Postal Services Bill

Public Bill Committee, 9 November 2010.

Jimmy Hood (Labour, Lanark and Hamilton East)

Before we begin, I have a few preliminary announcements. It is not very warm in here today, but if hon. Members feel inclined to remove their jackets, they are welcome to do so. Could all hon. Members ensure that their mobile phones, pagers, et cetera, are turned off or switched to silent mode during the Committee’s sittings? As a general rule, my fellow Chair and I do not intend to select starred amendments that have not been tabled with adequate notice.

Not everyone is familiar with the process for taking oral evidence in Public Bill Committees, so it may help if I briefly explain how we will proceed. The Committee will first be asked to consider the programme motion on the amendment paper, and debate on that motion is limited to half an hour. We will then proceed to a motion to report written evidence, and then to a motion to permit the Committee to deliberate in private in advance of the oral evidence sessions, which I hope we can take formally. Assuming that the third of those motions is agreed to, the Committee will then move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited back into the room and our oral evidence session will begin. If the Committee agrees to the programme motion, the Committee will hear oral evidence this morning and this afternoon, as well as on Thursday morning and Thursday afternoon.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I beg to move,

That—

TABLE

Gordon Banks (Labour, Ochil and South Perthshire)

The Minister is correct that we have had good, informative discussions, and we are perfectly happy with the programme motion.

Jimmy Hood (Labour, Lanark and Hamilton East)

Welcome back. May I give a special welcome to our witnesses this morning? I will invite the witnesses to introduce themselves, after which we will proceed directly to the questions. I am not inviting preliminary statements from witnesses, just a brief introduction. I am sure that the witnesses will get their points of view over during the questions. The first question is from Nia Griffith.

Nia Griffith (Labour, Llanelli)

Thank you, Mr Hood. Ms Greene, how will the Bill help Royal Mail? Do you think that it, as drafted, will provide a solution to the issues facing Royal Mail? Are there any ways in which it could be significantly improved? This sitting is partly about you putting on record any improvements that you think would make the Bill even more effective.

Jimmy Hood (Labour, Lanark and Hamilton East)

Thank you. We started the questions before asking the witnesses to introduce themselves, for which I apologise. Moya, you introduced yourself in response to that question, but may I ask the other two witnesses to introduce themselves?

Priti Patel (Conservative, Witham)

My question follows on from the previous one. What do you think the consequences would be if this Bill did not go through? You have highlighted regulation. How would that, as well as less regulation, impact upon competition going forward?

Graeme Morrice (Labour, Livingston)

May I ask you, Ms Greene, whether you take the view that the only solution to this problem is to have 90% privatisation of Royal Mail and therefore to take it out of public ownership and control?

Damian Collins (Conservative, Folkestone and Hythe)

My question relates to the post office network and is directed primarily to Paula Vennells, but if other witnesses would like to comment I would be grateful for your views. Why do you think there is pressure on post offices to close? I would be interested in your views on clauses 26 and 27, which relate to the shifting from a licensing regime to a regime of general authorisation for postal services. Do you think this will make it easier for new post offices and sub-post offices to open or for more businesses to become involved in providing services through the post office network?

Damian Collins (Conservative, Folkestone and Hythe)

Yes. We have had a number of post office closures in the network over the last decade. What factors do you think have driven the need to make those closures? What has made post offices individually unviable and created the pressure on the network to reduce the number of offices?

Damian Collins (Conservative, Folkestone and Hythe)

Do you think there are opportunities for the Post Office to develop even more as a franchise business, as an element within another business? I suppose the sub-post office network already works in that way. Do you think that providing a greater breadth of services or making changes to the way in which you work will facilitate that process?

Gordon Banks (Labour, Ochil and South Perthshire)

Ms Greene, I should like to take you back to part of the answer that you gave to my colleague when you mentioned pensions. How much would be saved on Royal Mail’s current pension payments as a result of the Bill? Is there any other option than to transfer the liabilities to the Government? Are you satisfied with the pension provisions within the Bill and do you have any examples either in the UK or internationally of best practice in terms of pension protection?

Gordon Banks (Labour, Ochil and South Perthshire)

May I just follow up on that? This is obviously a significant deficit, and you have mentioned that. How much of the rise in the deficit is attributable to the 13 years’ pension holiday that was taken, and how much is attributable to other reasons?

Michael Weir (Scottish National Party, Angus)

You have mentioned the universal service obligation, and you said that there is a greater burden of regulation on you than on other universal service operators. Could you tell us a little more about that? Are you seeking changes to the USO?

Michael Weir (Scottish National Party, Angus)

Prior to Second Reading, you told MPs that the USO must fully cover its costs, which implies that you see a raising of prices for those services that are covered by the universal service. Presumably, the idea of competition is that it would drive down prices in other parts of the service. I wonder if you can expand on that; do you see, after privatisation, a rising price for universal service products?

Karl Turner (Labour, Kingston upon Hull East)

My concern is about job losses. Do you expect privatisation to result in job losses and if so, how many? What do you envisage the changes to employee conditions will be?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

You seem to suggest that you have a very good relationship with the trade unions. If I were to put the same question to the general secretary of the CWU later today, would he answer it in the same way? Would there be no job losses, in his view?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

Forgive me for interrupting you. On the point of whether privatisation will result in job losses, would the general secretary of the CWU say the same as you have said in your evidence? In his opinion, will there be no job losses?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

If a private competitor of Royal Mail, such as TNT, took whole or part ownership of Royal Mail, would you foresee any competition issues?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

Just a further point: in the search for further capital to invest in the business, is it not possible that privatisation could lead to a monopoly and therefore potentially breach European competition legislation?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I have a question for Miss Vennells and a question for Mr Brydon. Miss Vennells, how many post offices are there currently in the UK? How many of those post offices are currently making a profit?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

So 8,000 are not economically viable as we stand?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

They are not currently viable?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Mr Brydon, how many seats are there on the Royal Mail Group board? How much representation does Post Office Ltd have on that board?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am sorry; forgive me for being slow. I did not quite understand that. Paula Vennells sits on the board from Post Office Ltd. Does anyone else from Post Office Ltd sit on the board?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

And the chairman of Royal Mail Group?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Okay. I take that, but I am still somewhat unclear.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

That would be helpful. Finally, was it the case that Paula Vennells, or whoever was in her position, would report directly to Moya Greene, but she now reports one step down the chain?

David Wright (Labour, Telford)

Ms Greene, you have talked about the modernisation programme. Where are you with that programme? What is left to do? Is it months or years until the end of that programme? Some would say that we never end a modernisation programme. What is your target point? What do you want to achieve? Where do you want to get to? How does that impact on the value of the company in terms of its disposal? How much do you think that the company is worth? Is this a good time to sell it? Should we be waiting to see the impact of further modernisation? Is it a good point to go to market? Who is going to buy it?

