§ 9.2 p.m.
§ The Minister for Science, Department of Trade and Industry (Lord Sainsbury of Turville)
rose to move, That the draft order laid before the House on 28th February be approved [10th Report from the Joint Committee].
The noble Lord said: My Lords, this and the following order put in place the final planks of the new postal services legislation and complete our programme of Post Office reform. The Postal Services Act will change the nature of the Post Office by transforming it from a statutory authority into a plc owned by the Government. This will underline the greater commercial freedom we have given it to enable it to compete more effectively in a changing communications market, fulfilling the promise we made on coming into office four years ago.
The new Post Office company will be better able to provide the efficient postal services that we need to support the business and social life of the nation. At the same time, the current postal monopoly will be replaced with a licensed area, to be regulated by a new independent body. These changes fundamentally alter the postal services market in Britain and pave the way for greater competition and higher standards of service to consumers throughout the whole country.
The Post Office company will no longer receive its authority for the delivery of post from a statutory right but from a licence negotiated with an independent regulator. That regulator—the Postal Services Commission, or "Postcomm", as it calls itself—has a primary duty to ensure that the universal service obligation, the delivery of post to every address in the UK at a uniform tariff, is maintained.
1521 Postcomm also has the option to license other companies to operate in the licensed area. It could even designate other postal operators as providers of the universal service, or parts of the universal service, where currently the Post Office is the only designated universal service provider.
The Postal Services Act 2000 (Consequential Modifications No. 1) Order, though extensive and in parts highly technical, is based on a simple premise: updating old legislation to take account of the new regime established by the Postal Services Act 2000. The Post Office, its functions and services are referred to in many Acts and statutory instruments. This order makes changes in such legislation to the references to the Post Office and its services in order to reflect the change in the market and the creation of the new company.
In many cases, there is no longer any justification for limiting the provision of services, such as the delivery of documents, to the Post Office. Therefore, we propose that in those cases references to "the Post Office" are amended to become references to "a postal operator", which is defined in Section 125(1) of the Postal Services Act and includes all postal operators.
That introduces an element of choice in terms of the service provider. The Post Office is given special rights and privileges by legislation because of its provision of the universal postal service; for example, rights and privileges granted to statutory undertakings in relation to planning or the compulsory acquisition of land.
Under the new regime, it will be possible for Postcomm to designate other operators besides the Post Office to provide all or part of the universal service. Therefore, we propose to replace references to "the Post Office" where they relate to rights and privileges which affect the universal service obligation with references to "universal service providers" in connection with the provision of the universal postal service.
It would be only fair that any operator who is given the same social obligations as the new Post Office company will be given the same rights and privileges which would allow it to deliver a universal service. References to "the Post Office" which are no longer relevant to a plc or the services it provides have been repealed.
In a very few cases we propose that the term "Post Office company" be used to replace references to "the Post Office'. This type of amendment is used when the legislative provision in question relates to a specific service that only the new Post Office company will provide, such as postal orders. Some references to "the Post Office" have been retained. These are mainly historical references which confer rights that it is desirable to keep. For example, being a tenant of a public sector landlord can allow an individual to acquire certain rights. We would not wish to remove the time served as a tenant of the Post Office from counting towards the acquisition of such rights. Therefore, such references have not been amended in the order.
1522 The order also makes provision for references to "second-class post", which is a term specific to the Post Office, to be interpreted to generic references which could apply to the services of other operators. Existing and future references to "second-class post" in legislation will be deemed to be references to a postal service which seeks to deliver documents and other things no later than three working days after posting.
Similar deeming provisions in Schedule 9 paragraph 8 to the Postal Services Act amended other Post Office specific terms, such as "by post", "first-class post", "recorded delivery" and "registered post".
The order also makes the transitional, saving and supplementary provisions which are required to ensure that there is a smooth transition from the previous regime to the new one.
This order is a practical and necessary step towards the greater commercial freedom for the Post Office and the greater choice and service for the consumer that we all desire. It is essential to ensure that the existing body of legislation that refers to postal terms operates effectively under the new regime. I commend the order to the House.
I turn to the second order. It is important to remember that the creation of an independent regulator was one of the main features of the Postal Services Act 2000. The regulator (the Postal Services Commission, or Postcomm) is responsible for granting licences to operate in the licensed area and is able to include certain conditions in a licence. Where the Commission is satisfied that a licence-holder has contravened, or is contravening, any condition of his licence, the Commission may impose on the licence-holder a penalty of up to 10 per cent of its turnover. The order before us today specifies the way to determine the turnover of a licence-holder for the purposes of ascertaining the maximum penalty. It is an important step towards giving the Postal Services Commission teeth to police the new regime successfully.
