Consignia

HL Deb 13 February 2002 vol 631 cc1098-138

3.11 p.m.

Baroness O'Cathain rose to call attention to the future of Consignia, its financial problems and the services it provides; and to move for Papers.

The noble Baroness said: My Lords, this is a highly topical debate. In fact, it is much more topical than I would ever have thought when I tabled the Motion. Consignia and several serious issues concerning that organisation are commanding headlines and many column inches in our daily dose of media. The organisation's main financial problem, of course, is that it is currently losing €1 million daily and that it is just about to announce, or so we are told, significant job losses. The main issue concerning the services that Consignia provides is the very recent publication by the Postal Services Commission—known as Postcomm—of proposals to liberalise and open up Consignia to competition.

The debate's additional topicality is due to the fact that the leaders of Britain's 145,000 postal workers are meeting today to decide whether to take action, which could take the form of anything from work to rule to a national strike, as part of a campaign to win a 5 per cent pay rise. Indeed, the announcement of how the Communication Workers Union intends to react to the overwhelming vote for industrial action is likely to be announced even as we take part in this debate. As I said, little did I know how topical the debate would be when I tabled the Motion.

Morale among Consignia's staff is said to be at rock bottom, as is manifest by the recent decision of postal workers. However, the decision is not due solely to the demand for £300 per week. There is also widespread frustration that Consignia seems to have reneged on proposals in the document Way Forward to introduce five-day per week working by the end of 2001. The latter point has resulted in resentment that major sorting offices operate a five-day work roster whereas staff in local post offices who organise the collection and delivery of mail are still on a six-day roster.

The users of the postal service are deeply concerned not only about the threat of industrial action, but also that the Postcomm proposals currently being introduced, but with a relatively tight time-frame for completion, will put the service's future in jeopardy.

Almost inevitably, having been a monopoly supplier in the public sector for longer than probably any other nationalised industry ever, Consignia has an overburdened cost structure, a reluctance to modernise its work practices and a general inertia leading to a wish to continue doing things as they have always been done. To the "concerned outsider", it seems that little importance is placed on producing a radical long-term strategy for the organisation.

The National Audit Office report entitled Opening the Post, published almost three weeks ago, is a brilliant exposé on the enormity of the risks posed when a monopoly nationalised industry is effectively opened up while remaining in the public sector. A daunting task awaits. However, try as I do to be positive about the opportunities facing Consignia my analysis of the National Audit Office report has left me believing that if the plan fails there will have to be state handouts for Consignia.

Are the Government sure that they want to go ahead along the lines proposed and within the suggested lime frame? Do the Government subscribe to the view that there might have to be a "universal service support fund", as mentioned in paragraph 2.39 of the NAO report? Indeed, do the Government have confidence that Postcomm's proposals will lead to Consignia's return to profit? I ask the Minister those questions not to score political points but because of a genuine concern that the proposed changes will neither improve service to customers nor return Consignia to profit.

The Postcomm proposals have caused much concern: first, among some of us who wonder whether the universal service will suffer and whether there will be a mad rush into cherry-picking, with the inevitable consequence that a residue of non-viable services is left with Consignia; secondly, among service users, particularly in rural areas; and, thirdly, among the elderly who rely on the local post office for pension and other benefits. In small villages, post offices are sometimes combined with small shops. The proposals therefore also concern non-car drivers in rural areas who rely effectively on their "corner shop" to obtain shopping items. Finally—although they are one of the most important group—the proposals concern Consignia staff.

Allan Leighton, the chairman of Consignia, who has an enviable track record as an astute and successful business leader, has described Postcomm's plans as,

"death by a thousand cuts".

Although that language may seem somewhat exaggerated, given its source, the comment must cause unease among all of us who rely on an efficient and effective postal service and particularly among those of us who have a responsibility to ensure, so far as we can, that proposed legislation meets its objectives.

My view may strike some of your Lordships as an attempt to stem the tide of progress by putting a small finger in the dike and as a display of antediluvian tendencies. Others will feel that I am ignoring the fact that much of the business that previously relied on the provision of a good postal service is now transacted at split-second speed through cyberspace. I yield to no one in my admiration for developments in electronic business, and I am a daily user of e-mails, faxes and telephones, both conventional and cell, but all those are adjuncts to daily use of the postal system, not a substitution for it.

Without an efficient postal system my personal productivity would be greatly impaired. Indeed, I think that it would be extremely difficult to find anyone who would say that they could do without the post. One has only to remember the inconvenience and upset caused by previous postal strikes to realise the importance of the issue. Sadly, one does not have to go far back in the recesses of one's memory to recall such times.

Postcomm has two main statutory duties under the Postal Services Act 2000: to ensure the provision of a universal postal system at an affordable and geographically uniform price; and to further the interests of postal users wherever appropriate by promoting effective competition. Although both aims are worthy and desirable, I worry whether they are achievable without enormous cost in terms of deteriorating service levels, particularly in relation to achieving the universal postal service obligation.

Sometimes I fear that we are guilty of seeing everything as a much hyped-up extension of' our own experience. Those who live in the big cities have the expectation that their mail will reach them early in the morning, and those in rural areas have the same expectation. However, neither group really analyses the practical consequences of that expectation.

I have some experience in the sphere of statutory obligation to provide a universal service throughout England and Wales, and I know that providing such a service is not easy. When I was managing director of the Milk Marketing Board of England and Wales—which is now defunct as it was ultra vires with the Treaty of Rome; I see that the noble Lord, Lord Stoddart, is not in his place—I had the responsibility of ensuring that every drop of milk produced by every cow in England and Wales was collected daily from each farm.

The milk had to be tested and sold on to the dairies and creameries to provide fresh milk on the table and the raw material for the producers or processors of cheese and butter. I refer to providing fresh milk on the table to 19 million households which was a logistic exercise in itself. There, I am afraid, the similarity ends in so far as there were only some 30,000 or so dairy farms, not 21 million establishments waiting eagerly for their mail. But that experience has given me some inkling of the highly complex nature of the logistics of postal collection and distribution.

Under the Postcomm proposals, opening up competition to the most profitable sectors of Consignia—namely, bulk mail above 4,000 items—from this year is probably just a matter of weeks away. Following that, the next most profitable part of the market—namely, bulk mail of smaller weight—will be opened up and then by 2006 the whole market will be free to all corners. It does not take the brain of a nuclear scientist to conclude that if an organisation is deprived of about 60 per cent of its most profitable market the remaining 40 per cent could be seriously non-viable financially.

I should like to ask the Minister with his great experience in issues of marginal costings whether he believes that it is possible to cream off the best revenue-producing services and still maintain a profitable universal service. Postcomm states that Consignia,

"should be able to withstand the introduction of competition".

But will it? Indeed, I do not feel terribly comforted by the word "should".

A desktop exercise shows that Consignia loses money and has a less efficient postal service than many other countries. It is a fact that it loses money, but is it correct that it is a less efficient postal service than that of many other countries. Are we in danger of comparing apples with pears? How many of the more efficient postal services have Saturday delivery? Certainly, I know that nowhere in North America or, indeed, in Ireland are there Saturday deliveries.

How many of those same efficient postal services have the added complication of providing both a first and second-class mail service? I should like to ask the Minister whether any assessment has been made of the financial implications of having a two-tier postal charge. Certainly my information, gleaned from people employed by Consignia, indicates that there is a massive on-cost associated with two-tier pricing. I refer to additional sorting, placing second-class stamped mail to one side, going out delivering the first-class mail, coming back and then going out later to deliver the second-class mail and retracing the same journeys. Why not have just one price stamp? I am sure that even I could come up with a suggested price which would result in similar revenue but involve much lower costs. It is interesting that the NAO report states at paragraph 24, on page 9:

"For most customers of postal services the quality of the service they receive is more important than the price".

I am sure that every single one of your Lordships has ideas about how the postal service should be and could be improved, but I wonder whether there are longstanding rules and regulations which hamper Consignia in its drive for greater efficiency. I give just one example. How is it that in every other major city in the developed world, apartment blocks have banks of individual post-boxes in the entrance area where residents pick up their post? In London I have just moved into a newly built apartment block which is divided into four cores on 12 floors. The postman has to deliver to each individual apartment in each of the cores. There is no cross access between the cores so he uses four lifts stopping at each of the 12 floors four times—he stops four times at floor one, etcetera—to finish his round. It is no wonder that my mail is not delivered until 10.30 a.m. at the earliest! Does the Minister know whether there are regulations prohibiting the installing of banks of individual postboxes in apartment blocks? If there are such regulations, does he think that they could be amended? It may seem a simple, stupid suggestion but it could make all the difference to the productivity of the service in large areas of major cities.

Of course, I am conscious that the individual customer is nothing like as vital as business customers, but with the commitment to the universal service they are important. The issue of rural post offices has been aired many times in your Lordships' House and I shall not prolong my speech by reiteration. There is just one aspect of the rural post office that is important and should not be overlooked. The post office in small hamlets, villages or towns provides a category of social service in addition to facilities covering benefits, pensions, TV licences, and so on. It can be the centre of a community. Lonely people catch up there on the local news. For example, action is taken if someone has not appeared for his or her pension. Could they be ill alone at home and need help?

For all kinds of reasons, many small communities are being turned into dormitory areas and second home enclaves. But there are many people living out their final years in fairly isolated circumstances for whom the local post office cum small store is a lifeline. I hope that that point will be taken into account in the headlong rush to introduce competition into the postal service.

I look forward to hearing all the contributions to the debate and thank in advance all those who are to speak. This is a very important subject as well as being very topical. I beg to move for Papers.

3.26 p.m.

Lord Sawyer

My Lords, I thank the noble Baroness, Lady O'Cathain, for initiating this debate. It is an important time for Consignia and it is right that we should discuss these matters at his juncture. I look forward to hearing the contributions of other noble Lords, particularly those of the noble Lord, Lord Dearing, and my noble friend Lord Clarke who had distinguished careers in the Post Office on the management and union sides respectively.

My brief contribution will be focused on a report produced last August by a body that I had the privilege of chairing with Mr Nicholas Underhill QC and Mr Ian Borket. The report examined the unstable state of industrial relations at the Royal Mail and the effects of that on service delivery. All those who take an interest in this industry are aware of its generally unstable industrial relations. Noble Lords may find one figure helpful in that regard. In the year to 2001, 66,000 employee days were lost to the business through unofficial industrial action. That is clearly unacceptable and something needed to be done about that.

We visited six mail centres, four of which were regarded as failing mail centres due to the high level of unofficial industrial action and two of which were regarded as operating satisfactorily with limited or no industrial action. We indicate in the report that an old-fashioned and outdated management style is adopted in the business. That style is authoritarian, directive and controlling. Many postmen and postwomen say that their managers and business leaders adopt a bullying attitude. "Bullying" is a strong word but it is often used to describe the management style in the Post Office. We found that the union response to that management style is as one would expect; that is, it is adversarial. The unions oppose that management style and want something different. Consequently, the unions often deploy restrictive practices. In general, an adversarial system of industrial relations exists in the business.