David Wright (Labour, Telford)

Are you saying that we have to have a stronger signal on the regulatory framework before the company has an enhanced value? That seems to be what you were saying at the end of your remarks. Do you think that the Bill does that and delivers that? Is there more to do? Does this give us a framework through which you can secure the best possible value for the company? Is there a need to progress further with the modernisation process before you can secure best value? Should we wait? Should we sell the company in five years, at the end of the period of modernisation that you have outlined?

David Wright (Labour, Telford)

These are massively important questions, in terms of the value of this organisation.

David Wright (Labour, Telford)

And on the basis of its historic value for the public of this country.

David Wright (Labour, Telford)

Can you outline what they are, then? It is important for us as a Committee to understand that, because conversations are, quite frankly, no good to us here. We need some information on what they are.

Graeme Morrice (Labour, Livingston)

A question to Ms Greene: I admire your enthusiasm for your business, and I listened carefully to what you said about how, currently, we have world-class services, how we have done a lot over the past couple of years and how we have a modernisation plan to take us forward in the next five years. Given that the Bill was only published in the past couple of weeks or so, is your five-year modernisation plan predicated on privatisation?

Graeme Morrice (Labour, Livingston)

What if the law is not passed? What would you do?

Richard Fuller (Conservative, Bedford)

Ms Greene, you mentioned a number of benefits to Royal Mail from the Bill. I would like to focus on the area of capital requirements. Obviously, there are a number of variables that you have to deal with, but in your base case assumptions, what do you think the extent of the capital requirements for Royal Mail will be over the next five years? What proportion, do you think, will the group be able to raise with its own resources? I think you mentioned—you may want to confirm this—some of the concerns you have about relying on the Government for accessing that needed capital, but do you have concerns about accessing private capital and what that might mean for the group? In particular, given that on the Post Office Ltd side there is an approach towards mutualisation, what thoughts do you have on the Royal Mail side about extending employee ownership beyond the Government’s proposals?

Gordon Banks (Labour, Ochil and South Perthshire)

First, Ms Greene, you have talked about the progress that has been made in modernisation and therefore, in some ways, access to capital. You were very complimentary about the progress made in the past couple of years. Are you surprised that that could be delivered through an organisation that is basically state-controlled? You then talked about hopes for a potential 2012 sale, but also about being slap-bang in the middle of a modernisation programme that might last for another two or three years after that. At that point, how much investment would that new buyer have to put in to complete that modernisation process? We have discussed the fact that you cannot modernise once and stand still; you have to move the business forward. Do you think that future modernisation processes will be even deeper and quicker than that of the past two years, or the one from 2008 to 2015?

Gordon Banks (Labour, Ochil and South Perthshire)

So do you see it being quicker to end in the future, after 2012, if there were a sale then, and would it be quicker to realise any future modernisation plans?

Gordon Banks (Labour, Ochil and South Perthshire)

So, on the following part of my question, 2012 would be the middle of this five-year period—how much investment would need to be put in at that point to complete this process?

Gordon Banks (Labour, Ochil and South Perthshire)

Yes; but you need a business plan. You can modernise a business plan as you go along, but you must have a plan. You have to base it on something.

Gordon Banks (Labour, Ochil and South Perthshire)

I know that you are number crunching at the moment, and if it would be possible before the end of the Committee to get some guidance on that it would be useful.

I would like to ask Ms Vennells a quick question. Bankfoot, in my constituency, does not have a post office. It has not had one for a number of years, although it is supposedly technically within the network. What in the Bill will give Bankfoot a post office?

Gordon Banks (Labour, Ochil and South Perthshire)

But no one wants to take that up just now, so what in the Bill will change that?

Gordon Banks (Labour, Ochil and South Perthshire)

Okay. So you do not see anything in the Bill that is likely to increase the network in areas where we should already have post offices?

Gordon Banks (Labour, Ochil and South Perthshire)

I appreciate that, and I am sorry to labour the point. We should have a post office in Bankfoot, and the Post Office admits that we should have a post office there, but we do not have one. This is a major piece of legislation affecting the relationship between the Post Office and Royal Mail. I am, therefore, looking at this as a flag for other people to ask what in this piece of legislation will give Bankfoot and the many other Bankfoots the opportunity to have what they should have, and what you think they should have—a post office.

Gordon Banks (Labour, Ochil and South Perthshire)

No. As you can understand, I used it to wave a flag for the many Bankfoots.

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

Coming back to the modernisation element, you have just reiterated that more than £3 billion from the public purse is being put into the process. With the sell-off of Royal Mail, the public want to know that they are recouping as much of the value as possible. In your opinion, would the sell-off of Royal Mail accrue more value at this moment, when modernisation is still taking place, or after modernisation has been done?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

It is important to the public to know that they are recouping the money that they have already invested, isn’t it?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

Coming back to your point on the game plan, would that put restrictions on who you would see as an adequate potential owner of Royal Mail?

Nia Griffith (Labour, Llanelli)

Can we come back to the concerns expressed about the importance of that third of the income that comes from the Royal Mail which, again, is underlined in the Government’s latest statement this morning, and the need for a long-term commercial contract? How would that work with a privatised Royal Mail? How do you oblige a privatised company to make that contract with you rather than going to a big supermarket or high street chain and rather than reducing the numbers perhaps to those 4,000 that might be viable?

Nia Griffith (Labour, Llanelli)

May I pursue that a bit? First, we know that some other competitors have been snapping at the heels of the Post Office for Government contracts and things. So we know there are people out there who are potential competitors and rivals. I appreciate your tremendous dedication to the post office network, but Royal Mail may move on and other people who do not have the same view may come in and take your place. Is there any way that a private company can be obliged, other than through a voluntary agreement, to be in a contract with a particular provider rather than having the choice to go to whichever provider they want? Would not the only way to safeguard that be to keep a majority share of Royal Mail in public ownership?

Nia Griffith (Labour, Llanelli)

But it is essentially a voluntary relationship, and it cannot be made obligatory.

Nia Griffith (Labour, Llanelli)

What sort of length of time?

Nia Griffith (Labour, Llanelli)

How can we be sure of that? How can we be guaranteed that?

Nia Griffith (Labour, Llanelli)

What do you mean by long term?

Nia Griffith (Labour, Llanelli)

So?

Nia Griffith (Labour, Llanelli)

Are you suggesting that we should enshrine in law the length of time that that agreement should last?

