Postal Services Bill

Public Bill Committee, 7 December 2010.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

On a point of order, Mr. Amess. I wish to correct the record in respect of a statement that I made earlier in our proceedings. During discussions on an amendment to clause 3 on employee shares, I informed the Committee that the clause was explicit that all those who work for a Royal Mail company—the company providing a universal service—must be part of the employee share scheme. I wish to clarify that clause 3 does not, in fact, oblige all those who work for Royal Mail to be part of the employee share scheme. It requires that the scheme must include employees and allows the Government to make the employee share scheme available to all employees of Royal Mail.

The provision itself does not require that all employees are part of the scheme. There is a good reason for that, as some individual employees might not wish to be part of the employee share scheme, and the Bill should not require them to do so if it is not their wish. The hon. Member for Llanelli was concerned that the employee share scheme could, for example, be used just to reward members of the management team. I absolutely assure her that that will not be the case. The scheme will not be limited to a particular group of Royal Mail employees. Our focus will be to make employee share ownership as wide as possible to help align the incentives of employees of the company. There will, of course, be transparency to Parliament on the employee share scheme. As I said when we were discussing amendments on the subject, clause 2 requires the Government to report to Parliament when they decide to transfer or issue shares in the Royal Mail company, including to the employee share scheme. I hope that my explanation has benefited members of the Committee.

Sir David Amess (Conservative, Southend West)

The Minister’s explanation has been very helpful, and it will be noted in Hansard.

When the Committee adjourned on Thursday, all the amendments to clause 30 had been disposed of.

Clause 30

Nia Griffith (Labour, Llanelli)

The weather has not helped this morning, and we seem to be a bit thin on the ground. Clause 30 is an extremely important part of the Bill, as it sets out the requirements for the universal service, something that is dear to our hearts and that we want to be as explicit as possible. We are pleased that the minimum requirements are more than the minimum required by the EU directive, as we are worried that some areas of the Bill could see a slipping back to providing only what is in the directive. We have talked at some length about the amendments we would have liked under requirements 1 and 2, such as Saturday delivery extending to all shapes and sizes of packets and parcels and not simply being for letters. That is a matter for regret, but I shall not spend a great deal more time on requirement 1.

It is absolutely essential that we clarify exactly what requirement 2 means. As I understand it, it applies when there are access points. In other words, if the access points have already been established, the requirement sets out what has to happen at those points. However, it sets out nothing about a specified number of access points, such as postboxes or counters where people can take registered letters or parcels. I emphasise that matter, because reference has been made to access points as if a certain number of them had been designated during our discussions.

Well, a certain number of access points has not been designated, which is in contrast with several providers abroad where the number of access points is specified under legislation. We have heard plenty about Germany’s 12,000 access points, but let me tell the Committee about another country that has a specific explanation on the distribution of access points and where 90% of people in urban areas are expected to have a post office-style access point within a 2.5 km radius of their home. Some 85% of people in rural areas are expected to have such access within 7.5 km of their home. I am not describing a compact, densely populated country—it is not Germany but none other than Australia. Many members of the Committee will have seen pictures or will themselves have journeyed across miles and miles of country, where a garage is a welcome landmark. I am sure that they will be astounded to note that even Australia specifies criteria for access points to the postal service. Why can we not have criteria specified in our legislation? Okay, where there is an access point, there has to be a collection—that is obvious—but there would be a specific number. Of course, we would have liked to go even further and specified post offices, but, failing that, at least if there were a minimum number, that would provide better cover than is currently the case in the legislation as it stands.

On requirement 3, we are pleased to see that prices will be affordable and uniform. That is an extremely important addition to the EU directive, which simply refers to “affordable”. However, we are worried that there may be other parts of the Bill where that could be eroded. For us, it is important that wherever we send a first class letter, the length and breadth of the country, it should be at the same price in line with a uniform public tariff. Again, there is a difference between what we see in the Bill, which we welcome, and what the EU directive says. It is something about which I feel strongly. It is worth safeguarding, so we need to strengthen the Bill.

We welcome the inclusion of requirements 4 and 5 on the registered and insured items services, which are in line with EU directives. Requirement 6, which is optional in the EU directive, provides for services to blind and partially sighted people. I dare say some members of the Committee will have had the privilege of recording talking newspapers, which are sent out to blind and partially sighted people, providing a valuable source of local news, gossip and all sorts of things. Certainly, it is a well-subscribed service in my local area, and a lot of hard work is put in to make it so. We welcome the opportunity for packages to be sent free of charge.

We welcome requirement 7, which is perhaps unique to this country. It is not in the EU legislation. However, although the requirement looks acceptable on paper, there are threats elsewhere in the Bill that seem to undermine the minimum requirements. The danger is that it would be possible for Ofcom to simply pare back to what is required to comply with EU directives. I have already mentioned such threats in our discussions on clauses 28 and 29, particularly in clause 28(4), when we read of Ofcom’s duty to

“secure the provision of sufficient access points to meet the reasonable needs of users of the…postal service.”

That gives Ofcom an opportunity to reduce any service it deems unreasonable. That leaves it open to question, so we worry that what we see on paper in the minimum requirements may be easily eroded. It would be helpful if the Minister could offer assurances that that is not the case.

On clause 29, we noted that Ofcom can make various assessments and consider the extent to which the market is meeting the reasonable needs of users. Again, there is an open opportunity to perhaps reduce the service in some way, so even before we reached clause 30, we found that the requirements were being undermined.