The issue that had the greatest impact on my colleagues and I conducting the independent inquiry was the complete collapse of trust between the management and the unions. That is a serious situation. Any organisation or business in which trust between the management, the workforce and the trade unions has collapsed is bound to encounter difficulties in trying to perform successfully. It seems to me that that is the biggest single issue in industrial relations terms that the business needs to resolve.

Our report contains two main recommendations. The first is to bring to an end unofficial industrial action. We consider that to be absolutely fundamental. If the business continues with high levels of industrial action business confidence and the ability of the business to be successful will continue to decline.

The second main recommendation was that management and unions should move away from adversarial or confrontational industrial relations and towards the partnership working that we see in many successful businesses and industries. We demanded big change from the management in our report, but we also demanded big change from the unions. What that boils down to is that we are looking for a new culture in the Post Office that values and respects people and which gives people, whatever the level they work at, an opportunity to make a significant contribution to the business.

Our report was received by both sides in August last year, and it was accepted by both sides. 'They immediately agreed to place a moratorium on all unofficial industrial action. Noble Lords might think that that was a matter only for the trade unions, but industrial action is often caused by authoritarian management attitudes. The moratorium was implemented by both sides and is now seven months old. Since the report's publication, there have been hardly any incidents of unofficial industrial action in the business.

Consequently, the service levels in the business have risen from 86 per cent to 90 per cent and the standards have stayed above 90 per cent since August last year. That is not clearly in the public domain because people are anxious that such success will not be maintained if we start to celebrate it prematurely, it might end and the celebrations would have been unwarranted. However, I say, "Well done, that is an important step forward and we need more".

Management and unions have also embarked on detailed work through working parties to try to implement the rest of the report. They are considering partnership boards, management training and behaviour, how to implement agreements and procedures in an employee-friendly way and how to improve communications in the business. All of that is being done below the line, as it were, and not in the public spotlight. However, all of those matters are essential if we are to make long-term improvements in the way in which the business is managed and run.

I have seen managers at training colleges learning to respect and manage postmen and postwomen in a different, more inclusive way and the so-called union militants sitting round the table trying to work out constructive ways of building a partnership with managers. I do not say that the business is anywhere near being problem-free, but some of what we asked for in the report has been attempted. The people who are doing that need to be encouraged and supported.

We have a long way to go—we shall no doubt hear more about that in this debate. I refer to the cuts of £1.2 billion that we heard about when the chairman attended the Select Committee, the pay dispute that has already been mentioned this afternoon and which I hope will go to mediation and be resolved without a strike—a strike over pay is the last thing that the business currently needs—and the consequences of last week's statement by the regulator. The opening of bulk mail to the market has not yet been pronounced on by management, but that is a serious blow to the business. When management and unions come to terms with all the problems, we shall have more pain rather than less. My message to both sides is, "Keep going, build trust and partnerships, work together and respect each other. You have got the future of this business in your hands. You will meet competition but you can beat it if you work together rather than against each other".

3.34 p.m.

Baroness Miller of Chilthorne Domer

My Lords, I shall discuss services to rural areas in particular. I congratulate the noble Baroness, Lady O'Cathain, on securing this debate. It allows me to expand a little on the comments that I made in relation to my Question last Wednesday in your Lordships' House. I was surprised by the Minister's Answer to my Question because it suggested that the Government now have sloping shoulders with regard to accepting responsibility. They should accept responsibility for the overall communications that rural areas—indeed, all areas—receive. However, my brief is rural areas and I live in a rural area. Rural areas are particular in that communications are more vital to them. People who live in rural areas either have to travel far or use a good communications system. When there are threats to that communications system, people in rural areas feel that particularly deeply.

I do not believe that the postal service we receive is a problem. It is of course difficult that my post sometimes does not arrive until midday but I greatly appreciate the fact that the service is reliable, secure and—the noble Baroness, Lady O'Cathain, touched on this—personal. That means much to the people in the village in which I live and to those in many rural areas.

When the regulator opened up the postal service to competition, I wonder whether he considered some of the services that the Royal Mail currently provides. I refer, for example, to the use of post buses. People use that service to travel round the countryside in places such as Exmoor. That service might disappear if the business was strictly commercial. I suspect that Postcomm has not considered that.

On the Post Office network, there was a moment when the Government could have seized the glory. Perhaps the Minister will reassure me that that moment has not passed. The rural White Paper contained some very good ideas about a pilot study, which has been conducted in Leicestershire. I remind the Minister, although I am sure that he does not need reminding of this, of some of the Government's aspirations for that pilot study. The White Paper stated: The pilot will give older people, families and children a specially tailored information and transactions service in their local post offices, not only by face to face access across the counter, but also using Internet kiosks, web phones, telephone links, help-lines and surgeries. These will provide new health services, and general community and educational information". That was a good vision and I hope that the Leicestershire pilot is succeeding. I hope that the Minister will comment on it. The Government also said in the White Paper that they intend to roll out the pilot across the country if it is successful. We look forward to that. If it is not successful, I hope that the Government will pursue that worthy vision. It encapsulates the sort of thinking with which I hope the Government approach the whole issue of communications. They should secure a cohesive network that is not so divided.

I have already raised with the Minister the issue of broadband access for people in rural areas. The service is very patchy and does not appear to be set to get much better. Indeed, in today's newspapers, noble Lords will read of the difficulties of NTL and Telewest—I refer to their huge debts and the problems that they face. That does not suggest that they will extend any more of their cabling into a commercially difficult area.

If we are to have a difficult postal service, in which we are regarded as second-class citizens compared with businesses and those in urban areas, we should be increasingly reliant on extremely good Internet access. That is where the future may lie. However, the Government are doing little to secure such broadband access. They passed on that responsibility to the regional development agencies. The Government should consult those agencies further on whether they feel that they have sufficient finance to progress cabling in those areas. The Minister will no doubt reply that that is a matter for the private sector. I remind him that unless there is sufficient start-up use of that network for it to make the business worth while for cable companies, it simply will not happen. To date, the Government have not put their backing behind the provision of such facilities through, for example, post offices.

Furthermore, I believe—I am sure that other noble Lords will he better placed to comment on this—that the Government should ask themselves what the role of the regulator is. Is it to take a narrow view of the service and see what can be done about it, or is it to take a broad view in consultation with government of how an entire service can be improved? I fear there is a long way to go.

3.40 p.m.

Lord Crickhowell

My Lords, first, I thank my noble friend Lady O'Cathain for raising this important topic. Should ownership of the Post Office be public or private? A perfectly good case can be made out either way. At present, we have an arrangement which seems to achieve the worst of both worlds—a private company with a single government shareholder and with Ministers in the background ready to interfere but not to accept responsibility.

The arguments for the privatised model include, among others, that it should enable the organisation to make maximum use of the markets so that it can provide the full range of new services that will be needed during the years ahead of fast-developing technologies; the reality of European liberalisation that will open Britain to outside competition; the fact that in other countries where full privatisation has been attempted, it seems to have been rather successful; and, perhaps above all, that competition is likely to force change in a stagnant and not very well managed business and force management to think of its customers' requirements rather than its own apparent convenience.

In that context I want to address the specific idea, which was reported in the Financial Times and which Consignia is said to be considering, of giving priority to business over residential customers. It is believed that most of the latter leave their homes by 8 a.m. and therefore do not care whether a letter arrives at 9 a.m. or 3 p.m.

What clearer indication could there be that Consignia's management has lost touch with the real world outside its own headquarters? Huge numbers of small businesses are run from home. A large number of businesses—I am chairman of one public company that does this——encourage some of their workforce to work from home using the new technologies rather than occupy large, expensive offices in the middle of town. A large number of people have multiple occupations; indeed, looking around the Benches in this House today, I suspect that I see a good many to whom that applies. And there are those who run, or raise money for, charities. One could go on; there is a host of such cases. In any event, what constitutes a business? Is it an individual earning a living, a public company, a private company or a partnership? I simply do riot know how one defines "a business".

The time at which mail reaches a home depends very often on the ability of the individual postman. For a long time, we had a remarkable postman in my own part of Battersea, who seldom failed to have the mail in my letter-box before 10 in the morning; and often it was earlier. For many months, his successor practically never delivered our mail before lunch. That caused a good deal of inconvenience, despite the marvellous geniality of his smile when he finally arrived. I suppose that it was also a useful experience for me to deliver so many other people's mail which had been delivered incorrectly through my letter-box. I believe that the fact that Consignia is considering the proposal to divide the mail in this way suggests that something is badly wrong with the company.

However, one aspect of the mail delivered to my door may be part of the problem; that is, the huge weight and bulk of wholly unwanted mail, 80 per cent of which swiftly goes into my rubbish bin and helps to create a major environmental problem. It takes many shapes: a huge number of often duplicated mail order catalogues; unwanted solicitations; several invitations a week for gold, platinum, diamond or other credit cards; and an extraordinary number of frequently repeated charitable appeals. One sometimes wonders whether charities realise that if they repeat their appeals very frequently to those who have just given, it may be a rather unproductive exercise.

I noted that my noble friend argued against having two classes of mail. But, if we are to split the mail service, I wonder whether it might be a good idea to have a second-class delivery of the bulk mail which we do not want and would not mind if it did not arrive until the afternoon. I want the mail which is important and which i want to read to reach me early in the morning before I leave home.

In Wales I do not necessarily expect my mail to arrive before 9.30 a.m. Certainly my neighbours who live in remote roads could not expect that. But the universal delivery to my neighbours and to all of us in the countryside is of immense importance. If that service were abandoned, it would be a further disastrous blow to an already hard-hit countryside. Therefore, if we are to have competition, I believe that it must be genuine competition that imposes similar obligations on all who provide the service. We have a regime in the independent television sector that imposes obligations, and it can be made to work. I believe that it would he a disaster to cherry-pick the very best and leave Consignia only with the obligations.

My noble friend Lady O'Cathain reminded us that Postcomm has responsibility for ensuring that the universal service remains. I wish that I had more confidence in the ability of financial regulators to get it right. Our experience in other industries has not been altogether encouraging. Therefore, I view the possibility that it will manage the affair by means of cherry-picking as a real threat.

My own conclusion is that we probably do need more competition, but it must be fair competition. That can only be achieved if one goes down the road of full privatisation combined with obligations. The worst option is a system in which the Government play an unhelpful role—they have not exactly been brilliant in replacing the chairman—but pretend to have no responsibility. I say to Ministers that if the universal service goes and the delivery service continues to decline, I believe they will learn that responsibilities exist. I believe that they will also learn that the electorate, not least in the countryside, feels fairly strongly about these issues. Those responsibilities cannot be dodged; if they are, they will pay a heavy political price.

3.48 p.m.

Lord Dearing

My Lords, I congratulate the noble Baroness on her exquisite timing for this debate. Britain has one of the leading post offices in the world. As a member of its superannuation scheme, I declare some interest in its future.

As we debate the Post Office today, its allure potential as one of the main players in a liberalised postal service in Europe is in the balance. I suggest that our shared concern should be that it emerges as one of the winners, providing benefit to the nation, to the workers and to the business. They must all perceive benefit. The Post Office is on the threshold of that new world following two years during which, by common consent, things have gone badly. And it is the custom of our nation to stand back and ask who is to blame.