Nia Griffith (Labour, Llanelli)

Effectively, are you saying that potential purchasers will be able to see that, when they purchase Royal Mail, they will automatically be entering into an agreement with Post Office Ltd? When you think about the timing of that agreement, you should think of the sub-postmasters and sub-postmistresses who have put their life savings into post offices. Ten years is nothing, because they will be worried about putting money in and then finding that they cannot sell later on. What long term would be realistic for people genuinely to be able to continue setting up new post offices and taking over when people retire, and so on?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

We have heard some references to other mail services across the world, but what are the best examples of successful mail companies or mail services worldwide? Please give two or three examples.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Two things arise out of that. First, as you were giving that encomium to Royal Mail, it struck me that we seem to be privatising a very successful Government-owned industry. On the second more important point, I was interested that you mentioned Deutsche Post. Is it the case that Deutsche Post has to work under a set of criteria which protect the number of post offices, and that various access criteria are actually written in statute? In the Bill, as it stands, there are no such criteria. Is that the case?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

If 8,000 post offices are not currently economically viable, that £1.3 billion will have to go a long way. Would that be a fair way to put it?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

That’s the bottom line in your view?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Royal Mail is operating pretty successfully, the modernisation programme is going very well, but—

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

May I just raise the issue of the flexible owner? Moya Greene mentioned a number of times that Governments have other priorities. But on that argument, the Government would operate nothing commercially whatsoever, because Governments always have other priorities.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Thank you for that. That is an important point. Your position is that the Government should have no role in the market whatsoever.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

So, in your view, as long as you have a strong regulator then the public interest will be served.

Damian Collins (Conservative, Folkestone and Hythe)

I want to go back to Paula Vennells on some of the points made about the post office network. With the resolution of some of the business issues that you have identified within the network plan, do you think that that might make the Post Office attractive to new entrants? Presumably, the Post Office brand is still one of its great assets. Retailers that want post office counters within their business presumably do so because they believe that they make a positive contribution to the performance of the whole business. If there are cost elements that can be restructured, do you think that there will be more people coming to you saying that it now might be viable to open a new one?

Damian Collins (Conservative, Folkestone and Hythe)

Is the Bill helpful in terms of making it easier for a new entrant to go through that process and get a counter or post office set up, be that a village hall, a pub or a retailer such as WH Smith?

Damian Collins (Conservative, Folkestone and Hythe)

For those of us who are concerned about post office numbers, who would like to see more of them and who would debate not only about whether we can sustain the level that we have, but whether the network can grow to meet demand, the Bill can only help.

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. This will probably have to be the last question, because we are running out of time.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Moya, I want to bring out something that you have touched on once or twice with regard to your comments on the world class mail project and how significant that is. Could you say a little bit more about that and how it may relate to the employee share proposition that is in the Bill? I, with Mark Higson and his team, have been impressed with how every single Royal Mail employee whom I have met for this project has been inspired and involved by it, and, in many ways, they are enjoying their work more than they have ever done before. I am passionate about the Bill and the employee shares, and I want to try to take some of that passion and give some of the benefits of success back to the employees. Could you say a little more about the how the world class mail project is affecting the working lives of individual employees?

Jimmy Hood (Labour, Lanark and Hamilton East)

Moya, you have less than one minute to answer that.

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. We have run out of time, and I must draw the evidence session to a close. I thank our witnesses for coming this morning.

Jimmy Hood (Labour, Lanark and Hamilton East)

Welcome to the evidence session. May I ask you briefly to introduce yourselves, and we will proceed straight to the questions?

Priti Patel (Conservative, Witham)

My question is for Mr Hayes. We have gained an insight from our last witness into the working relationship between Royal Mail and the Communication Workers Union, and we have heard some very positive comments. For our benefit, will you give us an insight from your perspective into your current working relationship with Royal Mail?

Jimmy Hood (Labour, Lanark and Hamilton East)

You have made your point, Mr Hayes.

Priti Patel (Conservative, Witham)

Are there any particular challenges concerning the working relationship specific to modernisation?

Graeme Morrice (Labour, Livingston)

I was questioning the representatives from Royal Mail about modernisation earlier, and they spelled out an attractive picture of world-class services, and how things have improved greatly over the past two years and how there is a plan taking us forward for the next five years. I asked whether all that is predicated on privatisation. In effect they said yes, because the process relies on the capital. It may not be my view that it can only be done through private means, but obviously you believe in taking the business forward and support modernisation. What is your vision of the future over the next five years, without the need to privatise?

Karl Turner (Labour, Kingston upon Hull East)

On privatisation, do you expect it to result in job losses and significant changes in the terms and conditions of your members?

Karl Turner (Labour, Kingston upon Hull East)

Did it surprise you that Moya Greene said that she does not anticipate job losses as a result of this privatisation?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

You may have listened to the evidence that we heard earlier. It seems that the modernisation programme has been a great success. It is coming strongly from the Royal Mail CEO that it has been a great success. Moya Greene’s argument about why we must go ahead with privatisation despite that great success seemed to boil down to one of two arguments. One was that the company needs access to capital. I wonder whether you could comment on that.

The second argument, in response to something that I asked her about, was that the Government should have no role whatsoever in any commercial enterprise. I wondered whether you thought that might play a role in how Royal Mail is viewing this whole enterprise.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

As the discussion ensued, it was clear that the Royal Mail argument was about private capital. I want to ask for your views on that. Do you think that there are other ways of getting private capital? Do you think there might be a general view that the Government should not have any role in the private sector, other than as a regulator? Do you think that that is wise?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

So why are the Government going ahead with privatisation?

Richard Fuller (Conservative, Bedford)

I want to address a question to each of the three representatives from CWU, Unite and the National Federation of SubPostmasters, if only so the latter two do not feel that they are being crowded out in this sitting. Before that, I would like to place on record my grateful thanks to the CWU representatives—the regional secretary and the many workers from the sorting office in Bedford—who came to see me. My question is about the proposals to extend employee participation on the Royal Mail side through a 10% employee participation, and on the Post Office side through mutualisation. I would be interested to hear from each of the three representatives what they think about this extension of employee participation and whether, particularly on the Post Office side, if the Bill is passed and Royal Mail is privatised, the employee representatives or unions would be interested in extending employee participation. One of the most important things for employees through this Bill is to have certainty for their long-term employment, and a broader role for employees in the ownership of participation in the management of these businesses might be most welcome to them in providing that certainty.

Richard Fuller (Conservative, Bedford)

But philosophically, you think that extending employee ownership with these proposals is a good start. If I am correct, it is a minimum of 10% in the legislation. Philosophically, you agree with that step.

Damian Collins (Conservative, Folkestone and Hythe)

George Thomson, in the written memorandum from your organisation that was submitted to us, you said that the National Federation of SubPostmasters supports mutualisation in principle. Obviously, you have just said a bit about that. I have two questions. First, do you have a view or would you make a recommendation to Government on what model of mutualisation should be developed, if you could design it or recommend it? Secondly, in the previous witness sitting the chairman of Royal Mail suggested that mutualisation may be attractive to retail businesses and businesses looking to get into operating and setting up new sub-post offices. Do you have a point of view on that?

