Royal Mail

My Lords, I am grateful to the noble Lord, Lord Clarke of Hampstead, for initiating this debate and for giving it a focus on the public interest. That is helpful to me because, as a former chairman of the Post Office, I draw a Post Office pension and I have to declare an interest; but I had better concentrate on the public interest, rather than my own. I shall focus on two points; first, how we are going to earn our living in the world and how the Royal Mail can contribute to that; and, secondly, the social interest of having a genuine, national, pervasive network of post offices. On earning our living in the world, I am not making this point in any political way, but the last year in which we had a surplus on our balance of payments on trade and services was 1997. Every year since then, there has been a deficit, and every year the deficit has increased. In 2004—the latest year for which I have figures—it was £40 billion. Looking ahead, I worry. China and India have only just begun to take their place in world markets and North Sea oil will not last for ever. I worry for our future and any opportunity to develop a world-class industry or service that can contribute to earning our living is welcome. I have little doubt that that challenges us to increase our efficiency and that what the Government had in mind in going down the liberalisation route was to give the spur of competition to the Royal Mail group to increase its efficiency. I note that, in providing this spur, they are acting two years in advance of Germany and three years in advance of what is likely to happen in France, Italy and Spain. In doing that, we are opening up our market and giving a powerful invitation to others to come and seek to take their share of the biggest cherry that has been opened up in the mail world. I look at the competitors and their financial strength compared with our position. I turn to Deutsche Post. Of its financial strength, a financial commentator said words to the effect that it had cash burning a hole in its pocket. It spent £3.4 billion on acquiring the British company Exel in a year in which it had already spent £1 billion on another acquisition. I have looked at its balance sheet; it is awesome. I have no doubt that that balance sheet has been assisted by its ability to charge two to three times the price of a first or second class letter in this country. On its mail business, it seems to be earning the remarkably good return of 15 per cent before interest and tax. That is very nice if you can get it. No wonder it has the financial strength that is behind it as it comes into our market. Similarly, the Dutch are powerfully equipped. My concern is not that there has been market liberalisation, but that the Royal Mail can compete fairly and strongly with the other companies that are quickly coming into the market. I understand that last year direct stream access achieved a level four times that which Postcomm was predicting when it made its first consultation report. It is happening. The Royal Mail’s problem is that it has to increase its efficiency, but to do that it needs investment. It is massively underinvested compared with the Dutch and the Germans. That is reflected in its efficiency. It is a handicap. But with a balance sheet with a deficiency of £2 billion, where will the cash come from to do that and to develop an overseas business? Postcomm sees a glide path to eliminating the deficiency over the next four or five years. But the Royal Mail Group board is saying that action is needed now and there are formidable words to shareholders in the half-yearly account on its decision to continue trading, based on the assumption that the Government will address the balance sheet issue. It matters to us as a nation that we have an efficient business because overseas companies will contribute to the efficiency of the market, but their profits will be repatriated and that will not help our balance of payments problem. I turn to the Royal Mail’s overseas business. It has one: General Logistics Systems. It is not much talked about, but it has shown that, given a fair due, the Royal Mail can compete and earn money. My reading of its half-year accounts is that this year this overseas business will have a turnover of around £1 billion and a profit of between £80 million and £100 million. If we are concerned about earning our living in the world, the Royal Mail should be in a position to invest in that business and to engage in other partnerships to develop a real success—that nobody knows about. I believe that there is a workforce and a top management that can deliver. There is an issue about the Government being alongside the Royal Mail in ensuring that it has a balance sheet that enables it to compete fairly. I turn to the Post Office. I agree with the noble Lord, Lord O’Neill, that we need two debates rather than one. The noble Lord, Lord Cameron, has spoken very informatively on the Post Office and I would like to see a debate on it. There is a major public interest in having a national post office network. I shall make three points. First, 40 per cent of the business went when the DWP changed its policy on the payment of benefits. There is one big bit of business left; it is called the Post Office Card Accounts, which people can use to draw on their social security benefits, if they so choose. Reference has been made to muddled messages to post offices and people about that account. I hear messages about how difficult it can be to open such an account. If the DWP ends those accounts, that will be another nail in the coffin of the post office network. It will be an added threat to the viability of the 7,000 post offices which depend on that £150 million of business. The loss of that business also means a reduced footfall in the shop and another blow to the future of a truly national network of post offices. I should like the Government to think very carefully and give some assurance that there will be a continuation of this form of payment of social security. People want it and I would say to the Government that we are here to serve the public. Secondly, reference has been made to the payment of £150 million per year by the Government to enable these offices to continue. Perhaps I may say that in spite of that post offices make a loss of £100 million a year. It seems odd to me that the Government should be finding that £150 million by withdrawing shareholder money from the balance sheet, especially now that we know there is a £2 billion deficit. I wonder what would be said of a private sector company that did that. I think the Government need to recognise that this is a payment for a social purpose and that it should be funded by the state. My third point picks up the reference to the review that is taking place on the future of the network. I understand that the Royal Mail has put proposals—I have not seen them—to the Government. I urge the Government to realise that there is a major social issue here, which is for them every bit as much as it is for the Royal Mail. I know that the Royal Mail has been very imaginative over the past two or three years in developing its services. It needs the Government to come forward with policies in the public interest to enable it to continue to serve. I hope that we shall have a debate on that before long. To conclude, we have a business with workers and management who can deliver. The question is: will the Government give them the tools to do the job?