Royal Mail

My Lords, I join other speakers in thanking the noble Lord, Lord Clarke of Hampstead, for introducing this important debate. Perhaps I can start by reminding your Lordships what his Motion actually says. It is intended,"““To call attention to the case for a Government policy towards the Royal Mail which best reflects the national interest in all respects””." Implicit in what a number of noble Lords have said is that over the past 20 years or so governments of both political persuasions have not had a policy towards the Royal Mail which best reflects the national interest in all respects. Indeed, some might say that they have not had one that reflects the national interest in virtually any respect. It would probably be common ground historically—taking the Post Office itself first—that there has been a significant failure by governments of both persuasions to invest in the Post Office network, which has resulted in the closure of more than 7,000 branches. There are considerable fears that this will lead to further closures of both rural sub-post offices and urban post offices, as a number of noble Lords have mentioned. There is little doubt that the Royal Mail has been starved of significant investment, which has had serious consequences for its ability to compete effectively. I know the Minister will guarantee the universal service obligation, but there are fears, as a result of this lack of investment, whether the Royal Mail under the current structure has the long-term ability to deliver mail to every household and business at uniform prices. There is considerable concern about that. A number of noble Lords have touched on the fairly grim economic circumstances facing the Royal Mail. First, as we all know, the monopoly in delivery of mail ended on 1 January 2006 and so the company is now facing competition in a fully liberalised market. It is contemplating investment totalling, I think, approximately £1.2 billion in modernisation, but, as noble Lords have indicated, this is primarily to be paid for by significant price increases for consumers which the regulator, Postcomm, has indicated it is prepared to approve. The devastating position of the pension fund, which at the last count had a deficit of approximately £4.25 billion, has also been mentioned. We are aware that the freedoms available to competitors to raise funds for investment capital are not available to the Royal Mail because it needs permission from the Treasury and the DTI to borrow. Such borrowings count against the public sector borrowing requirement and therefore the Royal Mail is competing with other public sector priorities. I suspect that business mail—which makes up approximately 90 per cent of the mail carried by the Royal Mail—is now subsidising the universal service obligation. Royal Mail’s competitors want to win a substantial share of the business mail, as the noble Lord, Lord Christopher, indicated earlier, and any loss of that market share by the Royal Mail could endanger its ability to meet the universal service obligation. I do not think that any noble Lord has touched on the next issue, unless it was when I was not in my place. Serious conflicts of interest are inherent in the new arrangements for the mail delivery system. That is because the DTI, which the Minister represents here today, has an obligation to promote the overall health of the mail market. Secondly, it owns the main operator. Thirdly, it is responsible for setting the regulatory framework. Fourthly, it appoints the regulator. So there is a structural difficulty there as we move into the liberalised world that started on 1 January. There is another built-in disincentive, of course, because the Royal Mail has no incentive to maintain unprofitable but socially important post offices, but has a positive interest in preventing them from winning new business from the new mail delivery companies. Again, there is a structural difficulty there. It will be widely accepted in all parts of your Lordships’ House that the following four principles need to be implemented by the Government if they are to fulfil the objectives of the Motion of the noble Lord, Lord Clarke of Hampstead. First, it is clear that the Royal Mail must have the freedom to make investment decisions to give it the best chance of succeeding in the new liberalised market. There can be no doubt about that. Secondly, the universal service obligation must be guaranteed as a vital public service. I know the Minister will say that he does guarantee it. Thirdly—and this is implicit in what almost all noble Lords have indicated, certainly from the other side of the Chamber—the staff of Royal Mail must be given the opportunity to share in the success of the company, in whatever way that can be structured. Fourthly—taking up the point made by the noble Lord, Lord Christopher, about what the voters want—there is absolutely no doubt that the voters want a reversal of the decline in the Post Office network, both rurally and in urban areas, and they want branches to be improved and enhanced. I think that the four principles I have set out would be consistent with what noble Lords right across the Chamber would want. The Government can say they are prepared to make the funds available to implement those four principles. Few people would doubt that an investment fund of at least £2 billion will be necessary for the Post Office network when the money runs out in 2008. That will provide the necessary structure for the sub-post office network and maintain the training necessary to enable them to be used as shop fronts for a variety of public bodies and to give them the freedom to win new business as collection and deposit points, not only for Royal Mail but other delivery companies. Individual sub-post offices need to be given the freedom to enter into agreements with private sector companies for bill payment and other services. That is what needs to happen; the Government have to provide the money to do that or look at innovative ways of raising funding from Royal Mail itself. There are a number of ideas around and I should like to float a couple. First, the Post Office could be separated from the Royal Mail Group. Post Office Limited would then be retained in the public sector, giving post offices the chance to develop the new business opportunities I have articulated. Secondly, the Government could look at a shared ownership model for Royal Mail, with 51 per cent of the shares to be divided between the Government and Royal Mail staff, issuing shares to staff and small investors and selling the remaining shares to the market. The funds raised from that sale could provide the investment in the Post Office network and for the modernisation of the Royal Mail Group. The Government have a choice: they either provide the money for the objectives I set out, which I think would be universally agreed by all Members of your Lordships’ House, or they have to use Royal Mail for some form of innovative financing package to raise the money. But they cannot do nothing.