I should stress that this order determines turnover for the purposes of calculating the maximum penalty. The actual penalty imposed would be determined by the Commission in the light of the circumstances of the contravention. The purpose of the Act was to create a strong and independent regulatory regime. That is why the Act was not prescriptive in relation to fines. However, the limitation was introduced in view of the support expressed strongly in this House last summer during the passage of the Postal Services Bill and the Utilities Bill for a stated limit on penalties.
The policy behind the order has been developed with the aim of fairness and not imposing an undue burden on licence-holders. A consultation document on the proposed approach was published and put on the DTI website on 19th December, and interested parties were notified simultaneously. The department is grateful for the three responses received.
The key matters covered in the order are the period to which the penalty should relate and the business to be covered. The period chosen is the financial year preceding the date on which the Commission gives 1523 notice of a proposed penalty. When there is no preceding financial year, the turnover of the current financial year, up to the date on which the Commission gives notice of a proposed penalty, will be annualised. The order also provides for multi-year penalties. If a contravention continues for more than one year, but less than two years, the relevant turnover will be the annual turnover multiplied by two. If the contravention continues for more than two years, the relevant turnover will be the annual turnover multiplied by three.
The business from which annual turnover is derived is the services which the licence authorises the holder to provide. A number of alternative definitions were considered but ruled out on the basis that they would introduce the possibility of unfair treatment or encourage artificial organisational structures. This is especially the case in the postal services market which is only partly regulated. For example, it was considered that it would not be appropriate to impose a penalty for breaches of a licence condition that is in proportion to the whole of a company's business as the company may have substantial postal business for which no licence is required, or indeed substantial non-postal business. We do not believe that it would be just if two licensees doing similar amounts of business faced vastly different penalties because one of them had substantial other business.
During the debate on Monday in Committee in the other place a question was raised in connection with article 2 of the order. The Liberal Democrat spokesman asked what would happen in the case of a breach of the licence which the Commission considered had lasted for exactly two years. He thought that that fell within neither paragraph (2), which deals with breaches lasting more than one year but less than two, nor paragraph (3), which deals with breaches lasting more than two years.
In reviewing the draft order in the light of those comments, we have concluded that there is a minor glitch in the text. As a result, a breach lasting exactly two years would fall to be dealt with under paragraph (1). That is not what is intended, and I apologise to the House for the error. But the situation that it deals with cannot occur until at least two years after the start of the licence regime, and we propose to introduce an amendment as soon as convenient to remedy this. Apart from that, I assure the House that we are satisfied that the order will operate perfectly effectively, so we propose to proceed with the draft order which enables the Postal Services Commission to make use of the powers to impose financial penalties, should the need arise, from the outset.
In conclusion, noble Lords have before them today an order which specifies the way to determine the turnover of a licence-holder for the purpose of ascertaining the maximum penalty in a fair and pragmatic way. I commend to the House both that order and the Postal Services Act 2000 (Consequential Modifications No. 1) Order 2001.
1524 Moved, That the draft order laid before the House on 28th February be approved [10th Report from the Joint Committee].—(Lord Sainsbury of Turville.)
§ Baroness Miller of Hendon
My Lords, I thank the Minister for his clear explanation of the two orders. Last Wednesday the consequential modifications order was presented to me with the suggestion that it should be debated last Friday. The order is some 54 pages long. It amends an 111-page Act which contains 131 clauses and nine long schedules as well as diverse other Acts and regulations which I have not managed to count.
Therefore, I was most grateful to the Government Whips' Office staff for immediately agreeing to postpone our consideration of the provisions until today. Even so, I must confess that I have not had sufficient time to do a thorough job of examining and doing justice to the provisions. Perhaps the Minister is more than happy that I have not gone into the detail and crossed every "t" and dotted every "i".
The Government will recall from their long time in opposition that the Opposition do not have the same resources as the Government to cope with a torrent of legislation. I do not complain about that, except very mildly, because that is the way that it is. I trust that on future occasions the Government will do Parliament the courtesy of ensuring that far longer notice is given.
These orders amend an Act passed only nine months ago after extensive debates in both Houses. The Act contained powers for the Secretary of State to amend it and any other primary legislation by order. We warned Parliament that by legislating in this way enactments would not receive the full scrutiny that they would get if they were primary instead of secondary legislation. This instance where these orders have come before Parliament at very short notice is clear proof that happens. It is happening far more than it should if we are to do justice to these Acts.
The principles of the Act were supported by the Opposition. During the passage of the Act though Parliament, we sought only to make constructive amendments. I understand that the Minister in the other place told honourable Members that the amendments were drafting or consequential amendments. On first sight, that appears to be the case—for example, substituting "postal provider" or "universal postal provider" for the words "post office" in various Acts and regulations, as described by the Minister, when he presented the order just a few moments ago. We accept the good faith of the Government's description of the contents of these orders. We agree also that they are simply highly technical. In those circumstances, we shall not oppose the making of these orders.