I have it on very good authority from a Motion presented by the Conservative Party to the other place on 29th January that, the Government's total mismanagement … has created the crisis that is facing the Post Office today". No less authoritatively, I have the Government's amendment to that Motion, which invited the Commons to condemn 18 years of Conservative misrule, citing in support a catalogue of misdemeanours. Do I look to my left or do I look to my right?

What happened? Who went? It was the chairman. The chairman's lot is not a happy one. Dr Bain rendered a service and led the Post Office into its new plc status. We ought to thank him for his role.

I do not want to exaggerate the importance of the Government in seeing that we get our letters at a reasonable price and within a reasonable time. Responsibility for that lies essentially with the lads and lasses who deliver the letters and the managers who help it to happen. However, the Government have a significant role. I shall identify four areas in which I look to the Government to discharge their role effectively.

As the noble Lord, Lord Crickhowell, said when commenting on the chairmanship, the Government's first and overriding responsibility is to ensure that the Post Office has a strong board. Dr Bain has gone and we have an interregnum. That is not what one would have chosen and we are very fortunate that Allan Leighton has taken the job. The Government must get the long-term appointment right. They have no more important responsibility in that respect at the moment. For goodness sake, they must remember that if they want somebody world class, they will not get them for coppers. The Government have to face up to the reality that they must reward good performance. If they find—and if the new chairman agrees—that the board needs strengthening in some areas to enable it to be effective in a newly competitive world, they should be prepared to make another part-time appointment if need be. That is the Government's prime responsibility.

The Government's second responsibility is to make it their business to give a brisk response when they receive the proposals from the Post Office on its new strategic plan at the end of March. So often in my day, the proposals disappeared into Whitehall. The quickest that I ever got a decision on a major investment was one year.

In recent times the record has been much better, but there is an awful tendency for all the lads in Whitehall to gather round the corpse and get their pickings. This is not a time for that; this is a time for the Government to approach the issue as a merchant bank would harness resources to dispatch the business effectively and quickly.

My third point of concern, which has already cropped up in the debate, relates to Postcomm's proposals. The noble Baroness, Lady O'Cathain, referred to its duties: to ensure that there is a universal service, but to promote competition between postal operators in the interests of consumers wherever possible. The noble Baroness drew attention to the fact that Postcomm intends to get on with it. However, it intends to do so much more briskly than Europe as a whole. That is what worries me. We are opening up our markets to the Germans, the Dutch and the French. Look what happened with the water and electricity industries. It is right to open up the market to competition—it will be a wake-up call and will cause the business to be revisited and recreated—but, my goodness, we must not give the business away. There are risks.

If the statutory duties are not right, it is our fault because we passed the legislation. Unlike some previous statutes, it does not require Postcomm to have regard to the national interest in all respects. It says, "Go for competition, lads". That is not enough. There is a wider national interest and it is the Government's duty to see to that.

My final humble request to the Government is not to continue to treat the Post Office as a cash cow. Look what has happened to the Tube and the railways through the denial of investment. We all lose out. There may be battles to be fought with the Treasury on dividend policy and a capital structure, but Ministers must fight them if need be, because it is in the public interest that they do so.

Those are my requests to the Government. The essence of the battle has to be won not by the two sides in the Post Office fighting each other, but by fighting the competition. I agree so much with the noble Lord, Lord Sawyer, whose beneficent influence is found throughout the Post Office today. We needed a catalyst to tell those involved, "Come on, you silly b's, there are better games to be played than confrontation". They can only succeed by collaboration and looking for new ways.

The noble Lord was kind enough to refer to the "distinguished" contributions of the noble Lord, Lord Clarke of Hampstead, and myself. Happily they are now extinguished. As yesterday's men, we have something to look back on with pride. I do not have time to give the House the comparative figures for quality of service and price, but, particularly above the 30 gram cut-off point, our Post Office compares very well with most other post offices in the world. We have something that could become one of the winners in the continental game of competing post offices. We must stop arguing about yesterday and who is to blame. There is something to be won. Postal volumes per head in the United States are twice those per head in this country. It is not a business of yesterday; it is a business with a future, if only we can make it together. We must.

3.57 p.m.

Lord Skelmersdale

My Lords, in thanking—

Baroness Gibson of Market Rasen

My Lords, it is difficult to follow such a knowledgeable speech. I know that the whole House enjoyed it and I thank the noble Lord, Lord Dearing. I also thank the noble Baroness, Lady O'Cathain, for instigating the debate, which could not come at a better time.

My first point relates to rural and deprived urban areas. It is possible that the current proposals will result in a breakdown of the universal postal service, which would have an adverse effect on rural areas and on most deprived urban areas.

In rural areas, post offices are not just post offices; they are part of the way of life. The effects of closures have already been felt in many rural areas. I shall share a personal experience to illustrate that. For many years I lived in a small Suffolk village. We had two shops, one of which incorporated the post office, and we had one public house. They were meeting places, particularly the local village shop, which catered for all postal services, payment of welfare benefits, car licences and other matters. It was of particular importance to older villagers and to parents with children, who were unable to travel as easily as other folk.

The postmistress was a fount of wisdom. She helped her customers with filling in forms, advice about benefits and many other issues. When she retired, the shop was due to close, but luckily the couple who ran the public house agreed to carry on the post office element. That arrangement lasted for a number of years, until the brewery that owned the pub refurbished others close by and the one in our village closed. One by one, the places where we used to meet and exchange views and information on local and national issues disappeared, as did that part of our village life.

In rural areas, postmen and women are a big part of the community. They take verbal messages from neighbour to neighbour, as well as their postal deliveries. They know the local population. They watch out for the elderly in case they are ill and they know whom to contact if they are. They have a knowledge of the area and its inhabitants that is second to none. If the closing of rural post offices continues as it has done, there will be a fundamental change in an important part of rural life. Postcomm should know that already.

In its first annual report on the network of post offices 2000–01, research showed that customers placed particular value on the following services and side benefits of post offices: buying stamps; getting cash, pensions and benefits; paying bills; posting parcels; accessing general support and advice; supporting the local economy and having a community focal point. So, it is there for Postcomm to see in black and white.

I would urge the Minister to point out to those concerned the difficulties more closures would create and to suggest instead that there should be encouragement for post offices to diversify by, for example, becoming a general store and so provide valuable services for their customers, which include community value. But that is not the only diversification which could help. I shall give another example, which has already been touched on by the noble Baroness, Lady Miller of Chilthorne Domer.

At the end of last year I attended a briefing on the Government's transport policies. I particularly asked about rural areas. I was told that different forms of transport were being considered for rural areas, including post buses, which would carry not only post and parcels but people too. The villagers know the time that a post bus arrives in and returns to their village, and can plan their trip to the nearest small market town accordingly. That has been tried before successfully in East Anglia. I hope that the idea has not been shelved because of what I regard as ill-judged proposals.

Another point occurred to me in the course of the debate. It was suggested by the noble Baroness that letters could be left communally in urban areas. That could happen also in rural areas. I have a house in France. There, I do not receive my letters through my door. There is a communal post-box area from which we all fetch our letters each day. The little post van comes in, makes one stop and goes out again. We do the leg work. There is nothing to stop that happening in our rural areas. I hope that in his reply my noble friend can tell me whether any such ideas can he considered.

Finally, I turn to one group of workers in Consignia and the difficulties they face; that is, the managers in the organisation. Here, I must declare an interest as a former national official of the union which organises the managers: Amicus. I was interested to hear the remarks of my noble friend Lord Sawyer in relation to the difficulties that he found in the Post Office. Perhaps I could add a little to that.

I have looked through a number of publications regarding the proposed changes and the consultation processes. I may have missed it, but I have not spotted the word "managers" once in relation to them being consulted. They are the people who will have to put any new proposals into practice. Consignia will need to rely heavily on them in future; perhaps even more so than now. I hope that they will not mind me describing them as "piggies in the middle". I am not referring to senior management but to middle management, which is taking the pressures from worried workers below and enthusiastic reformers above. Morale is low throughout the service. That can be seen also among managers.

Middle managers want the Post Office to work. However, as I found recently when, together with my noble friend Lord Hoyle, I met members of Amicus who are managers, they recognise the worries faced by all working in the Post Office. They want to be part of the solution to those worries but they are not being consulted as they should. They have a knowledge of how the postal system works, which they believe is not being recognised or used. Like all of us when we think we are under-valued, middle managers are becoming disillusioned and disaffected.

If Consignia is to be any kind of driving force in the future, the morale of that group of workers must be raised and its value truly recognised. Consignia must learn to be inclusive not exclusive in its future dealings with its workforce.

4.5 p.m.

Lord Skelmersdale

My Lords, I shall try again. In thanking my noble friend Lady O'Cathain for initiating this—as she said—most topical debate, I should declare my interest in the subject. For the past 30 years my family business has been that of a specialised mail order company. Orders have come in by post and are sent out by post. By and large over that period, I have been a fan of what is now called Consignia. I am, perhaps, what my noble friend Lord Crickhowell called, "a person in multiple occupation".

It seems to me that Consignia today is rather like the little girl in the nursery rhyme: When she was good She was very, very good, But when she was bad she was horrid". Perhaps I may start with letter post, in which I include bulk postage and so-called "junk mail". In passing, I should like to point out to the complainants of junk mail that one person's junk mail is another's purchasing opportunity.

That said, bulk mail, in my part of the West Country at least, is a very efficient operation indeed. Both the office and the collection staff are well-trained, courteous and co-operative. As long as items are uniform and post coded, experience shows that they are delivered well inside the contracted delivery period. Undelivered items are returned promptly—the first ones within two or three days—from as far away as East Anglia and the north of England, enabling us to keep our customer base up to date, thus saving both ourselves and—this is the important point today—Consignia time and money.

What of the day-to-day letter post? It arrives before 8.30 a.m. allowing it to be opened as or even before the office staff arrive. Although I accept that the Royal Mail must have targets, wearing my mail order hat I am not in the least fazed if letters are not delivered the next working day so far as concerns first-class post, or even the day after. It does not matter to me whether second-class mail takes more than three working days.

Speaking as an individual member of the public, however, I can get a little fractious from time to time but not overly so. Which of us, with our hand on our heart, can tell how long a letter has taken to arrive? We know the date which is on the top of the letter. We cannot read the postmark. We do not know when it was put in the post-box or when it was collected. We have to rely on published data. Be that as it may, the net result is that I would be more than happy with a single tariff, meaning that one could almost guarantee two working days' delivery. To reinforce one of the requests of my noble friend Lady O'Cathain, I should like to ask the Minister what work if any has been done on this by his department, Postcomm or, indeed, Consignia. What would be the average saving of time and cost of not having to pre-sort letters and packets into first and second-class and what would that mean to average delivery times?

It is regularly asked whether full competition would benefit the consumer. I used to be a promoter of that concept, but my worries have increased. By licensing other firms in specific areas, Postcomm has—wittingly, I presume—made it much more difficult and expensive for Consignia to fulfil the fundamental obligation in its licence; that of the universal service provision, which its competitors do not have. I echo the words of the noble Baroness, Lady Gibson, to whom I owe an apology for trying to speak out of turn.