Damian Collins (Conservative, Folkestone and Hythe)

Following the comments made earlier by Mr Hayes, one expects a little bit of churn within the network. As I have seen in my constituency, someone running an independent business, such as a village shop or a community shop, may retire or may be unable to continue their business, so their counter could be lost. We want the flexibility in the network, and for the proposition to be attractive enough, so that someone else would happily come in and take on that business. So, even if the sub-post office moved location, the community could still have some sort of service. The proposals for mutualisation potentially make it more attractive for new agents to come in and make up such gaps in the network.

Michael Weir (Scottish National Party, Angus)

The Post Office and the Government have said that there will be no more closures, and I understand that there will be no more closure programmes, but you have rightly made the point that many or most small sub-post offices are part of a larger business, many of which are struggling. Many of them are also the only business left in a village. How realistic is it to promise no more closures? In the event of the closure of such a business, how realistic is it for someone else to come in and reopen that post office?

Michael Weir (Scottish National Party, Angus)

But is there not pressure on those small shops in towns and villages already? The post office business forms part of the overall income, but there are pressures on all parts of such businesses. How many of your members are operating a shop-post office combination, and how many are making a decent living out of that?

Michael Weir (Scottish National Party, Angus)

With respect, George, you are not really answering the question. The Tesco Expresses are in larger towns, but many small towns and rural areas have a shop-post office combination. The owner of that shop-post office combination is facing pressure from all sides on both sides of the business. It is suggested that if such a business was to go under, there are to be no more closures, so presumably another post office operation will come in. I am asking you, in your opinion, how feasible is that? Is that just pie in the sky?

Jimmy Hood (Labour, Lanark and Hamilton East)

Well, Mr Ward, you should have jumped in at the time. I didn’t see you. I see you now, Mr Ward.

Richard Fuller (Conservative, Bedford)

One of the constituents that I think you’re missing here is the taxpayer. The taxpayer is being asked in this Bill to take on the actuarial loss of the employee pension fund, which may be £8 billion. When I spoke to Mr Hayes yesterday, it seemed it might be slightly less than that. We have to bear in mind taxpayers’ interests when we are looking at further capital investment into the Post Office. We have a very willing audience here in terms of looking at creative ways in which our postal service can represent employee rights. I would ask this direct question of the CWU: would the CWU consider participating in an offer to acquire more shares together with a private bidder, if this legislation goes through?

Gordon Banks (Labour, Ochil and South Perthshire)

We have heard from Mr Fuller and Mr Ward. You mentioned earlier when we talked about the pension deficit that you were having some concerns over the pension situation. Maybe you could amplify that; what concerns you do have over the proposed privatisation and relationship to pensions for your members. Do you think the pension fund has been guilty of bad decisions in the past, as has been suggested by the Secretary of State for Business? Mr Fuller mentioned the pension deficit. It has been suggested that it is as high as £10 billion, or mid-ground £8 billion—for various reasons it looks as if it is being recalculated down. I think that is something we should not lose sight of in these discussions: the state is contemplating taking on a reducing level of commitment. What is your position on that? Do you think that is something we should not lose sight of? I am concerned to hear your concerns about pensions in relation to privatisation, and also why we have got to the situation that we have over the 13-year holiday.

Andrew Stephenson (Conservative, Pendle)

I shall continue on the pensions theme. We have to get the Bill right for the employees of the company, but many taxpayers will ask why it is necessary for them, at the current time, to take on a further £8 billion pension liability or whatever the deficit is—there is a range of figures from six to 10. From what you were just saying, you were indicating that you thought that the Government should take on that liability without privatisation and without the other aspects of the Bill. Is that what you would propose to deal with the pension deficit?

Andrew Stephenson (Conservative, Pendle)

I hear what you are saying, but I think that many people in the room would argue that given the Government’s taking on and fully funding the pensions liability, and the basing of the employee shares at a minimum of 10%—I think it is right to say that it is at least 10% going for share ownership for the employees—that is a very good deal for the employees.

As a general question to all of you, are there any provisions in the Bill that you support? Are there any key elements that you are happy to work with the Government to see introduced? Earlier on, you were saying that the Government were coming from completely the wrong angle on the Bill and that you reject its premise.

Andrew Stephenson (Conservative, Pendle)

That is not my argument; that is a common argument.

Jimmy Hood (Labour, Lanark and Hamilton East)

We have less than two minutes left—a quick question from Edward Davey.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

First, to Dave and Billy, when your team looks at the pension proposals, if you have particular questions please write to me and copy it to members of the Committee. That will help us in our debates and discussions.

You mentioned the pension trustee. For the record, I should say that the Secretary of State wrote back to the pension trustees and said that he hoped they accepted that he had only said “bad investment decisions” inadvertently; he made it clear in his letter that it was far more to do with the external investment environment. I hope that that helps. On the pension trustees, I do not know if you had a chance to speak to them about the solution that the Government are proposing, because they have legal duties to your members—the beneficiaries of the Royal Mail pension plan. What have the trustees said to you about the proposal that the Government are putting forward?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

No, I am talking about the pension solution in the Bill. Clearly, Jane Newall and the other pension trustees have discussed it with you, because your members are the beneficiaries—

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. I am afraid that you will not have time to answer the questions.

Jimmy Hood (Labour, Lanark and Hamilton East)

I am sure that you will find ways of getting the answer to him.

I thank our witnesses.

Sir David Amess (Conservative, Southend West)

Welcome to this afternoon’s evidence session on this important Bill. Most witnesses have never experienced this and, because taking evidence is a recent innovation, the experience is new even for members of the Committee. For those who are giving evidence, Committee members are anxious to get evidence on the record from our four witnesses, so that we can consider and reflect on those comments during the Committee stage.

We will now hear oral evidence from the four witnesses. Starting from Jill Ainscough, will you introduce yourselves and make an opening statement for two or three minutes?

Sir David Amess (Conservative, Southend West)

Thank you very much. Mr Stapleton and Mr Brown, your use of the microphones was absolutely spot on. Can the other two witnesses speak up a little so that we do not have any issues with resonance? My script says that before calling the first Member to ask a question, I should remind all Members that questions should be limited to matters within the scope of the Bill. We must also stick strictly to the timings in the programme motion agreed by the Committee, which means that we will finish this first session at 5 o’clock.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

This is a question, I guess, for the Ofcom representatives. Am I right in saying that, as currently drafted, Ofcom will not necessarily have to carry out a review prior to making its first universal service order?

Sir David Amess (Conservative, Southend West)

Anyone else?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

May I follow up?