I turn to the second order, which deals with the determination of turnover for penalties. Among the provisions that we supported during the welcome passage of the Act was the very important appointing of a regulator. To be able to perform his duties, the regulator needs strong powers. That in turn necessitates his having strong powers of enforcement.
1525 These orders provide power to impose fines. Those fines can be very severe. They are based on up to 10 per cent of the offending company's turnover, not its profits.
My honourable friend the Member for Hertfordshire South West, while discussing these same orders in the other place, described the penalty of 10 per cent of turnover as draconian. The Minister simply dismissed the matter by saying, "Well, it is in the Act". That is a little rich coming from the Government, given that the Bill, as presented, did not say "10 per cent" but "unlimited" penalties. The Minister will remember that I tried to curtail the "unlimited" element by proposing an amendment that followed the words in the Government's own Competition Act 1998, which would have capped the penalties at 10 per cent of turnover. As the Minister will recall, that was not accepted by this House, but I see that it now appears in Section 30(2) of the Postal Services Act. So draconian it may still be, but not as draconian as it might have been if the Government had not decided at a later stage to take my suggestion on board.
Considering the potential size of the business, the fines will possibly run into millions of pounds. If the offending company's profit is just a minimal percentage of turnover, such draconian fines could easily, to the extreme prejudice of not just itself but also its customers and suppliers, wipe it out.
I find the definition difficult to follow in two respects. I apologise to the Minister for that, because I know that he tried to explain the matter a few minutes ago. I am still not very clear. Therefore, I shall ask him to answer a couple of questions. The maximum fine is up to 10 per cent of turnover for a simple breach of the terms of the operator's licence. If the offence continues for two years it will be 10 per cent of two years' turnover. What is not clear is whether the 10 per cent includes the whole of the second year's turnover.
I have a second question. If the offence lasts for 364 days and the fine is 10 per cent, what would happen if a second year lasted for only a year and a day? Would the offender still be subject to a fine based on two years' turnover for an overrun of an extra two days? That would be double the penalty, possibly running into millions or tens of millions of pounds, for just two extra days. I should be grateful for an answer to that question. My honourable friend the Member for Hertfordshire South West asked a similar question in the other place. Unfortunately, he did not receive a clear answer. Therefore, can the Minister give me some clarification?
It also seems that the offender will have the right of appeal. However, will the Appeal Court interfere with the regulator's exercise of its discretion about the level of a line, or will it insist that it will deal only with issues of fact? I hope that the Minister will be able to clarify that point as I find it quite complicated.
I wish to raise one other matter. I had not intended to raise it but I shall do so now. The Minister referred to a glitch. Has an amendment been brought forward to put the matter right? I note that the Minister is 1526 shaking his head, which I imagine indicates a "no" rather than a "yes". Perhaps when he comes to reply he can say what the position is so that I can have it in Hansard.
Apart from those queries, we are not unhappy with the Act or with the provisions to enforce it. Therefore, we shall not oppose the making of the order.
§ Lord Sainsbury of Turville
My Lords, I think that the noble Baroness should actually have thanked me for not giving her the time to read all the consequential amendments, because exciting reading they are not! However, I take her point that even when amendments are rather technical and consequential, it is important that every noble Lord should have enough time to peruse them. It is perhaps unfortunate that the mistake occurred not in the 54 pages but in the two pages of the determination of turnover penalties.
The 10 per cent ceiling was suggested by the noble Baroness. While we did not immediately accept it, I accepted it at a later stage of the Bill's passage through the House. I shall explain how it works. For the first year, it applies to the turnover of one year. Between one year and up to two years—it was framed as "up to two years"—it is on the one year multiplied by two. That is done in order to make this as simple as possible and not have accounts for shorter periods. For up to two years it is double the first year, but for just the precise moment of two years, that is not included. We shall introduce an amendment—we have not yet done so—so that up to two and including two is doubled. Only if it goes over two years and above is there a possibility of it going to three times. I am afraid that it is quite complicated in that sense, but the way that we will be expressing it is the right way. In the very unlikely circumstance that it did fall on two, it operates to the advantage of the company, because it then reverts just to the turnover for one year.
The penalty is set by the Commission and the order provides a ceiling to it. The penalty set must be reasonable. Therefore, in the Appeal Court the reasonableness of the decision can be queried. So it is not simply a question of judicial review. No amendment has been put forward, but we shall do that to cover what is a very remote possibility, which, of course, could not happen for two years.
The two orders complete the new legislative and regulatory framework that we need for the modern Post Office company and the changing postal services market.
§ On Question, Motion agreed to.