Your Lordships may be amused by a little ditty which I came across in my weekend reading, which is pertinent: The rain, it falleth on the just And also on the unjust fella: But chiefly on the just, because The unjust … [nicked] the just's umbrella". I know from previous experience that my noble friend Lady O'Cathain dislikes the expression "a level playing field", so let us call it "fairness". Is it fair that only Royal Mail has to deliver at a uniform price to any address in the country while its partial competitors do not? Is it fair that its competitors have to pay VAT, while Royal Mail does not? Do these two cancel each other out? I hope that the Minister will tell me. For myself, I have grave doubts.

So far as concerns competition, we have a model in Parcelforce Worldwide, which is outside the reserved area and, interestingly, has never made a profit. So why does it remain part of Consignia's portfolio of businesses? I was mystified by the chief executive's reply to this question, which I asked in connection with Sub-Committee B's inquiry into the EU draft directive on the further liberalisation of Community postal services. His answer, which is to be found on page 25 of the Select Committee's second report of last Session, is that he believes that the Post Office should be a complete distribution company. Only then will Consignia be able to compete in Europe. Although I do not claim to be a big business strategist, I find it very hard to swallow that the answer to Consignia's problems is to be a one-stop shop for everything that goes through a postal system.

To be fair, Consignia has tried hard to cure its problems with Parcelforce. One of those has been the collection on and delivery to the doorstep by directly employed drivers. In my experience, current staff often do not know the route they are to follow; and it is not unknown for them to omit leaving "failed to deliver" cards when the householder or other recipient is out. More and more mail order companies are being asked by their customers to put extra information on address labels—"If out, deliver to No. 36", or, "Put in garage", or, one I saw only the other day, "If out, leave under the hedge". That last is not something that I would do personally, but like the Minister, I appreciate the old trading adage, "The customer is always right".

I am told that Consignia has agreed with its unions that the answer to these problems is contracting out to owner drivers who would get to know their areas on pain of their contracts not being renewed.

Parcelforce has also built a vast new collection point at Coventry. It is, I understand, not functioning properly due to union problems. I find the 24-hour delivery service works quite well. However, the 72-hour one does not and can take well over seven working days. I only hope that Coventry will be up and running properly very soon and that this matter will be sorted out quickly.

I observe that I am about to run out of time and cannot cover any more issues. But I cannot forbear to point out that Consignia's interim results for the first half of this year—let alone last year—already show an operating loss of £100 million. That is five times its operating loss at the same point last year. To add insult to injury, the Government are asking for a dividend. If the Government want Consignia to succeed—and I genuinely believe that they do—at the very least they should not be demanding a dividend. Better still, they should pull out their wallet and pay for their share of the write-down of the assets of the Horizon project that they are responsible for, so that Consignia can invest to remain in the top four of European postal services. Otherwise, its future, as we all recognise, is grim indeed.

4.14 p.m.

Lord Clarke of Hampstead

My Lords, I add my thanks to the noble Baroness Lady O'Cathain for giving the House the opportunity to discuss the future of Consignia.

I declare my usual interest. I joined the Post Office at the age of 14 in 1946. For over 50 years I have been directly connected with our once great public service, both as an employee——as a telegraph boy and then a postman—before becoming a senior official of the Union of Post Office Workers, now known as the Communication Workers Union. I am also a former trustee of the Post Office Pension Scheme, which I can assure the noble Lord, Lord Dearing, is in a very healthy state. He has no need to express concern about his monthly cheque coming through.

Perhaps I may also, by way of introduction, thank my noble friend Lord Sawyer for the excellent job that was so desperately needed within the Post Office. His report was welcomed by both sides. It is already bearing fruit. If it was not for the muddied waters of the current pay claim, further progress would have been made.

During the Second Reading debate on the Postal Services Bill, I said that the Bill, signalled the beginning of the end for our world renowned Postal Service".—[Official Report, 2/5/00; col. 959.] I said it clearly and deliberately. All that has happened since the Bill became an Act has done nothing to change my opinion. I said on that occasion that many people, both inside and outside of this House, welcomed the fact that the Post Office—as it was at that time—at long last was to be granted commercial freedom, a situation that both Post Office management and the employees had pressed for over a very long period.

In fact, during my maiden speech I said that, 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".—[0fficial Report, l/l2/98; col. 4101] I am bound to say that those hopes for the future well-being of the Post Office have been dashed. How sad, as we witness today the further emasculation of a great public service. How sad that it is being sacrificed by the Government as they add further constraints on the management of Consignia as it struggles to meet the challenges that it faces with one hand tied behind its back.

I would have liked to make comment on the apparent slippage on the creation of a universal bank as envisaged in the PIU report. Equally I would have liked to spend some time on considering the future, if there is one, for the rural counter network. In the limited time available I should like to say one or two things about the recent proposals that have come from Postcomm that I believe place an unfair burden on the chief executive and the board of Consignia.

It may seem strange that I, as a former trade union official, should concern myself with the problems of the chief executive and the board. Consignia—what a name that we gave our wonderful Post Office! What nonsense. They said that it was to establish a corporate image here and abroad. What arrant nonsense. The British Post Office needed no rebadging. The Royal Mail thankfully retains its good name; a good name earned by centuries of efficient and reliable service to public and businesses alike. It is not really surprising that the public and business alike recognise the name Royal Mail; it has been with us since 1635. It came about when Charles I issued a proclamation which allowed the public to use his Royal Mail. Management and employees alike are proud that up until now that name has remained.

However, having listened to my former Post Office colleague, the noble Lord, Lord Dearing, perhaps all is not lost. Perhaps the Government will think again about the report Opening the Post: Postcomm and postal services and the proposals from Postcomm. Perhaps they will belatedly recognise that the Postal Services Act 2000 is flawed; and that Postcomm can make proposals in respect of operating licences that come into effect as early as 1st April this year. That is less than seven weeks away, a matter mentioned in the response to a question from the noble Baroness, Lady Miller of Chilthorne Domer. We were told last week that they have had since January. With regard to the question of landlords' registration they had about two or three years to consult. Here we are, with centuries of history, with another seven weeks left. No wonder the National Audit Office report commented in paragraph 1.30: While Postcomm's staff have considerable experience in economic regulation, none have direct experience of the postal business". The interim chairman of Consignia—I have said it again—Allan Leighton, has been quoted as saying that markets should be opened up at a pace and in a way that enables customers to have more choice. while at the same time giving the Post Office—I know that I should say Consignia; I will try very hard not to slip too much but it still hurts when I say it—a realistic chance to compete effectively and maintain a universal service at a uniform price.

The proposals from Postcomm, which open up 30 per cent of the market in just a few weeks' time, threaten that universal service. There can be no doubt in anyone's mind that whatever is said from the Government Benches, it will threaten the universal service. To take away the profitable parts of an operation but maintain the responsibility for the universal service, having taken away some of its income in the first place, and then expect it to maintain a universal services is nonsense. It is about time that we started speaking some plain language.

There can be no doubt that those granted licences will cream off the profitable parts of the postal business—the very parts that enable the Royal Mail to meet its responsibilities. There can be no comfort in the fact that phases two and three of the Postcomm proposals are scheduled for 2004 and 2006. If the Government are to wring their hands and do nothing, precious little will be left of our great collection, distribution and delivery systems. That comes after all the successful years when the Post Office poured money into the Treasury—billions of pounds over many years—but was not allowed even to use its own money to reinvest but had to go cap-in-hand to try to get money for postal mechanisation, optical character recognition and so on. I could continue with a long list but time does not allow.

Is it not a little strange that the cost of a first-class letter posted in the UK is lower than that of the nearest of our European postal service colleagues by I 1p? A letter weighing between 50 and 60 grammes posted in Spain costs 38p compared to 27p in this country. In Portugal, it costs 42p; in Belgium, 63p; in France, 72p; in the Netherlands, 82p; in Italy, 87p; and in Germany, £1.08.

I hope that my noble friend the Minister will explain why the Postcomm proposals differ so much in form and timing from those of the European Commission. It must be said that in pushing through Postcomm the Government are going further than was ever required by the Commission. Perhaps my noble friend could also tell the House about the level of profitability of Swedish Post since liberalisation in that country. On the same subject, what has happened to the prices of Swedish Post since liberalisation?

I ask the Government to take heed of some of the warnings in the National Audit Office report that I mentioned earlier. My time is now running out. I prepared so much because last night when I went home we were to have 11 minutes in which to speak, so the Minister will be pleased to hear that he does not have to answer about another 14 questions. However, I should like to cite another quotation from Allan Leighton. He says that there is a real need for the Government, in their desire for increased competition, to demonstrate fairness. His report states: Regulation should support a competitive environment, not stifle it". As a start, the Government should relax their requirement for a dividend totalling £70 million. That would provide some breathing space. Furthermore, 1p extra on our first and second-class letters would bring in £182 million in a full year.

Time has run out, and I am sorry if I have abused the House's time. In conclusion, I endorse every word spoken by the noble Lord, Lord Dearing. We have a Post Office of which to be proud. I ask the Government to give it fair treatment and not to allow the get-rich-quick carriers to cream off the profitable parts. In all television and radio interviews, our competitors have said one thing about the Postcomm proposals: they will have to charge more to do what the Post Office does now.

I ask my noble friend to assure your Lordships that the great British Post Office is not to be destroyed. Finally, what has happened since the Government were elected in 1997 is entirely their responsibility—there are no previous governments to blame.

4.23 p.m.

Lord Northbrook

My Lords, I recall well the words of the Minister on Second Reading of what became the Postal Services Act 2000. He said: The Bill will establish a modern Post Office that is able to develop its business and grow as a significant global player so that it can meet the enormous challenges and take advantage of the opportunities which now arise in the rapidly changing national and international markets … and a better deal for all consumers".—[Official Report, 02/5/00; col. 931.] Those fine words were spoken in May 2000 but the actuality has turned out to be slightly different. From a group operating profit of £397 million in 1999, the rebranded Consignia sank to an operating loss of £271 million—the first in 24 years—in the year to March 2000. Another operating loss of £70 million followed in the year to March 2001 and, in the latest half-year report to September 2001, it increased again to £100 million. Clearly, the rosy scenario forecast by the Minister has not come to pass. Letter deliveries are now losing the group £1 million a day. Last December, it was announced that more than 62,000 working days had been lost in 2000–01.

What has gone wrong and where is the way forward? Our party wanted to privatise the Post Office but lacked the parliamentary majority to see it through. Various problems have conspired to weaken the position of the Post Office. They come under four different headings: first, change in nature of the business; secondly, lack of investment; thirdly, labour relations, productivity and efficiency; and, fourthly, competition. I shall examine each in detail.

First, I shall consider the change in nature of the business. It is clear that fewer letters are being sent due to the advent of e-mail and text messaging. As a result, the service is losing £1 million a day. The price of first-class and second-class post has not been raised in line with costs. There has also been less revenue from junk mail, due to the downturn in the advertising sector.

Lack of investment has been a long-term problem. Profits have not been reinvested in the modernisation of the business. One means of raising capital for investment would have been to privatise the Post Office. That would have enabled it to compete on the European stage rather than being overtaken by its continental rivals, which have spent more time courting business users and entering high-margin growth areas such as express delivery. The Dutch post office bought TNT; the German post office bought DHL; and the French post office a piece of FedEx.