Sir David Amess (Conservative, Southend West)

Of course.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

What I was getting at with that question is that, as currently drafted, Ofcom will make the first universal service order. My understanding is that the Secretary of State, when you present that to him, can remove services from the universal service order, but he cannot add services to the universal service order. Is that your understanding of the Bill as it is drafted?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

He may have the ultimate responsibility, but as you understand it, the Secretary of State cannot add services to the universal service order, he can only remove them. Is that right?

Andrew Stephenson (Conservative, Pendle)

I have a question for Mr Stapleton and Mr Brown. Could you describe your current relationship with the Royal Mail? We heard this morning from the chief executive and various union reps, and they all mentioned what they see as over-regulation. There was particular criticism from Royal Mail’s point of view about the access headroom regulations as they currently stand. Could you set the scene for hon. Members on how you see the current relationship and how that has developed over the past few years?

Andrew Stephenson (Conservative, Pendle)

Do you think that what was said in the Hooper review about the tensions was right?

Graeme Morrice (Labour, Livingston)

Obviously, I will contain any questions to what is within the Bill, as you mentioned earlier, Mr Amess. One of the Bill’s big components is the whole-scale privatisation of Royal Mail. What are your views on that? Do you believe it is the best way forward for the organisation? If the Bill is enacted, do you believe there should be any restrictions on who could purchase Royal Mail? That is to all of you.

Graeme Morrice (Labour, Livingston)

The second part of my question was whether there should be any restrictions on who should be able to purchase Royal Mail if the Bill is enacted.

Damian Collins (Conservative, Folkestone and Hythe)

I have a question for Ed Richards and Ofcom primarily. From your experience as a regulator, what do you think you can bring to regulating Royal Mail? What sort of lessons can you learn from the broader communications sector that could be applied to regulating Royal Mail and the Post Office?

Damian Collins (Conservative, Folkestone and Hythe)

The Hooper report says that regulation can play a role in the modernisation of Royal Mail by creating incentives to improve the efficiency of its operations. To both Ed Richards and Postcomm, do you have any initial thoughts on how good regulation could be used to improve the efficiency of Royal Mail?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

What I want to ask is, drawing upon your experience as regulators, whether it would provide greater clarity for a regulator if the Bill set out the criteria for access points, namely post offices, in the same way that it does for frequency of collection and delivery.

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

Isn’t it the case, though, that on the continent, in places such as the Netherlands and Germany, you find legislation that puts down certain criteria for access points? It seems to work quite well on the continent.

Priti Patel (Conservative, Witham)

I am interested in the transition that is going on between the two organisations, with the shift of regulatory power. How is it working thus far? Is Ofcom taking any learnings from Postcomm in light of the history over the past five years—the post office closure programme, consultations and so on—and the public aspect of dialogue that has taken place previously on the access to postal services, and how is Ofcom preparing for that?

Gordon Banks (Labour, Ochil and South Perthshire)

Mr Richards, you have mentioned how good regulation can stimulate a business, but the purpose of good regulation is not only to stimulate but to protect. Do you think that you will be provided with adequate resources that will allow you to deliver this quality of regulation, which stimulates and protects? How much of Postcomm’s budget will you receive, and how many staff will you deploy on postal issues compared with Postcomm?

Robin Walker (Conservative, Worcester)

A question for Ofcom: you mentioned earlier, Ed, that you have experience of working with a universal service obligation in the telecoms sector. I was wondering whether there are any specific lessons that you could bring from that experience to the postal service. Do you think there are any elements of the current universal service obligation as it stands in this area that might put off potential buyers or investors in this business?

Robin Walker (Conservative, Worcester)

You mentioned earlier that there are a lot of different markets in Europe. Where would our universal service obligation stand in relation to others?

Nia Griffith (Labour, Llanelli)

I think what the public want to know is what will happen to the service at the end of the day and what your role will be in that. We have heard how the price of a stamp is going up very shortly and that once the Royal Mail is privatised, some aspects of its work will effectively be a privatised monopoly. While we have six days originally here, we also have the power to review. What will stop there being a huge pressure on Ofcom either to reduce the service by going down to five days or to increase the price? How will you ensure that that universal service obligation is the most important thing?

Nia Griffith (Labour, Llanelli)

Given the difficulties with the market and the way it is going, if we are honest, it seems all the more necessary that we should have the provisions that protect the service. Otherwise, we are simply relying on the European directive. We might as well say that we will go with the five-day service. Do you not feel that there should be something to strengthen the legislation? To come back to the point about access points—I am not confusing that with the post office network, but talking about access points for Royal Mail services—it was for the very same reason that countries that have privatised their mail services thought it prudent to keep something about the number of access points in the initial legislation. For those reasons, we need something to make the role of Ofcom stronger in that regard.

Richard Fuller (Conservative, Bedford)

I have two related questions on Ofcom’s ability to designate more than one universal service provider. I have been heartened by the comments, made both now and earlier, on the viability of maintaining the universal service obligation, but there are a couple of situations in which that might not occur. If a postal administration order were in place due to the insolvency of one operator, do you feel that there is enough clarity on the role of Ofcom to reassure us that the universal service obligation would be maintained in those circumstances?

Richard Fuller (Conservative, Bedford)

In the other circumstance, which I think is a procurement determination, can you offer any insight on where that power might be invoked by Ofcom?

Michael Weir (Scottish National Party, Angus)

I want to ask about some of the points raised about the USO. Clause 28 states that you must ensure that the provision of a universal service is financially stable. You also have the power in another part of the Bill to require contributions from other postal operators to help finance the USO. Do you see yourselves in the situation, where several private companies are competing against each other, of being able to insist that other private companies contribute to the USO provider?

Michael Weir (Scottish National Party, Angus)

You say there is only going to be one per geographical area, but are there any other providers who are able to provide a national USO in these circumstances? Do you anticipate the USO being divided between several operators in terms of the Bill?

Michael Weir (Scottish National Party, Angus)

You say that, but one of the main Royal Mail complaints about the USO is the financial burden it places on it now. I do not see anything in the Bill that is going to mitigate that financial burden, unless other providers are asked to contribute towards it.

Michael Weir (Scottish National Party, Angus)

But Royal Mail also says that its main cost is the last-mile delivery, which the other competitor gets the benefit of without paying full price. Do you think there is a case for demanding more from the other operators to enable that last mile? As far as I am aware, no other operator of a national network comes anywhere near rivalling Royal Mail in remote areas.

Michael Weir (Scottish National Party, Angus)

But Hooper himself says that an increase in price usually leads to a fall in volume.

Rebecca Harris (Conservative, Castle Point)

I think my questions are mostly for Postcomm. How do you see the implications of the separation of the Post Office and Royal Mail and are you optimistic about it being to the benefit of both companies in the future?

