Royal Mail

My Lords, I, too, thank my noble friend Lord Clarke for setting down this subject for debate. Like others, I preface my comments with a declaration of interest. I am a non-executive director of Royal Mail Holdings board. Royal Mail Holdings is the parent company of, among others, Royal Mail letters, Parcel Force Worldwide, Post Office Ltd and General Logistics Systems, which is the Royal Mail’s very successful European parcels business. I should like to set out for your Lordships some of the issues which face Royal Mail and some of the ways in which these issues are being tackled. It is common knowledge to Members of this House—it has been mentioned already—that Royal Mail has gone from, in 2002, losing £1 million per day to, in 2005, recording a profit of £537 million. During that time, quality-of-service levels have improved dramatically with around 94 per cent of first-class mail arriving on the day after posting. Changes to logistics and transportation arrangements and the move to single-day delivery have bedded down. Our people have been rewarded for the extra effort that is demanded of them: the working week has decreased from six to five days and, in 2005, every employee received a share-in-success payment of £1,074. A total of £218 million was paid out by the group, making it one of the largest profit-share payments in UK corporate history. The use by Royal Mail of temporary and casual staff has reduced dramatically. That action, together with our entitlement, which we vigorously pursue, to conduct criminal record checks on all job applicants enables us to have confidence in the maintenance of the mail’s integrity. Industrial relations have improved with industrial action at its lowest for many years. I join with others in thanking my noble friend Lord Sawyer for his sterling and patient efforts in that regard. However, significant challenges remain. We are constrained by the regulator while at the same time we face free market competition. We have a history of years of under-investment in machinery and infrastructure, Post Office Limited is financially a loss-making business, and our pension fund account deficit at £4 billion almost equals the annual income of a small nation. These are big and important issues which require careful and learned consideration if we are to maintain a public mail service with a high-quality, secure and reliable reputation. I will take the issues one at a time. On 1 January 2006 the market was opened up to competition. The regulator lays upon us a duty to provide a universal service: deliveries to everyone, everywhere, every day. We heartily agree with the universal service obligation, but do not believe it should include as it does now some bulk mail services which are available only to business customers. Price rises are controlled by the regulator. Jolly good, some will say. But to put it in context, posting a letter in the UK is cheaper than most of the rest of Europe. In Italy, for example, it would cost the equivalent of £1.11. But prices should more nearly reflect costs and currently the only profit made from letters comes from business and bulk mail. If we are to have an even chance in the open market, we must invest and modernise. At the moment Royal Mail sorts only around 50 per cent of its mail automatically, as against 90 per cent by our competitors. We are looking at ways of electronically tagging the mail so that if something goes missing, we will know exactly where from. We have calculated that £2.2 billion of investment is required if we are to remain not only competitive, but also commercially viable in a fully liberalised market. Now then, what about Post Office Limited? A great deal of heat is generated whenever the problems of the Post Office are raised—understandably so. For many people the Post Office has been a link to their income, their friends and neighbours, and a place seen as supportive and helpful. Following the loss of the benefits payments, business managers and employees alike have worked enormously hard to bring in new business. We are pushing on financial products, some of which are proving more successful than others. But the competition from high street banks not constrained by the requirement to support such a large branch network is very fierce. Post Office Limited currently has 14,402 branches while our competitors range between supporting 600 and 2,000. Government actions threaten us on two fronts. The first is their proposal to set up 70 high street offices to vet and interview applicants for passports. This would dig into the £12 million net contribution this business currently brings in. Secondly, the Department for Work and Pensions has notified us that the current Post Office account card will cease when the contract ends in 2010-11. It is simply not possible to maintain the service politically demanded while at the same time being deprived of the wherewithal to underwrite the cost of that service. Finally, while I am at the doom-and-gloom end of the subject, we have the pension account deficit. Our profitable period running up to 2005 enabled us to make a significant contribution to the pension fund, but the sums of money are so huge and the historical background so long that a political solution is required here. We do not want to close the scheme as so many others have done, but the figures speak for themselves and something has to give. Despite these major challenges, I and my fellow board members remain upbeat about the future. Moving the company from an old-fashioned command and control style to one which is fit for 21st-century purpose is more than possible and is an exciting prospect. Indeed, from the point of view of the UK public it is essential that we meet this challenge. However, such a cultural shift will come about only with the commitment of the workforce—managers and workers alike. More training for all our people is essential, as is the creation of an atmosphere where everyone feels part of the action and where everyone feels respected and valued. We need to encourage more flexible patterns of working and to recognise the diverse needs of others. Part-time working must not be viewed as a less than full-time commitment and such opportunities would increase the participation of women who may have other responsibilities. Such modernisation of the infrastructure and working relationships is essential to the future of Royal Mail. The sums of money required to set the ship on a steady course are anything but small, and we do not underestimate the difficulties. But we cannot stay as we are and thrive. New financial arrangements must be made which will enable the collective experience and commitment of the board to take the company forward.