One needs only to visit a UK post office to realise the problems caused by lack of investment. Every transaction seems to be written down by hand and computerisation is unknown territory. Nor does Consignia seem to be at the forefront of e-commerce. The range of products on its website is unexciting. Management should consider investing much more in that part of the business. Perhaps, as other notable retailers have done, a reward or club card could be produced.

However, the Government appear to be taking money out of Consignia. I am most surprised to see in the accounts, under the heading "Future Dividends", £151 million for 2000 and £93 million for 2001, when the operating losses for those years were £275 million and £70 million respectively. Will the Minister explain why that dividend is being paid when the group is making losses?

Turning to labour relations, productivity and efficiency, it is unfortunate that higher wage levels have not led to higher productivity. As I mentioned, more than 60,000 days were lost in 2000–01, demonstrating the poor state of industrial relations. A national ballot on a 5 per cent wage claim has produced a yes verdict. That is a dangerous development for Consignia.

Management should share some of the blame. The chief executive's sudden admission to a Commons Select Committee of 30,000 job cuts was stated as necessary to reduce costs and dependence on labour. However, the timing, just before Christmas, was insensitive—coming out of the blue—and has undermined the well-meaning talk of partnership that emerged from the independent inquiry of the noble Lord, Lord Sawyer, into the state of the organisation's industrial relations last summer. To their credit, the unions had accepted that critical report and a wave of unofficial strikes that hit performance early last year was reduced to a handful.

As has been stated, the report of the noble Lord, Lord Sawyer, reflected a startling throwback to the 1970s. It painted a picture of bullying, inadequate managers and obstructive, suspicious unions. The noble Lord was clear that lasting productivity gains could come only from a massive shift in attitudes on both sides, with a transformation of the management culture matched by a wholehearted workforce commitment to customer service. Although the noble Lord saw some isolated pockets of good practice, there is little doubt that the future of the organisation depends on spreading them to the rest of the country. As I said, the method of disclosure of a large number of job cuts has made that task much more difficult. At 5 per cent, the size of the wage claim is completely unrealistic, especially when the group has admitted cost-cutting targets of £1.2 billion by 2003.

Turning to the fourth area, competition, Consignia faces particular difficulties due to its high labour costs. Wages are 70 per cent of costs. It has found it difficult to compete in other areas, for instance in the de-restricted area above £1. The future appears even worse. Postcomm has decided to end the Royal Mail's monopoly over letter delivery within four years. That seems a drastic move. But clearly the current system is not working in financial terms, so something had to be done. Critics would say that if we allow our competitors to cherry-pick the most profitable areas of Consignia's business, it will make the universal service obligation much more expensive. It means that, as the National Federation of Sub-Postmasters (NFSP) stated, profits used to subsidise rural consumers will instead be taken by competitors. The NFSP believes that competition should be introduced in gradual and controlled ways. NFSP is concerned that current proposals do not adequately cater for the maintenance of the socially crucial universal service and network of local post offices.

With regard to the future, Postcomm must tread carefully. As the Independent stated on 24th January, This is a company that is in serious trouble. It will be a real challenge for the regulators to open up competition without making Consignia's weaknesses much worse". But I do not agree with the CWU's expression that, in effect, nothing should be done. Clearly the level of losses suffered by the Post Office is unacceptable.

Another major problem for the future of Consignia is the question of sub-post offices. I expressed concern at Second Reading of the Postal Services Bill that the proposed change to benefit payments meant the Post Office would lose approximately £400 million—onethird of Post Office Counters' annual revenue. We were then promised, following a report by the Performance and Innovation Unit, two separate initiatives. First, a new "universal bank" service would be aimed at finding new revenue streams lost as a result of a decision to bring in compulsory ACT by 2003. That promise has made stuttering progress. So far as I am aware there is still no alternative proposed to benefit payment income which could halt the massive closure of sub-post offices which has occurred under Labour.

The second initiative is the subsidy and investment package of £270 million. Can the Minister say how the allocation of that package will work in practice? Will each case be considered on its merits? Finally, can I ask the Minister two further questions? Is it the case, as stated in the Independent of 1st February, that Consignia, has asked the government for almost £2 billion in subsidy to keep the network financially viable over the next five years". Secondly, what assurances can the Minister give against the threat to the morning delivery of the post or the curtailment of second deliveries?

In summary, the Government seem content to leave Consignia's problems to be sorted out by Postcomm. However, they have now become extremely serious.

4.30 p.m.

Lord Hoyle

My Lords, perhaps in rising I can make just two points. First, I am a member of Amicus. which organises the Communications Managers Association, as is my noble friend Lady Gibson. Secondly, I thank the noble Baroness, Lady O'Cathain, for introducing this debate. Her forceful speech set the tone for the whole debate.

Before I get into my speech I should like to say that this is not a time for scoring party-political points. However, I must point out that many sub-post offices closed under the last Conservative Government, not just under Labour. I simply want to make that point for the record before I talk about the Post Office, Consignia, and where we go from here.

It is right, as has been said, that the Post Office is not only a public service but also a social service. It is particularly necessary in the urban and less fortunate areas where the postman is so welcome. In village areas postmen and postwomen not only deliver mail, but also act as sentinels who call attention if someone has not taken the mail in, as do the milkmen in such areas. Perhaps we are fortunate in our village of 5,000 to still have two post offices. But I wonder for how much longer under these proposals.

What has not been mentioned but which is important to the owner or manager of a sub-post office is that he will not be able to sell that business bearing in mind the uncertainty now surrounding it. That is a new factor entering the situation.

It is correct that the Post Office was profitable until two years ago. For 23 years it had made a profit. Unfortunately, in 1999–2000, it lost £264 million. But I have to say that during that time the Treasury still took a dividend of £151 million and tax of £98 million. That was from a business that was losing money.

I agree with the earlier comment that the present management is rigid. I do not understand some of the decisions it made. Why set up Parcelforce with the national delivery system and all the administrative and management costs that that entails? It does surprise me that to date it has not made a profit.

Of course morale is very low in the Post Office. It is bound to be. The uncertainty adds to the lowering of morale. Such uncertainty brings in militancy and makes life much more difficult. The managers that we represent are middle management. My noble friend Lady Gibson said a lot about them and the situation in which they find themselves. But why there is no consultation with the people who have spent a lifetime in the Post Office and know the business inside out I do not know.

I want to ask some questions about the power of the regulator. For instance, why are we moving faster and further than the rest of Europe and, indeed, faster than the Government originally intended? Why are we moving in the opposite direction to the Commission? That is a problem that faces us. I am sorry that the noble Lord, Lord Dearing, is not in his place but I must take issue with him. Postcomm has to comply with certain regulations under UK law. For instance, it is required to, give precedence to maintenance of universal service and may not introduce competition which would jeopardise this objective". Today we are considering measures that could jeopardise that objective. As has been said by many earlier speakers, from 1st January to 31st March it has to face competition that affects 40 per cent of the bulk of its business. That is a real blow that it must face. That is only the first proposal. In phase two, in 2004–06, it will lose 70 per cents of its volume. If that carries on, in 2006 all restrictions on competition will be removed.

Why is it that any review will consider not the damaging effects on the Post Office, but how further competition can be introduced? Perhaps my noble friend, when he comes to reply, can answer some of those questions. Can he say what are the powers of the regulator? Can the Government overrule any of the proposals being made by Postcomm even though, as many have said, they threaten the "universal service" because of their cherry-picking nature. What kind of competition is it that performs part of the job? It sorts the mail and then puts it back for the postal service to take over its delivery. Nor can the Royal Mail lower its prices in order to meet competition; it will not be allowed by the regulator to do that.

So the competition is unfair and unjust. Let us look at the competitive effects in Sweden. Since 1993 there has been a reduction of 52 per cent in the number of post offices. The public letter price has gone up by 60 per cent in real terms at a time when, in this country, we have lowered the price in real terms by 15 per cent. In Sweden it has not exactly been a financial success. For instance, it lost 1 million krona in the first quarter of 2001. The people of the smaller towns in New Zealand are now waiting for one or two extra days for their mail. As has been said, in Spain the service has been fully liberalised since 1960 yet despite that, efficiency has not improved because less than 70 per cent of the mail is delivered to target.

These are the kinds of things that we are facing. I face the danger of losing the universal service. When my noble friend replies, can he define the powers of the regulator, particularly in relation to Government and their policy, and why we are moving faster than any of our European competitors and certainly faster than, but in a different direction from, the Commission? Can he also say what is happening to the universal bank? Finally, is the Treasury going to demand the dividend it has demanded in the past, which amounted to over £90 million last year? These questions need to be answered. Like most other noble Lords who have spoken today, I fear that we are in danger of losing something that is valued by all, the universal postal service delivering everywhere for the same price.

4.40 p.m.

Lord Brooke of Sutton Mandeville

My Lords, it is a pleasure to follow the noble Lord, Lord Hoyle, with whom I have common interests both in Bolton Wanderers and in cricket. Today he batted at No. 10 and I bat at No. 11. I have batted there often enough to know that by then the innings is generally almost over and that not much happens to change the game.

Edmund Burke began one of his greatest passages in Reflections on the French Revolution with a sentence redolent of an upmarket gossip column. He wrote, It is now sixteen or seventeen years since I last saw the Queen of France". In the same spirit it is now nearly 50 years since, as an undergraduate auxiliary postman, I last delivered Christmas cards to the late Sir Ralph Richardson in Hampstead, the village from which the noble Lord, Lord Clarke, takes his title. Sir Ralph always entered into the spirit of the transaction by opening the door in a silk dressing gown. But that far-off duty is the only interest I can conceivably claim in this debate whose admirable, comprehensive and timely initiation by my noble friend Lady O'Cathain is most welcome. In the manual of the Royal Navy, there is a sentence that the first evidence of an approaching typhoon is a general sense on the part of the captain that all is not well.

Governments of both main colours are guilty of neglecting once great British institutions. They did so to the Tube allegedly because its management contained too many engineers, and Railtrack has recently been executed on the grounds that it has too few. There is no pleasing some people.

I do not know what view the present Government take of the management of Consignia, though perhaps we shall hear shortly. It was always said of it that its historic title "Royal Mail" was an amulet that served to protect it from interference. I apologise if, like some others who have spoken, I find Consignia an unmemorable alternative, but it is an easy read-across from the late Professor Parkinson's view that you should sell the shares of any company that builds a new headquarters block to one which changes its name by extravagant deed poll.

When this Government interfered with ACT in 1997, I said in a debate in another place that the Chancellor had reversed chaos theory under which the fluttering of a butterfly's wings in central America provokes the eruption of a volcano in Indonesia. He had hurled a boulder into the placid pool of pensions policy and in the process would cause old ladies in rural sub-post offices to pay more for their stamps so that the Post Office could repair the Chancellor's ravaging foray into their pension fund.

I had not at that stage worked out that it was doubly worse. The Chancellor defended his policy on the grounds that investment was more important than dividends. But in the case of the Post Office he had it both ways since the Government continued to collect post dividends and the Post Office was starved of investment.