Karl Turner (Labour, Kingston upon Hull East)

Ofcom is clearly taking on greater responsibilities. How might that impact on the attention afforded to postal services, if at all?

Karl Turner (Labour, Kingston upon Hull East)

Do you have a plan in place then, or are you just going to wait and see?

Priti Patel (Conservative, Witham)

I am interested in the pending and future relationship between Ofcom and the Royal Mail. I ask in an open way, in the light of the Hooper report which spoke of the relationship between the Royal Mail and Postcomm as basically quite terse and difficult, with a sense of distrust. There is a caveat to that question, in the light of the colourful history that the Royal Mail has when it comes to industrial relations and disputes.

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

If a private competitor to the Royal Mail, such as TNT or Deutsche Post, took part or whole control of the Royal Mail, could you foresee any competition complications? Also, assuming that TNT or Deutsche Post did that—if a private equity company, for example, came along and took ownership of all or part of Royal Mail—would you expect it to seek to liquidise some assets, and how long-term would that private equity company’s commitment to the service be?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

In setting out a regulatory framework in a Bill, we want to ensure that the regulator has enough flexibility for how a market develops, and for changes that are coming in the future. That has been one of the things in my mind. I just want to check whether you think the measures in the Bill would future-proof the regime so that if, for example, you needed to deregulate more because the market had changed, you would be free to do that—you would have the powers in the Bill and, in Ofcom’s case, in the Communications Act 2003.

Sir David Amess (Conservative, Southend West)

Three more colleagues want to ask questions, but we have only two minutes. Frankly, I doubt that colleagues would be able to ask questions and get responses that would be meaningful, so I thank our witnesses very much indeed for the time that they have given the Committee this afternoon. Thank you for the evidence that you have presented to us. It will make our deliberations even more valuable and more informed than would otherwise have been the case. Thank you very much indeed.

Sir David Amess (Conservative, Southend West)

Welcome—I have noticed you sitting in the Public Gallery, so I think that you already have a feel for the style of this Committee. Please could you both introduce yourselves and make any opening statement that you wish to set out before the Committee starts asking questions.

Nia Griffith (Labour, Llanelli)

We would obviously like to focus on the Bill and how you fit into its proposals, particularly with regard to the universal service obligation, the regulators, and so on. If the Bill goes through, could you tell us whether you will be more or less likely to use the Royal Mail rather than its competitors? What will be the key plusses and minuses of the Bill?

Rebecca Harris (Conservative, Castle Point)

That almost touched on my question. We have heard a lot about how Royal Mail has lost a lot of custom in a short time. What do you see as the principal reasons for Royal Mail losing that custom over the past few years?

Rebecca Harris (Conservative, Castle Point)

No?

Rebecca Harris (Conservative, Castle Point)

So business customers are not leaving Royal Mail and going to competitors.

Gordon Banks (Labour, Ochil and South Perthshire)

I wonder whether both gentlemen could tell me what benefits the Bill will give to their members. Do you have any ideas on how this piece of legislation could be improved?

Gordon Banks (Labour, Ochil and South Perthshire)

Well, yes it is.

Gordon Banks (Labour, Ochil and South Perthshire)

But that is more about the way you understand Ofcom does business, as opposed to this piece of legislation.

Gordon Banks (Labour, Ochil and South Perthshire)

Will the Bill give any benefits to your members as it stands?

Damian Collins (Conservative, Folkestone and Hythe)

That is the point I wanted to come in on. In your opening remarks, you set out a vision for what you would like Royal Mail to be like, and I think everyone would agree with that. The challenge from the Hooper report is the fact that, because of market pressures, Royal Mail is heading in the opposite direction.

Just for the record—and for my benefit—when you talk about bulk mail are you talking about direct mail, mailing of bills and large-scale commercial mailouts from big organisations?

Damian Collins (Conservative, Folkestone and Hythe)

I am glad that you said that, because I was going to ask that as a follow up. Those areas of bulk mail are highly competitive not only within that sector, but from outside competition as well. Direct mail competes against online advertising, newspaper inserts and other things where you can reach a direct audience. The trend to take bills online—

Damian Collins (Conservative, Folkestone and Hythe)

Well, if it is of small comfort, I would say that since becoming a Member of Parliament—I am sure that some of the new Members will agree—I have found that people still write to their Members of Parliament physically, on pieces of paper. We are certainly bucking the trend in that regard, but I do not know if it will be enough.

Damian Collins (Conservative, Folkestone and Hythe)

I have one final question, if I may, Mr Chairman. Market forces are only going to get more competitive, and, even with Royal Mail becoming more and more competitive, it is still going to be a challenge to make money out of doing those things. Do you basically agree with the view of the chief executive of Ofcom that, with the provisions in the Bill to bring in private money and to bring in new efficiencies through better regulation, we need a total step change in the way that Royal Mail works if it is going to survive?

Sir David Amess (Conservative, Southend West)

Before Mr Weir puts a question to our witnesses, when Mr Banks was asking his question, I think you were trying to catch my eye, Mr Sibbick, and I moved on too quickly. Would you now like to respond to that question?

Michael Weir (Scottish National Party, Angus)

What Mr Halfacre was saying about bulk mailing was interesting. It seems that most of the individually addressed mail that we receive these days starts life with either UK Mail or TNT, and it is the last mile delivery by Royal Mail that is important. From Mr Sibbick’s point of view, as a representative of the competitors, I wonder whether he thinks that they are paying a fair price for that last mile service, given that none of them have a comparable network. Also, given that the Bill contains the power for Ofcom to say that others should contribute to the cost, does he think that his members should contribute to the cost of providing universal service?

Michael Weir (Scottish National Party, Angus)

Given that Postcomm said in the earlier evidence session that it was losing money—albeit not as much as perhaps it was previously—can you not see that, if it is privatised, there will be extreme pressure for others to contribute and cover any perceived loss on universal service?

Priti Patel (Conservative, Witham)

Do you think that the Bill goes far enough in terms of competition and freeing up Royal Mail from many of the regulatory burdens we have heard about and know of? I would like to follow up on Mr Banks’s point. You touched on Ofcom a little bit. What key regulatory powers do you think Ofcom should have?

Graeme Morrice (Labour, Livingston)

Are you content with the public monopoly that we have now becoming a private monopoly or would you prefer to see a privatised Royal Mail fragmented and sold off in bits to encourage this competition that you just mentioned?

