concerned the question of the national network. We are determined to maintain a national network. This Government have, for the first time, publicly laid down the criteria for access which will enable that statement to be properly judged. It is a major step forward. It is, of course, very easy to say, "We support a national network", without knowing what it means. For the first time, we are laying down criteria as to what it means.

Another theme that has run through this debate is the status of the Post Office and the question of privatisation. I again make it quite clear that the Government have no plans to privatise the Post Office. It will remain publicly owned. When publishing the White Paper, the Secretary of State promised that the Government would not seek to dispose of Post Office shares without further primary legislation, except where limited sale or exchange of equity would be in the interest of the Post Office to cement a joint venture or strategic alliance with another company, in which event the approval of the Houses of Parliament would be required. That is a very clear and unequivocal statement about where we stand on that particular issue.

I turn to some of the points made by the noble Lord, Lord Dearing. The noble Lord, Lord Dearing, knows more than anyone in this House about the Post Office and, moreover, played an enormous part in reinvigorating the organisation when he took over as the chairman. I can assure him that we will make certain that the balance sheet of the Post Office is commercially sound. Indeed, there is no point in having a plc unless we give it that strong balance sheet as a basis for going forward. As was announced in the Statement to the House in 1998 and restated in the White Paper in July 1999, the Post Office's balance sheet will be restructured by 1st April 2002, in order to place the Post Office company on a more commercial footing so that it can be better benchmarked against its competitors. We are employing advisers to help us make that transition. However, I certainly take the noble Lord's point, of which the DTI is very conscious, that we have to make certain that commercial decisions are taken speedily and that the whole basis for the relationship will depend on a hands-off stance being taken by Ministers.

In relation to the question of cost of ATC, there is no question of cost being transferred to those who receive the benefit. People will, in exactly the same way, be able to get payments at their post offices in cash, without deductions from them. That obviously will depend on them not using any of the other banking services. They can continue to get benefits from the Post Office in cash in the normal way.

Baroness Byford

My Lords, perhaps I may press the noble Lord on that issue. I appreciate his response to the many questions that we have raised. The question that has been raised relates to how people will get their money. If there is to be no book or giro, how can they get hold of the cash? That is the unanswered question. If I have interrupted too early, I beg the Minister's pardon.

Lord Sainsbury of Turville

My Lords, there may be a question of how the identification is established. However, as I understand the system, the money will simply be transferred into an account at the relevant post office. In that sense, they will simply have to go and draw it from that account. It is a system by which the payment is sent out to them and they can claim it at the Post Office. In case I am in any way wrong about this, I will check that point and write to the noble Baroness. It is a point which appears to cause a lot of concern. As I understand the system, it will be possible to withdraw the cash from the Post Office, in the same way as is possible at present by using a book. However, I will check that point and confirm it by letter. It is clearly a point of considerable interest and concern to people and it would be helpful if that point were established.

The savings which will accrue from this system, as was mentioned, will be very substantial. Indeed, the ability to control fraud, which is calculated to cost £140 million per year, will also result in a substantial saving from this system. I cannot see any way in which those very substantial savings could be lost in other aspects of the system. The question that has been raised is whether the pressure on the finances of the post offices that we seek to close might have a social cost which has to be taken account of in relation to this system. I still feel that it is inappropriate, in those circumstances, to say that we shall maintain what is seen to be an inefficient system involving a lot of work in post offices and that supports their finances. That is simply another way of effectively giving them a subsidy. It is inefficient and not very cost effective.

I turn to the comments made by my noble friend Lord Clarke. We have made it clear that pensioners and people in receipt of benefits will get them in cash. As far as I can establish, the figures that he presented are essentially correct. However, I do not want to comment on the question of the pension holiday for the post office, because that clearly would depend on actuarial valuations. Many of the questions that he raised will have to be taken account of in the final structuring of the balance sheet. It is, of course, difficult to make comparisons without looking at the final balance sheet, which obviously is unlikely to include the strange arrangement of a lot of government gilts which are earning interest for the Post Office. That will have to be accounted for in the restructuring of the balance sheet.

I believe that there are huge advantages to having the Post Office as a plc, if it is to maximise opportunities abroad. In many cases, it will be dealing with foreign companies and with bankers who are used to the concept of a plc and are not necessarily aware of all the ramifications of what a state-owned enterprise will be. Therefore, the fact that it is a plc will make much easier any investment and banking arrangements. It makes a great deal of difference in clarifying the relationship between government and the plc, if it is a plc, because that has very clear responsibilities which are understood by everyone on the board.

As regards the cap, we need to maintain the maximum flexibility to enable the Post Office to develop its business in the most commercial manner appropriate. It is quite likely that if there were to be joint ventures, they would take the form which my noble friend Lord Clarke mentioned; namely, putting together assets which would not necessarily involve the holding company's shares being sold.

My noble friend is correct in wondering whether 10 per cent or 11 per cent is the better figure. I do not believe that we should get into that kind of auctioning of figures. This proposal is very carefully constrained. The Post Office must come forward with a proposal and that must be agreed by both Houses of Parliament. That provides a tight control over the situation.

The noble and learned Lord, Lord Brightman, made some complimentary remarks about the work of parliamentary counsel which I shall happily pass on. It is not a channel of communication which is overflowing with compliments and I am sure that they will he delighted that their excellent work has been noted by such a distinguished lawyer.

The noble Baroness, Lady Sharp, referred to reaching agreement for borrowings. In most commercial situations, if companies are borrowing large sums of money, they have to go to talk to people—rating agencies, bankers and others. Even in the world of commerce, some discussions must take place before large sums of money are raised. The Government have given an extremely clear assurance in the White Paper that there will be a fast-track 28-day approach to approval of large investments of over £75 million. That was employed for the approval of the purchase of the German parcel operation. So it is quite clear that that can be done if the will is there to do it.

I turn to the points raised by the noble Lord, Lord Northbrook, about the structure. I see no reason why there is anything magic about 51 per cent of the shares being sold. If it can be done on the basis of 100 per cent ownership by the Government, I am not sure why 51 per cent in the private sector enables it to compete better; for example, against the Dutch post office.

As regards the reduction of the Post Office monopoly, the Select Committee in another place suggested, after the Government made their announcement, that that should be the first job of the regulator. We listened and agreed to that.

Finally, the interest rates will be commercial rates, but they will take account of the fact that there is government backing for the Post Office.

The Government believe that they have chosen the best way forward for the Post Office and its customers and, indeed, for the country. They are seeking to implement the reforms as quickly as they can. The greatest disservice and damage we could do to the Post Office is to cause further delay.

By implementing the reforms set out in the Bill, the Government are confident that they will put in place the means to deliver a Post Office which meets the needs of its UK customers, both business and private consumers, effectively and efficiently; a Post Office that can compete in international markets as a major overseas postal service provider; a Post Office that can develop its business and invest for the future; and most important, a Post Office which protects its social obligations and the principles of universality, accessibility and affordability, providing a world-class service throughout the United Kingdom.

Lord Skelmersdale

My Lords, before the Minister sits down, various points were made by noble Lords which he has not had time or, perhaps, the inclination to answer this afternoon. Will he give us an assurance that he will write to noble Lords on those points?

Lord Sainsbury of Turville

My Lords, certainly. If noble Lords feel that I have not covered any points which they have raised and would like me to do so before the Committee stage, perhaps they will let me know and I shall write to them about those matters. I shall certainly read the debate in Hansard and try to pick up any points which I have not dealt with. I commend the Bill to the House and ask it to give it a Second Reading.

On Question, Bill read a second time, and committed to a Committee of the Whole House.