Although I understand the concerns of earlier speakers, I am not as troubled about the state of rural post office services unless they should be further threatened by new developments. My late noble kinsman and my late noble relative, on their honeymoon in central Wales, came across a notice in a sub-post office window which said, Letters for the 5.30 post must be posted by six o'clock at the very latest". That shows a consideration for human frailty which could be imitated by other commercial institutions. But as a former inner city MP, I did have exposure to the frailties of the Post Office itself. Mr Matthew Parris once called me a dinosaur because at Report stage of the Housing Act 1996 I had suggested that postmen should be included among those key workers eligible for affordable housing. However, I had myself noticed the difference in delivery performance between the W1 and the SW1 postal districts which met at Piccadilly in my former constituency. Both were a mix of residential and commercial customers; both important districts. But, by the chance of history, SW I did have affordable housing whereas W1 did not. Both in terms of delivery and of industrial relations, the difference showed. The cause of affordable housing has become more the vogue in the past five or six years so I shall continue to press the cause of postmen for it.

As my noble friend Lord Northbrook said, it is a commonplace that a handful of Conservative Back Benchers prevented the privatisation of the Post Office in the 1992 Parliament. That is now history, but because my party has always prided itself on learning from the past I am sorry that that small coterie of colleagues was unaware of how many of the advances in Post Office performance had been stimulated by private innovation.

Between 1526, when City Post was set up in Old Jewry in the City of London, and 1680 when the General Post was simply operating down six radial post roads from the capital, there was no local delivery at all until it was invented by William Docwra and his private penny post service in that latter year. The Duke of York, later James II, reacted to that infringement of the monopoly by taking him over. But Docwra was given a pension in 1689 for his achievement and was made controller of the Penny Post in 1697, the year Vanbrugh introduced a reference to it for the first time in one of his plays.

The renewal of Bath as a great city in the next century was the product of Beau Nash for fashion; of Wood, father and son, for architecture; and of Ralph Allen for entrepreneurship. Made postmaster of Bath at the age of 18, by intelligent pricing he revolutionised the delivery of mail between, on the one hand, the post road to Bristol and, on the other, the Plymouth road to the south and the Chester road to the north. With those yuppie profits he bought up all the quarries of Bath stone, which are the final climax of Bath's world heritage site reputation. It was likewise in Bath, a century later in 1780 and after Docwra's achievement, that John Palmer, the harbinger of DHL, created the special lightweight coaches which greatly accelerated delivery until the arrival of the trains.

I acknowledge Rowland Hill's first Penny Black adhesive stamp was the product of parliamentary initiatives in the 1830s. I suppose that the arrival of the new, self-adhesive stamp is an apposite place to end this catalogue, although I hope that it becomes easier for philatelists to purchase them in the old mode than it is at the moment.

My quotation from Burke about the Queen of France in due course went on, The age of chivalry is gone. That of sophisters, economists and calculators has succeeded but the glory of Europe is extinguished for ever". I sense that economists and calculators, if not necessarily sophisters, will be needed to ensure Consignia's future. But the Royal Mail was a precious thing, a glory of Europe, and the Government will not be forgiven if it falls to pieces in our collective hands.

4.48 p.m.

Lord Desai

My Lords, as 12th man I should be bringing drinks rather than playing. I was afraid that I would have nothing to say. But luckily, I believe that very few noble Lords have said what I am going to say and most of them are not going to like it. The Post Office does not pay my pension. I have belonged to no trade union, either managerial or for workers, that has supported the Post Office. I do not often defend things because they are 350 years old. Stage coaches have gone as have canals and gas lighting. I believe that we may march on.

I was very pleased when I read what Postcomm had done because it seems to me that for the past 10 years, even longer, both political parties have made a total muddle of what was once a great postal service. However, it has not been a great postal service for the past 10 years. No one can tell me about profits and losses. Monopolies must make a profit: if they do not, who will? A monopoly that makes a loss really must be re-examined, to see what it is doing.

My noble friend Lord Sawyer wrote a very good report. It starts by saying, more or less, that, in the 1990s, there was endless trouble with industrial relations in the Royal Mail—or "Con", as we should call it, "Consignia" being too long a word. It really surprises me that we have tolerated the deterioration in the service and done nothing about it. There is too much sentimentality attached to a great service. Eventually, all great things decline, and we must reexamine whether they are worth having.

In the National Audit Office's report, there is a little diagram showing service since 1996. The target is 92.5 per cent delivery. That is already 7.5 per cent below what it should be: if it is a universal service, let it be a universal service. The service has not got there—or anywhere near it—for the past five years, and I doubt that 2002 will show anything different. The management has been appalling, as has been shown by its failure to tackle any problems, to innovate or to see any other problems coming forth. It was the management that asked for commercial freedom. It is about to get it, but it is complaining. Although it is good when one is a monopoly, when there is competition, one suffers—about time too, thank you very much.

I get my mail on time, and most of it is not worth reading, just throwing away. Obviously, the postal service is too cheap. If it doubled the price, people would send me fewer letters, and we would all be happy. However, I have a little indirect experience. To declare my interest, I must say that I am chairman of a very small business, a business of only two people—three since last Monday—that works in design and publicity, producing brochures and the like. Its experience has been dire. Many small businesses lose money because of the ghastly service offered by "Con". It is a serious matter for small businesses. Such businesses survive on thin margins and must pay costs when something is not delivered or has not been received. They pay a huge price, and a business can go under, because of the inefficiency of the Post Office.

So far, no one has spoken on behalf of consumers, but perhaps I am wrong about that. I do not really have great sympathy for rural post offices. People choose to live far away from everybody, in the middle of nowhere, so they must pay the cost. Basically, we urban dwellers massively subsidise people who fancy living in rural areas. It costs me a lot to subsidise them. It is the same as with car drivers, who do not pay the full marginal cost of driving and pollute my lungs. People who live in rural areas should be willing to pay the proper marginal social cost of delivery. Unfortunately, they have been subsidised for centuries and are used to it.

What is good about what Postcomm has done is that we are about to get some competition and some efficiency into the system. Forty per cent of the business will, of course, be removed; that is sad. However, 40 per cent of costs will also, I presume, be removed. I suspect that, in a loss-making enterprise, more than 40 per cent of costs will be removed, if I have not forgotten elementary economics. It costs them more to deliver things than they charge for it.

People ask, "Why such speed?". There are two points to make. We have always been ahead of the European Union in liberalising and privatising. I remember the complaints about telephones, gas and electricity. Today, we have better gas, electricity and telephone services thanks to that. We may not have the service of the Royal Mail, or "Con", but we will have better delivery of our post. There are better ways of doing it than what the Post Office does. Over the past 10 years, it has proved itself not to be a good business, and I do not see why, as a consumer, I should have any sentimentality. I just want my post delivered efficiently and regularly, and I do not care who delivers it, as long as it is delivered properly. Perhaps we will discover hidden virtues in "Con", and it will start doing a good job. As Dr Johnson said, hanging concentrates the mind; I hope that it will concentrate the mind of Consignia.

I am glad that Postcomm has done its job. It is exactly the job for which it was appointed. Monopolies that want commercial freedom ought to be able to face competition.

4.56 p.m.

Lord Newby

My Lords, I am the thirteenth man—person—to speak. That is doubly unfortunate, given the unfortunate nature of the number and the fact that thirteenth man simply does not exist. However, I join other noble Lords in congratulating the noble Baroness, Lady O'Cathain, on initiating the debate.

It is conventional for a debate such as this to be on a Motion to call attention to an issue, but it is especially apt in this case. Most people do not recognise the current parlous state of Consignia, nor the dramatic plans for its future and that of the mail. There are already several areas of concern regarding the present position of the company.

First, without being too party political, I think that it would be widely accepted that two decades of raiding of the Post Office's profits by the Treasury, before this Government came to power, prevented the Post Office from investing in improved services to meet the growing competition from fax and e-mail. The noble Lords, Lord Clarke of Hampstead and Lord Northbrook, spoke about that, but it is worth repeating. On some estimates, the Treasury took 90 per cent of Post Office profits in that period, and the process has continued, despite clear signs of Consignia being in trouble. For example, in 2000–01, under new financial arrangements, the Treasury received a further £93 million dividend when the Post Office made a pre-tax profit of only £66 million. In 1999–2000, the Treasury took a £150 million dividend when there was a loss, before tax, of £171 million.

As described by the chairman of Consignia, Our current financial position is already unsustainable. We are losing more than £1 million a day and need to reduce our cost base by at least £1.2 billion by 2003". We wish Mr Leighton well in making those cost reductions, but there must be serious questions about whether it is possible to do so without a reduction in service levels.

Secondly, I move from finances to the specific situation of sub-post offices. In rural and deprived urban areas, sub-post offices play a hugely important part. We have heard from several Members, including the noble Lord, Lord Hoyle, and the noble Baronesses, Lady Miller of Chilthorne Domer and Lady Gibson of Market Rasen, about the problems that sub-post offices face and about the opportunities that they could have, if given proper support, to become an increasingly important hub of community life.

In addition to the ongoing problem of reduction in numbers, we have been reminded of the doubts about the introduction of electronic payment of benefit and the financial consequences thereof for sub-post offices. The problem here, mentioned I believe by the noble Lord, Lord Hoyle, is how on earth is a sub-post office to be sold in those circumstances, given the long-term consequences either of an ageing management tier or those sub-post offices going out of business.

Thirdly, there are the current and long-standing problems with regard to poor industrial relations. I join noble Lords in paying tribute to the work of the noble Lord, Lord Sawyer, in that respect. It is absolutely clear, notwithstanding the current problems of imminent strike action, that a major sea change within Consignia will be required in terms of a partnership method of working, whatever the detailed arrangements for its future.

Against the background of a desperately weak financial situation, continuation of the contraction of the sub-post office network and continuing seepage of written communications into e-mails and text messaging, what has been the government response? We know that it has been a combination of competition and Postcomm. Before turning to the competition proposals themselves, and running the risk of incurring the annoyance of the noble Lord, Lord Clarke, on the subject of name changes, I should like to suggest that we change the name "Postcomm" to "OfPat". I make that suggestion because I think that "OfPat" would serve to remind us all, not least the regulator himself, of the world of the eponymous postman. In particular we shall be reminded of a rural world in which the universal service provision is a lifeline, not just an empty phrase.

More seriously, however, we know what has been proposed. Starting in a few weeks' time, some 30 per cent of the market is to be opened up. That phase is to be completed by 2004. Another 30 per cent is to be opened up by March 2006, and thereafter the remaining 40 per cent of the market will be opened. We are told that competition is necessary to improve efficiency and to foster innovation and flexibility. But, to quote Postcomm: We would expect an efficient Consignia to remain the largest provider of postal services". That is one of the ironies of the whole business. No one believes that another company will come in to take over the difficult bits of what Consignia does now. That is a problem for the noble Lord, Lord Desai, because in reality there is no hangman's noose dangling in front of Consignia so far as concerns the bulk of the postal service. In no country which has experienced privatisation or liberalisation and competition have we seen two parallel postal services emerge. Nowhere else has another company come in to take over that element of what is done by the Post Office. Frankly, there is a great deal of misunderstanding about the likely consequences of increased competition.