Andrew Stephenson (Conservative, Pendle)

I was going to ask about the regulations but I think that we have covered that one. So I have a generally broad question to both of you. Obviously the Bill has to get the balance right between ensuring the long-term viability of Royal Mail for its customers and employees, protecting the USO and taking account of taxpayers’ interests. Do you think that, at the moment, across the board on all the issues in the Bill, the balance being struck by the Government is right, or do you think that it is a bit out of kilter?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Can I just pick up on that point? Just to elaborate, delaying the inevitable being—

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

So your considered view is that the USO as it stands is not a long-term, viable—

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Do you have a view on how long we can maintain the current USO?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Is that a long piece of string?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Finally, we heard from Moya Greene this morning, who was clear that the Royal Mail modernisation programme is going very well and that efficiencies are being made. Your view is that, even if it is already making efficiencies, to support USO it will have to make significant other efficiencies. Would that be a fair assessment?

Richard Fuller (Conservative, Bedford)

I would like to ask a general question about the market and the industry that we are considering. I want to know whether I should be an optimist or a pessimist. If I am hearing you two gentlemen correctly, each of you is quite pessimistic about the future if we go on as we are. I would be interested in whether you confirm or challenge that view.

You both seem to be generally bullish on the industry. You encourage your members to use the service, and you encourage people to compete in it. Do you think the impact of the Bill should make us feel more bullish about the industry overall? If we were all to come back in five years’ time, would the optimists have won out over the pessimists?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

You have advocated that if the USO were weakened or a reduction of service were applied, that would potentially increase efficiency and competition. Would you apply the same logic to the inter-business agreement?

Robin Walker (Conservative, Worcester)

A large part of my question has just been pinched, actually. I am very interested in your views on that separation, particularly given that you started your career at the Post Office. It is being suggested that there is a logic to the proposed separation. We got quite a strong welcome for it when we spoke with the regulators earlier. David, do you see real opportunities for your members to bring business into the Post Office, if the right framework is set up within the inter-business agreement?

Nia Griffith (Labour, Llanelli)

If we focus again on your actual service requirements, it is obvious that you are an absolutely key player in providing income for Royal Mail. Without your members’ business, it would not be able to keep going. Will there not be a huge amount of pressure from you to influence the way that the regulator copes with Royal Mail? You have already mentioned that, were it not for European law, you can see the six-day delivery going. Are you saying that, because most of your bulk mail is probably not very time constrained, effectively you think that perhaps a Monday and a Thursday would be adequate for most parts of the UK, and that it could just go down to something like the arrangements we have for the milk service, with deliveries being made on alternate days, for example? Are you saying that you will be putting on a lot of pressure to weaken the universal service agreement? Are you saying that it is strict enough in the Bill and that five days would be quite enough? On the access points, would it not make any difference to you at all if there was no post office network and virtually no access points?

Nia Griffith (Labour, Llanelli)

Absolutely not. It is a separate issue.

Nia Griffith (Labour, Llanelli)

To come back on that, the question arises whether there should not be some provision for the regulator to control a number of access points. That is a separate issue. The initial question is, will you be putting pressure on the regulator to get rid of the extra expenses?

Damian Collins (Conservative, Folkestone and Hythe)

That leads into what I want to ask. To clarify, if anything puts cost on the service without a material big improvement in delivery—and we are talking about a relatively simple product—it will hasten the decline of Royal Mail. If Royal Mail charge more for the final mile of delivery, that extra cost will not be absorbed by the industry, it will push more people out of Royal Mail.

Damian Collins (Conservative, Folkestone and Hythe)

In general, the issues that you have outlined are not unique to Britain. The input technology will have an impact on mail services in most countries. Are there any examples you would look at around the world and say, “Here is an example of a postal service that is working with its bulk customers particularly well” and is something that we could learn from?

Gordon Banks (Labour, Ochil and South Perthshire)

You have both been fairly downbeat over the past 10 or 15 minutes in your appraisals for future business load, for a range of reasons. You have also been downbeat about the potential future of the USO. You also made some comments about the investment needed to finish the modernisation programme, depending on when the sale goes through. That was a point that I was working on this morning with Moya Greene. I am not tying you down to your evidence, but if businesses are thinking the way you are, it is going to impact significantly on who is going to want to buy this business and what they are going to pay for it. If people share your views, what kind of deal will the Government get?

Gordon Banks (Labour, Ochil and South Perthshire)

You are an optimist.

Gordon Banks (Labour, Ochil and South Perthshire)

I would like to ask one supplementary question in relation to that, which is just something that I have been thinking about. From the private sector’s business point of view—possibly from the Government’s, but largely from the private sector’s—we will see the demise of cheque payments in the years to come. That is not something that I totally agree with, with my background, but do you share concerns that that decision will have an impact on the amount of traffic through Royal Mail? I sat last night and—dare I say it—did my IPSA payments, and I sent a lot of cheques away to people. At some time in the future, if I am still a Member of Parliament, I will not be able to do that, so all those envelopes that I posted last night will not be going through Royal Mail.

Gordon Banks (Labour, Ochil and South Perthshire)

I have run a business since 1986 and that is most definitely not an accurate description of what happens.

Gordon Banks (Labour, Ochil and South Perthshire)

What happens in the construction industry—

Gordon Banks (Labour, Ochil and South Perthshire)

You say that as if the construction industry is an ogre, but it employs an awful lot of people. Cheques are very valuable to small businesses.

Sir David Amess (Conservative, Southend West)

Before we have the last question from our Minister, I call Priti Patel.

Priti Patel (Conservative, Witham)

Very quickly, you have all touched on the USO, which is pretty much the focus of the Bill and is central to it. Mr Halfacre, you have touched on the issue of the future sustainability and viability of the USO. Do you think that Royal Mail’s management and its employees understand fully what is required to make the USO fully sustainable and viable? I caveat that with their own behaviours from an employee point of view. We heard some union representatives this morning touching on the fact that they are not pro-employee ownership and want more dialogue and so on. Until we shift and change the behaviours, do you think that will have a long-term impact on the viability of the USO?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

There is always a balance in regulation between competition and ensuring something like the universal service obligation can be delivered. I am sure that your members will have different views on where that balance has been struck. I am keen to look at the big picture and your members’ view on the Bill’s overall direction of travel given that they rely, and will rely for the foreseeable future, on Royal Mail as a universal service provider. I am going to try to put you on the spot—you might not like it, but we get put on the spot occasionally. Do you think that your members welcome the Bill overall or not?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Which way?

Sir David Amess (Conservative, Southend West)

I am afraid that that brings us to the end of the allotted time for this sitting. There are only two of you fielding questions from the Committee this afternoon, so on behalf of the Committee, thank you both very much indeed for your time.

Sir David Amess (Conservative, Southend West)

Welcome to our witnesses. I do not think you have been here for the whole of our sittings but this is your opportunity to answer questions from members of the Committee on the record so that when we come to the Committee stage of the Bill next week they will be much better informed. Thank you for being here this afternoon. Could you all introduce yourselves and make an opening statement to the Committee for perhaps two or three minutes?

