Royal Mail

My Lords, I am grateful to my noble friend Lord Clarke of Hampstead for sponsoring the debate. This is the first of two debates today on trying to improve public services. The issues are about change and competition, but this debate has a strong European dimension. I shall follow a vein similar to that of the noble Lord, Lord O’Neill, and I share a good number of the points that he made. The European Union has been opening up postal services to competition to improve European postal services and develop single markets as far back as the mid-1990s. We cannot ignore that. We must come to terms with it and recognise that the current directives require even more changes and competition in the future. Each member state is tackling this in its own way. The Swedish postal system has been fully privatised since the mid-1990s. Anyone who has been to Sweden will know that it is a typical Scandinavian operation. It is efficient, clean and customer oriented, but highly expensive. The Finns, the Dutch and the Germans have followed with variations on the privatisation theme. At the other end of the spectrum is the French model, now with question marks over its sustainability in the longer term. It is interesting that they are pushing to wait until 2009 before they get around to introducing the current directives. There is also a big question mark over what will happen to the new accession countries’ postal services over the coming years. I suspect that the structure and ownership of the enlarged European Union postal services will look quite different in 10 to 15 years’ time, especially with the increasing pace of technological change. I strongly support the efforts of the noble Lord, Lord Clarke of Hampstead, to get the Government to commit to a strategic policy for the Royal Mail that will stand the test of time. I trust that it will take fully into account the realities of what is happening in Europe, the regulator’s existence and their role as part of that process. As we enter this review period, will the Minister throw a little more light on to the role of Sir George Bain as adviser to the Secretary of State for Industry? As I understand it, he will not be producing reports, or a final report for the Secretary of State, to be published. How will his findings emerge? How will we get access to what he is analysing and recommending? When is his task likely to be finished? My knowledge of the postal services is minimal compared to many of today’s contributors—I look particularly at the noble Lord, Lord Dearing. My deeper interest was first stimulated through the European Union legislative scrutiny in this House. In 2000, we looked at the proposed EU directives for further liberalisation, and at a number of European postal services, particularly our own. We found, much to our regret, that UK services had deteriorated dramatically since last looked at by this House in 1996. Indeed, Post Office management itself accepted that it was widely missing its performance targets, that millions of items of its customers’ business were going astray, and that it was defending a second postal delivery at midday, when most recipients had gone to work hours earlier. That, of course, has subsequently changed. There have been many other substantial changes, flowing from the Postal Services Act 2000 in particular. It cannot be denied that the new management team’s renewal plan, while it has been controversial, has financially turned the business around, and greatly improved service performance from its level at the turn of the millennium. Nevertheless, the Post Office faces a number of serious challenges. Previous speakers have enumerated most of them, so I will not repeat them. However, notwithstanding recent improvements, there will be a continuing and major challenge facing us on industrial relations. Like the noble Lord, Lord Clarke of Hampstead, I pay tribute to my noble friend Lord Sawyer for his tireless efforts in bringing some harmony and partnership into the fraught and unstable relationships which existed two or three years ago. All of us here want to see the postal services not only overcome the current challenges facing them, but to flourish and grow on a sustainable basis; not just at home in the UK, but into Europe. Make no mistake, European competitors certainly have designs and ambitions for growth in the UK, which we should not ignore. That means efforts to build better industrial relations and trust must increase if we are to be successful. It can be done. I depart marginally from the main thrust of the debate, and speak as a partnership director—a non-executive director—on the board of a public/private partnership, NATS Ltd. I invite the Secretary of State, Sir George Bain, the postal unions and Royal Mail senior management to visit NATS, and see how our organisation is transforming itself and its industrial relations. The PPP was formed in 2001, after a vigorous campaign of opposition from the unions in the industry, fully supported by all their members. The union density then was extraordinarily high—over 90 per cent—and I am happy to report that it is still at that level. The Government own the majority of the shares in the company, which is where I will pick up the point on which there may be disagreement with the noble Lord, Lord O’Neill. The shares are non-marketable and the staff were offered a 5 per cent stake, which is held in a tax-free trust fund. At present, the shares can be cashed only when the employee retires or resigns. The unions originally opposed the share concept, but virtually all staff took the opportunity of getting their hands on them. For the first two years after the PPP was formed, industrial relations were, without question, fraught and were not helped by the airline industry’s near collapse after 9/11 in the USA. But bit by bit, faced by very similar challenges to those of the postal services, confidence has been built up between all the parties. Safety continues to be paramount for NATS. The average delay per flight is now lower, notwithstanding a near 5 per cent per annum increase in air traffic. NATS’s charges to the airlines have not gone up; they have gone down and are to be further reduced. Previous losses have been turned into modest profits in 2005, the net debt is being reduced and the first small dividend was declared last year. While non-marketable, the shares are independently revalued for Inland Revenue purposes twice a year. They have been on an upward swing from more than 80p to more than 110p. NATS is also in the early stages of implementing a £1 billion investment programme to upgrade the ageing technology infrastructure, long starved of funds by previous governments of all persuasions. For the first time ever, the unions are entering into a three-year pay agreement, a generous one that they never had under their former employers, the government and the CAA. It is my guess that fairly soon they will be seeking a greater percentage of shares for the staff. For the unions and for the staff that will mean greater involvement, more commitment, a stronger voice in the organisation and more influence over their own futures. I am not advocating that one size fits all structures, nor am I claiming that all is perfect in NATS. Far from it, but I do suggest that that reasonably successful model should be examined. There is a structure for dealing with non-marketable shares and those elements could be looked at and might be worth cherry-picking, in the phrase of the noble Lord, Lord Clarke. If we were to couple that with the saving proposal on how we dealt with the dividends with which he opened his speech, maybe we could then find an opportunity whereby employees of the Post Office and its management could use that element to try to persuade building societies that Post Office employees should have an opportunity to get on the housing ladder, as they are well below the level of house ownership in the UK. That is the kind of challenge that the industrial relations set-up should be facing, and it would give real, lasting benefits for the future.