Let us examine how increased competition is to be achieved and how we are to enter that brave new world. Postcomm believes that Consignia should be allowed, more commercial flexibility in terms of how it provides the universal service. This relates to service specification and the overall level and structure of prices". What on earth does that mean? It has three specific meanings. First, it means that Postcomm is conducting a price review, to be completed by this summer. Inevitably that will mean a recommendation for price increases. Although there may be an argument for a modest level of price increase after a period of price freeze, I think it is relevant to bear in mind the example of Sweden, which has already been mentioned in the debate, where the introduction of competition resulted in an increase in prices amounting to some 90 per cent.

Secondly, we have the intriguing suggestion that, in the long run, competition will mean a subsidy. Postcomm states: In the long-run, Postcomm recognises that in certain circumstances it might be justifiable to contemplate the safeguard of external funding mechanisms, such as a universal service support fund". I think that that means a subsidy. I would welcome the view of the Minister and the Government as regards whether they consider that to be a part of the longterm future of a competitive postal system.

Thirdly, Postcomm envisages a redefinition of the universal service provision. It has stated: Postcomm recognises that there is a need to set out more clearly which of Consignia's services should be considered universal services recognising that this will change over time in the light of market developments and changes in customer requirements … Postcomm believes that it should consider whether the range of Consignia's products that are classed as universal services should be narrowed". So there we have it: price rises, a potential subsidy and a narrowing of the universal service provision. You do not need to look into a crystal ball because you can read it in the book.

The National Audit Office shares my concerns, along with those of many other noble Lords, about the future of the universal postal provision. It has stated: If it were to lose significant custom to its competitors, Consignia might find it hard to finance the provision of a universal service at current prices or service levels. Postcomm have been carrying out intensive research into this issue". I think we can guess what that research will reveal. As the noble Baroness, Lady O'Cathain, mentioned in her opening remarks, the chairman of Consignia, Allan Leighton, has remarked: The Postcomm proposal to open up 30% of the market in just a few weeks time threatens the universal service. Competitors can now cherry-pick the profitable parts of our business, which substantially pay for the 'one-price-anywhere-in-the-country' promise of universal service. For Consignia, the regulator's approach represents death by a thousand cuts". Mr Leighton is not exactly someone averse to competition, but he paints a very bleak picture. We agree with his view. While as a general principle noble Lords on these Benches support competition and open markets, we believe that there are some situations where the market will not work. We believe that the postal service is one such market, not least for the externalities which have been mentioned by a number of speakers in the debate.

The current plans for Consignia are, I believe, incompatible with the continuation of the universal service provision as we know it at acceptable price levels. The company is right to seek major efficiency savings but simply cannot be expected to survive major losses of profitable business. The Government should accept that, as with Railtrack, the wrong model has been chosen and should take action accordingly. At the very least, they should delay the implementation of the Postcomm proposals to give Consignia a chance to press ahead with its cost-cutting programme as well as to provide an opportunity for a fundamental rethink on the future structure and regulation of the postal service.

5.8 p.m.

Baroness Miller of Hendon

My Lords, I thank and congratulate my noble friend Lady O'Cathain for so excellently introducing this debate and, indeed, for encouraging other noble Lords to take part. We have heard many interesting and, perhaps I may say, occasionally surprising interventions.

The Labour Party became our Government almost five years ago. Since April 2000, when the Postal Services Act was passed, the Post Office has deteriorated from being the best of its kind in the world—it was efficient and it had an excellent delivery performance rated at the top of the international league table—to what now can only be described as a bit of a disaster. It has converted a substantial annual profit in 1999 of almost half a billion pounds into a loss in 2000 of £267 million, and pre-tax losses of £281 million in the first six months of 2001.

A small part of that loss arose from the purposeless waste of £2 million on changing the name of the Post Office to the meaningless word "Consignia", which the noble Lord. Lord Clarke, has mentioned. I have spent over 20 years in marketing and I can tell noble Lords that it is an elementary tenet that if you have an established brand name, you exploit it. You do not do what the Post Office did, and discard it. What was the reason for this piece of stupidity? I shall quote from Consignia's press release: The new name describes the full scope of what the Post Office does in the way that the words "post" and "office" cannot. 'To consign' means `to entrust to the care of" … The new name reflects Consignia's place in the global distribution market". In every English-speaking country the name "Post Office" and what it does is well understood. In France, Germany, Italy and Holland, they use their linguistic equivalent. Furthermore, the tall building in central London is still known as the "Post Office Tower", despite BT having been hived off from the Post Office over a quarter of a century ago. Believe it or not, before "Consignia" was selected—I hope the noble Lord, Lord Clarke, will be satisfied with this— on the short list and the favourite for the new name was "Mailt rack".

I have just spoken of efficiency. Apart from completely losing about I million letters a week, Consignia rarely meets its own targets to deliver, as the noble Lord, Lord Desai, said, 92.5 per cent of first-class mail the next day. Instead, in 2001–02, it achieved only 89 per cent, with some black spots achieving only 80 per cent.

Instead of trying to improve this poor performance by increased productivity, it decided to move the goalposts. Consignia has recently announced the abandonment of the second-class post and, worse still, has said that its commitment to deliver to domestic customers before 9.30 a.m. will no longer be the norm. As my noble friend Lord Crickhowell said, many small businesses which work from home will be hit by this.

The competition already faced, and shortly to be faced, by the Post Office is absolutely ferocious. Indeed, the noble Lord, Lord Dearing, commented that our Post Office is being forced into stronger competition than the rest of Europe as a result of the recommendations of Postcomm. Until last March, the Post Office had a monopoly over collection and delivery of mail weighing less than 350 grams or costing less than £1. Above that weight and cost, the Post Office faces 4,000 courier and express services of varying kinds. However, at the end of last month, nearly one-third of the Post Office's business was opened up, and by next year EC directives mean that the entire market will be open to unrestricted competition.

Other national post offices have been preparing themselves for this for some time, either by privatisation or by the lifting of internal restrictions, and acquisitions of interests in commercial firms. The Dutch Post Office was the first to be privatised. It now has a majority stake in TNT and is the most profitable in Europe. It is rapidly growing as a result of a number of acquisitions that its commercial freedom and being quoted on the Stock Exchange permit. The German Post Office, now publicly quoted, is linked with DHL. It controls more than 25 per cent of the European express and parcel business, and it enjoys the largest revenues of any European postal group. Who is left among the world-class players that Consignia and Parcelforce could link up with to avoid being itself swallowed up by ever more powerful international competition?

The question is how the Post Office is preparing itself for the challenge of meeting the demands of the increasing market of e-commerce, where, despite the fact that goods can be ordered from your armchair, someone has to create the infrastructure and full distribution administration to provide express delivery to the customer's door.

When I began my own mail order business 30 years ago this week, it owed its success in no small measure to the Post Office and its dedicated staff, who could not then have been more helpful. That is why somewhere in the headquarters of the Union of Postal Workers, as the noble Lord, Lord Clarke of Hampstead knows, there is a silver salver that I presented 10 mark the dispatch of my 5 millionth parcel.

But what has happened to the innovative organisation and its formerly very co-operative staff? It has got bogged down by the dead hand of Whitehall and the Treasury. As long ago as 1992, the Conservative government announced a review of the structure of the Post Office. In 1994, the DTI published a consultation paper proposing the retention of post office counters in the public sector but with a greater degree of commercial freedom, and to sell 51 per cent of Royal Mail and Parcelforce to the public. However, that was not possible with the then government's wafer-thin majority and the implacable opposition of the Labour Party and at that time—indeed, even now—of the unions.

In 1999 the General Secretary of the Communication Workers Union, talking about privatisation, was reported in the Daily Telegraph as boasting: If they don't back off, they have got a fight on their hands, and they have got a fight they can't possibly win". When Consignia recently announced a potential loss of 30,000 jobs over a period of 12 months, it was soon forced to backtrack under the threat of strike action—although, of course, one has to comment that this is no way for management sensitively to work together with its workforce. The CWU has said: Consignia has confirmed that the 30,000 jobs were speculative arithmetic"— whatever that is supposed to mean.

Last year the Post Office clocked up 62,000 days lost through strikes—half the total number of industrial disputes in Britain. In its own interests, the Communication Workers Union will have to face up to one fact—namely, that its members are no longer employed by a monopoly. If its customers do not get the service they want at a price they are prepared to pay, there will be other providers and other means by which they can do so. I agree with the noble Lord, Lord Sawyer, that the two sides have simply got to work together better in order to find a proper way through this problem.

The forthcoming threatened strike will do nothing except drive customers further away. It was an earlier postal strike that resulted in the creation of the document exchange network, which now serves the legal profession so well all around the country.

So far I have spoken about the part that the Post Office itself and the unions have played in reducing the Post Office to its present parlous state, but the principal culprit is, as ever, the Government. On the Third Reading of the Postal Services Bill in the other place, the then Secretary of State said: This Bill guarantees a publicly owned Post Office. but with the commercial freedoms that will be needed to meet the challenges of the 21st Century … It will ensure a strong Post Office that is better able to serve all its customers in all parts of the country".—[Official Report, Commons, 18/4/00; cols. 939–940.] None of that has come to be. What a broken promise.

But what has happened? The Post Office, which is supposed to be enjoying greater commercial freedom, suffers the disadvantage of being half in and half out of the public sector. The recent disastrous losses to which I have referred speak for themselves. Normally directors are answerable to the shareholders. In this case there is only one shareholder—the Government. Ministers have continued to interfere, and they must be answerable for that. In the words of Milton Friedman, what they do not understand is that, the Government has no business to he in business". The Treasury, in the interests of saving £400 million, proposed to end the system of paying benefits through the Post Office and, more importantly, via the sub-post offices. The mere threat has severely diminished, if not destroyed, the capital value of hundreds of sub-post offices and has made small businesses, into which people have put their money, totally unviable. I agree with the noble Lord, Lord Hoyle, that sub-post offices closed under the Conservative government, but the numbers have escalated rapidly under this Government. Last year 547 closed, an absolute record.

The Government's failure to give the Post Office the full commercial freedom it needs and a clear mandate to go out into the market place, and the uncertainty that the present half-baked scheme has engendered, is undoubtedly a major cause of the lack of morale among all those involved in the Post Office.

I would say to the Government and to the unions that, with the total opening of the market to competition next year, the cosy monopoly that the Post Office has enjoyed for almost 350 years is coming to an end. The public will soon enjoy an unlimited choice. The commercial courier and parcel services, to say nothing of the German and Dutch Post Offices, are waiting to pounce. The vultures are circling around. Consignia and all connected with it must take note and try to do something at this late stage.

5.18 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, today's debate has proved yet again the strength of feeling which Consignia and the Post Office network arouse in the House and throughout the country. I congratulate the noble Baroness on raising the issue at this time, although its topicality did not immediately endear it to me.

I totally agree with the noble Lord, Lord Dearing, that this is a critical moment for the Post Office, and I agree with three of his four points. It is essential that we have a strong board and it is important that we have a good chairman and pay him properly; it is enormously important that the DTI responds quickly to the corporate plan of the Post Office when it is provided; and it is equally essential that the Post Office is not used as a cash cow.