Gordon Banks (Labour, Ochil and South Perthshire)

I have two questions, one on share ownership and one on mutuals. On the issue of share ownership, what benefits would share ownership bring to Royal Mail—both as a company and to its employees—and why 10%?

I shall ask my other question now, too. On Second Reading, John Redwood asked what the Government were talking about mutualising. Would it be the Crown offices, which the Government already control and own, or the mass network of self-employed businesses? Is the first doable and the latter impossible, or are they both doable from an administrative side?

Starting with the share ownership question, what does it bring to Royal Mail? What does it bring to the employees, and why 10%?

Gordon Banks (Labour, Ochil and South Perthshire)

That would be useful.

Gordon Banks (Labour, Ochil and South Perthshire)

I just want to move on to issue of mutualisation in the Crown post offices, the sub-post offices and the self-employed businesses.

Gordon Banks (Labour, Ochil and South Perthshire)

Do you accept that there is difficulty in what can be mutualised, because of the very structure of post offices, sub-post offices and other self-employed outlets?

Richard Fuller (Conservative, Bedford)

Most of my experience with employee ownership is in high-growth early-stage businesses, and I do not think that this business could be described as having either of those two features.

Earlier on, we were talking with the unions and with management, and they had different perspectives on the value of share ownership in providing incentives. You have mentioned other forms of participation, involvement or influence on the business, and I would be interested if, first of all, you would like to comment on what other considerations we should be giving to those other forms of influence. Secondly, on the question of 10%, which a number of you have mentioned, would you encourage the employee representatives, if the Bill is passed, to look to participate along with some bidders in order to increase their stake in the business, particularly on the Royal Mail side?

Graeme Morrice (Labour, Livingston)

On employee share ownership, what has the witnesses’ experience been in relation to that, with employee shares being retained as opposed to being sold off to corporate business, for example, as we have seen in past privatisations such as BT?

Priti Patel (Conservative, Witham)

Earlier today, we heard quite a bit of resistance to the whole concept of employee share ownership from members of the unions. Would our experts please spell out what the benefits would be to Royal Mail employees? Secondly, are any of your respective organisations starting to liaise with the Royal Mail board and members, in terms of educating them and raising some awareness about what this potentially could look like for them?

Michael Weir (Scottish National Party, Angus)

I have a question for Peter Hunt. In the introduction to your document—and you again said today—you said that before POL can be transferred it has to pass the test as a sustainable business, which it clearly isn’t at the moment. We have heard evidence today that some 7,000 to 8,000 of the existing sub-post offices are not profitable. What is your take on how they would survive in a mutual organisation? Is it possible to form a mutual when you’ve got so many non-profitable parts of the organisation?

Michael Weir (Scottish National Party, Angus)

The Post Office is different from many businesses, in the sense that it performs a social obligation as well as a purely business obligation. At the moment, effectively two thirds of POL is not profit-making, although some post offices might become profit-making. Is a mutual really only a possibility if we get to the stage where the vast majority of branches are profit-making and able to form part of a mutual organisation?

Michael Weir (Scottish National Party, Angus)

Turning the question on its head, if most of the smaller post offices are part of a larger business, and if the owner has invested his own money and is seeking to make a profit, I do not see how that will fit into a mutual model if it keeps open loss-making shops.

Andrew Stephenson (Conservative, Pendle)

I want to return to employee share ownership schemes, of which I am a great fan. On a point of clarification, the Bill stipulates 10% or more for share ownership, so we should not get too fixated on the 10% figure. That would be the largest figure for employee share ownership of any major privatisation anyway, and that is the minimum it can be. We have already talked about whether it was just shares, rather than being in a trust, and whether employees would be able to dispose of those shares. Could you comment on some of the other factors that you think the Government should take into account when designing the scheme? What should Ministers bear in mind?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

Coming from an industrial relations background in the steel industry, I can say that the proposed 10% minimum is not a precedent. That was set by Rolls-Royce in the 1980s. We spoke to CWU representatives today. I do not think that they were resisting; they were just apprehensive because of previous bad practice in share distributions to employees in the ’80s. My own experience with British Steel in 1988 was that 6% of shares were sold to employees, and they were mainly managers who had the tip-off, who were in charge of the redundancy programme at the time and who had access to capital.

What previous best practice have you seen in terms of equitable distribution among the categories of employee in a company to make sure that such a scheme could work?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

It might be good to look at those ways.

Robin Walker (Conservative, Worcester)

It is no secret that Royal Mail has had its problems with industrial relations over the years. We heard earlier from one of the customer groups, which said that industrial relations breakdowns could be a threat to the long-term business model and the universal service obligation. Can you give any examples of companies that have been able to improve their industrial relations through employee share ownership? Will you also expand a bit more on how employee share ownership can improve communications between management and workers? I have talked to my local CWU. Breakdowns in communication caused a lot of the problems, when it did not believe that management were listening to their employees.

Nia Griffith (Labour, Llanelli)

I want to return to the issue of mutualisation and post offices, but do not wish to address purely Mr Hunt, because I think that the business experience of the other three witnesses would be useful. Clearly, we have a situation in which perhaps 4,000 post offices are viable and two thirds are not. If we are trying to make the business viable, presumably there are options of increased business and continued subsidy, or the mutual staff will have to decide that some of those post offices will close. What could be put into the Bill or how could it be strengthened to make the post office network more attractive? People have to want to buy it. First you have the sub-postmasters who have a lot of money in it anyway. Do they want to spread that money around to less viable post offices which is effectively what they may be doing? Who else would you interest? What is your take on things like the inter-business agreement with Royal Mail and what would you want to see from that to make a viable post office network? What about the issues of regulation and having not just the collection and the delivery points, but the access points defined very clearly in the Bill in terms of regulation? What types of measures like that would you want to see to strengthen it and make it a worthwhile organisation to buy into?

Nia Griffith (Labour, Llanelli)

To follow up on that, I have a question about access points. I am not talking about the access criteria, which we know are linked to Government funding of the Post Office; I am talking about access points for Royal Mail to use and to be in the universal service obligation. Would you not see a place for that in terms of making the post office network viable?

Nia Griffith (Labour, Llanelli)

Would it not have an impact on whether the network was viable?

Nia Griffith (Labour, Llanelli)

Do any of the other witnesses want to comment?

Damian Collins (Conservative, Folkestone and Hythe)

I have two quick questions. I would like to sum up a little on what you have said about employee share ownership schemes. Given that good communication between management and employees and a sound business model are the two most important things, is it correct to say that the percentage of shares offered to the employees is secondary to the quality of the scheme that they can join, particularly if that scheme means that they feel they have a stake in that business and are sharing in the success of that business? Would that be your view?

Damian Collins (Conservative, Folkestone and Hythe)

Would you say what is in the Bill is token, or is that a sensible place to start?

The rest of the debate is in Hansard.