I do not agree with the noble Lord, or, indeed, the noble Lords, Lord Hoyle and Lord Desai, that we are in front of the rest of the world in opening up the postal market. As the noble Baroness, Lady Miller of Hendon, pointed out, far from Britain being in a leadership role, the rest of Europe has been liberalising its post offices much more rapidly and for some time. Sweden had full liberalisation in 1993; Finland in 1994; the Netherlands had partial liberalisation in 2000; and Germany had partial liberalisation in 1998. So we should not fool ourselves that we are leading the way on this issue.

The Government's goals are clear. We want a universal service that everyone can rely on. We want faster, more reliable mail deliveries; a strong network of modern post offices; an effective partnership between management and unions; and a better Post Office for people to work in. That is why we are delivering the investment and reform that Consignia needs.

Four key areas have been raised in the debate. Perhaps I may take them in turn. They are: the performance of the Post Office; the relationship between government and the Post Office; the Postcomm proposals; and the rural network. I turn first to performance. Consignia has a long history of relatively high performance compared with its international counterparts. It has high standards for its universal and other postal services. For example, the vast majority of first-class letters are delivered the next day to homes and businesses throughout the United Kingdom—some 89 per cent in 2000 and 2001. As the noble Lord, Lord Clarke, rightly pointed out, its prices are well below those charged for similar services by its international competitors. I say to the noble Lord, Lord Crickhowell, that, although junk mail may not be to everyone's taste, it has made a major contribution to the economics of the Post Office over the past 30 or 40 years. On that basis alone, it is an important issue.

However, compared with its main competitors, the Post Office has been slipping. Between 1992 and 1996, Deutsche Post's productivity increased by 35 per cent, overtaking the Post Office, whose productivity increased by only 13 per cent during the same period. The UK's postal service went from being a leader in the 1980s to being a laggard in the 1990s. Today, in the fast expanding European market for express mail services, the Dutch, the French and the Germans are all ahead. They have all diversified to a much greater extent than Consignia.

There are immense challenges ahead. The company is losing money; its costs are continuing to rise while growth in mail continues to be slow, not least because of e-mail. Above all, the company is not yet delivering consistently for its customers.

People in the company are working hard. We know that in many parts of the country they are meeting or exceeding their targets. But we know also that there still too many places in the country where customers cannot count on reliable mail delivery. That is largely because there are still too many industrial relations problems.

Industrial relations have over the years been nothing short of disastrous. Over 800,000 days were lost to strike action in 1996–97 alone—when according to the noble Baroness, Lady Miller, the Post Office was in a wonderful state before the Labour Government came to power. These are on-going, long-term problems which need to be solved. I congratulate the noble Lord, Lord Sawyer, on the helpful contribution that he is making and thank him for it. He is right to argue for partnership and that this will require a change of attitude on the part of both management and the workforce. As Allan Leighton commented in a recent letter: If we could stop fighting each other within the Post Office and fight the competition, we should have a much better chance of success". I agree with the noble Baroness, Lady Gibson, about the importance in these situations of full consultation and the involvement of middle management.

Consignia needs to catch up. The management needs to seize the opportunities of commercial freedom given to it by this Government. I am afraid that a long and successful history will not ensure that the business continues to be relevant and efficient in the modern world.

I now turn to the relationship between government and the Post Office. The issue that we tackled when we came into office was that of enabling the Post Office to invest and move forward. For years, Post Office management and unions called for greater commercial freedom to allow them to respond to a changing market and changing customer needs. They were not granted that freedom. The previous administration was paralysed by indecision on this issue throughout all the years it was in power, and it used the Post Office as a cash cow by taking 80 per cent of profits back to the Treasury. The Post Office was unable to use its profits to invest in improving its operation and its services to customers. It was also prevented from making the strategic investment needed to expand its business in new directions.

Under our reform programme, we have given Consignia the commercial freedom long sought by management and unions—the freedom to borrow and invest—and we have reduced the dividend from 90 per cent under the Conservatives to 40 per cent, a more normal commercial return.

In answer to the point made by the noble Lord, Lord Hoyle, the £151 million in 1999–2000 was on profits of £470 million before the exceptional write-off. That would be a perfectly normal commercial position to be in when there is a paper write-off of that sort.

We have also put in place a regulatory framework to ensure the provision of universal postal services and to promote the interests of consumers of those services. I say to the noble Lord, Lord Skelmersdale, that the idea of being a regulator is that we have fair regulation. On the question that will arise of the dividend, a decision will be taken by the Government in the light of the five-year plan. Converting the Post Office into Consignia underlined the new commercialisation of the business.

We have also been strengthening the management of the company. We have appointed new non-executives to the board of Consignia, including Allan Leighton, now acting chairman; and we have supported new executive appointments, including a new finance director. We are continuing to strengthen the management of the company through the open recruitment of a new chairman and a new chief executive for the network business.

I have seen nothing since we introduced these measures to suggest that they do not provide Consignia with an excellent framework within which to operate its business. I cannot agree with the noble Lord, Lord Clarke of Hampstead. None of the current problems can be attributed to the new structure of the Post Office. I stand by what I said. I say to the noble Lord, Lord Northbrook, that all the problems that he raised are long-standing ones. He made no connection between any of them and the Postal Services Act.

The third issue I should like to discuss is Postcomm's proposals. World-wide, the postal industry has been challenged by competition from new technologies and from other service providers. To meet customer demand, postal operators throughout the world are having to upgrade and diversify their traditional services, developing added-value products and using new technologies. The value-added growth market in parcels, logistics and international businesses are highly competitive. Even in the traditional domestic letter market, where there has been relatively little competition from other service providers, there is increasing competition from new technology.

The noble Baroness, Lady O'Cathain, asked a number of questions about Postcomm's proposals. The Postal Services Act 2000 provides that it is Postcomm's primary duty to exercise its function in a manner best calculated to ensure the provision of a universal postal service. That is the legal requirement. Its responsibility to introduce competition is secondary to that primary legal duty.

Postcomm's document, Proposals for Effective Competition in UK postalServices, published on Thursday 31st January, is a public consultation. We fully expect concern about the universal service obligation to be thoroughly considered as part of that consultative process. We would not expect competition to be introduced until it was entirely compatible with the continued delivery of a universal postal service.

I should also stress that the business which is opened up to competition is not handed over to the competitor. Of the other countries that have liberalised, the Finnish Post Office still has 100 per cent of the letters market and the Swedish Post Office still has 94 per cent. It is not a question of the business being taken away. On marginal costs, the profitability of the business is not hugely affected unless unusually high or excessive profits were being taken on that part of the business. That is the issue in this case.

I must point out to the noble Baroness, Lady Miller of Chilthorne Domer, that the universal postal service is a fundamental duty of the Post Office. That is a different issue from the rural post office network. I cannot go into the question of broadband at this stage because it is very complicated, but we have given £30 million to the RDAs to experiment with other ways of achieving it in the regions where there is no broadband network. The huge cost involved could not be justified in a world in which only 1 per cent of the network that could use broadband is doing so.

The fourth key issue is the rural network. There is an understandable concern about the need to maintain the sub-post office network and ensure that it has a viable long-term future. The post office network plays a vital role in our society. Many of the vulnerable and elderly rely on it to deliver services to them. It is also a convenient place for the community as a whole to access government services, financial products and, of course, postal services.

However, the network has been in decline for years. The reality is that over the years the post office network has failed to respond to changes. Consequently, it has been contracting for many years. There were 3,500 closures between 1979 and 1997. not because the Post Office was actively closing outlets, but because no suitable replacements could be found to take over from the sub-postmasters who resigned or retired. Demographic changes in many rural areas, together with social and economic changes such as those in working and shopping habits and wider car ownership have combined to reduce the business on which many post offices have traditionally depended. Some 56 per cent of the rural offices that closed in 2000–01 operated for only limited hours and served fewer than 70 customers per week. Half of them had no associated shop or other retail business. It is also important to remember that of the 547 closures in 2000–01, only four were as a result of a Post Office decision. The others resulted from no one being found to take over the services.

As with the mail and parcel business, we inherited a declining post office network. Unlike the previous administration, who did nothing, we have not shrunk from the challenge of securing a viable future for the network. We contributed nearly £500 million to put back on track the Horizon project to computerise the whole post office network. That project, initiated in 1996 by the previous government, was running three years late, due to setbacks and delays. Computerisation of the network was completed on time in spring last year. The Horizon project remains the best means of enhancing the services offered by post offices by attracting new clients and services to strengthen the viability of the network in the longer term.

In answer to the noble Lord, Lord Skelmersdale, the Government contributed £480 million to the cost of the Horizon automation programme. The write down in the accounts was a paper loss resulting from compliance with accounting standard FRS11, because at that time the future revenues generated by Horizon were not sufficiently certain. To answer the noble Lord, Lord Northbrook, that £480 million was not a loss of income; it was a write-off. We contributed that money to the Horizon project. As regards introducing ACT, the original Horizon programme contemplated the automation of the whole system.

In response to the decline of rural post offices, we commissioned the Cabinet Office Performance and Innovation Unit to develop a strategy for the post office network. In June 2000, the PIU published its recommendations and we accepted them all. Not only that, we earmarked the £270 million necessary over three years to start the implementation.

A formal requirement was placed on Consignia in November 2000 to maintain the rural network and to prevent avoidable closures. In the first instance, that applies until 2006. To reinforce that, we have made available a fund to support community initiatives to sustain or reopen post offices in rural communities.

A number of other issues have been raised in the debate. It is difficult to make simple comparisons with Sweden. The significant rise in postal prices in Sweden since 1997 is due partly to a change in the VAT regime. The noble Lord, Lord Hoyle, referred to the powers of Postcomm. The role of Postcomm is to ensure the provision of a universal service. All Postcomm duties are subject to that requirement and it is independent from the Government. The noble Lord, Lord Newby, referred to the possibility that Postcomm might, in due course, consider it necessary to contemplate a universal service support fund—that is, a levy on other licence holders to support the services of the universal service provider. Any such arrangement would require changes to the current regulatory regime. That is not under active consideration.

The postal reforms brought in last year were designed to give the Post Office commercial freedom and freedom from political interference in micro management and to further the interests of consumers. Subject to the over-riding priority of ensuring the universal services, which we enshrined in legislation for the first time, we believe that greater competition should be contemplated as a way of providing customers with greater choice and even better service levels. We believe that the reforms that we have put in place will allow Consignia to respond to increased competition in postal service markets and changes in customer demands.

We further believe that we have a reform programme for the post office network that will enable it to move forward and adapt to the changes that it has faced and continues to face.

Lord Hoyle

My Lords, before my noble friend sits down, will he answer one other question that I asked about banking facilities and services being offered by post offices? That is a very important issue.

Lord Sainsbury of Turville

My Lords, I am sorry that I have not dealt with that issue. We continue to have negotiations on that. We are on track to produce the service in 2003, which is the critical moment for its introduction.

As I said, we have a reform programme for the Post Office network that will enable it to move forward and adapt to the changes that it has faced and continues to face. A great deal of progress has already been made through investment and reform. Much remains to be done, but we believe that the management and workforce of Consignia will rise to the challenge and ensure that the company prospers and grows in the tough environment in which it finds itself.

5.38 p.m.

Baroness O'Cathain

My Lords, I have no time, but I thank everybody who has taken part in the debate. I hope that the Minister will write to us with the answers to the questions that he was not able to respond to in the time available. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.