Clause 32 sets out exceptions to the requirements. As I am sure that the hon. Member for Angus would have wanted to remind us, the exceptions relate to geographical and other conditions. He would certainly find that most unacceptable, as we do. Almost immediately after clause 30, we find a threat to its provisions.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am interested in what the hon. Lady is saying. Do the Opposition not support the exceptions in clause 32, which were shadowed in the EU postal services directive and in the Postal Services Bill 2009? Is she saying that the position has changed and that they are now against exceptions, and that Royal Mail employees should deliver anywhere, irrespective of geographical or other circumstances?

Nia Griffith (Labour, Llanelli)

Clause 32 leaves the door open for exceptions to be made, and once more exceptions start to be made, they can grow and grow. As I have said, I will mention that in the debate on that clause, and the hon. Member for Angus would certainly have wanted to raise that matter.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

We can leave most of this dialogue until we reach clause 32, but if there is something wrong about the way in which Royal Mail runs its exceptions policy now, perhaps the hon. Lady will inform the Committee. What concerns does she have with the way in which other privatised postal services—for example, our good friend Deutsche Post—have run theirs?

Nia Griffith (Labour, Llanelli)

We shall return to that dialogue when we reach clause 32. On clause 33, we will again discuss the opportunities that Ofcom has to review, revise and consider what is reasonable. All those words might be used in various ways, including possibly to undermine what we see as the good start made by clause 30. We would like that clause to remain much more secure, by removing a few mays from the Bill and by removing some of those opportunities for Ofcom to reconsider and possibly modify what is reasonable.

Under clause 34, if Royal Mail is the universal service provider, it would have no guarantee of being so for more than three years. That might have negative impacts on its investment programme and on its decisions about investment relating to the universal service obligation network. As we move through the Bill, we will mention some other issues about which we are worried, and we have great concerns that clause 30, as it stands, is not as strong as it at first appears.

To sum up, we are very concerned that the requirements set out in clause 30 are under so much threat from elsewhere in the Bill. In short, a privatised Royal Mail that is looking to cut corners might use the existence of what I call review-and-get-out clauses to put pressure on Ofcom to amend those minimum requirements. We are also extremely concerned that no minimum number of access points is required, and that we have no criteria for the distribution of those access points. We also do not know how many postboxes and counter services we may end up with, or whether they will be evenly distributed across the whole country.

I place on the record our concerns about that, alongside the concerns that we mentioned earlier about our wishing, in an ideal world, to have a Monday to Saturday delivery service covering packets and parcels as well as letters. We welcome the minimum requirements above and beyond those set out in the European directive, but we have some reservations. In particular, we are concerned that the clause might be undermined elsewhere in the Bill.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I thank the hon. Lady for welcoming our overall approach in the clause. She noted—without using the phrase—that we have gold-plated the requirements of the European postal directive. I apologise to colleagues who are worried about gold-plating, but in this case they will welcome it—we have gone beyond the European directive in clause 30 by enshrining a higher level of minimum service requirements into UK legislation.

I am pleased in particular that the hon. Lady mentioned letterboxes, because they escaped previous contributions. It is important that letterboxes are provided for the public—115,000 of them are enjoyed by Royal Mail’s customers. Letterboxes are an important part of the fabric.

The hon. Lady again talked about access points—I experienced déjà vu at times—and was worried that their number was not specified in the requirements, and in requirement 2 in particular. We had that debate last week. I refer her to clause 28(4), in which Ofcom’s duty to secure

“the provision of sufficient access points to meet the reasonable needs of users of the universal postal service”

is clearly set out.

I was pleased that the hon. Lady compared the UK with Australia, suggesting that in effect Australian requirements were stricter, because she gave me a chance to mention England’s victory by an innings and 71 runs and to pay tribute to Mr Strauss and his colleagues. The Royal Mail also wins against Australia Post. Australia Post is a fine postal administration, do not get me wrong—I had the pleasure of visiting its headquarters in Melbourne many years ago, and it is at the cutting edge of postal services.

In disagreeing with the hon. Lady, and saying that the UK compares favourably with Australia, I do not wish to rub salt into Australian wounds. However, Postcomm’s analysis in 2007 looked at access criteria equivalents and compared Australia with the UK. It showed that our access criteria have 99% of the urban deprived population within 1.6 km and 95% of the urban population within 1.6 km, whereas the Australian requirement is 90% of the urban population within 2.5 km. The criteria for rural areas are similarly worse.

In comparison with the UK, both urban and rural households in Australia have a weaker commitment. I hope that the hon. Lady will at least accept that. The reality—the facts on the ground—which we will take forward in our legal agreement on access criteria with Post Office Ltd is that we have more access points for both urban and rural populations.

I am sure the hon. Lady is about to intervene to mention the difference between access points and access criteria which, in anticipation of what she will say, I accept. However, the practical reality is that we are, through the access points provisions in clause 28(4) and the access criteria in the funding contract with POL, ensuring a double protection, the result of which is more access for universal postal service users.

Nia Griffith (Labour, Llanelli)

I accept that the Labour Government set out access criteria above and beyond Australia’s, reflecting our more densely populated islands. Our figure of 99% of people being within a mile of a post office is clearly much better than the Australian model, but my point is that that has nothing to do with what is in the Bill. The criteria concern how many post offices there are, but they have nothing to do with the number of access points specified in the Bill for any provider of the universal service to provide. We are still no further on with getting the number of access points specified, never mind any thought that those access points might be post offices.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Lady is right that we have had the debate on a number of occasions, but the structure that we have for ensuring a comprehensive post office network is much more effective than any that I have looked at in any country, including Germany, Australia and France. We can continually replay the argument, but I want to return to what the Government are doing to protect the post office network, which is rather more than what the previous Government did, in terms of money, overall policy framework and the legal agreement with Post Office Ltd.

After looking at requirement 2, the hon. Lady moved on to welcome requirement 3, with its reference to the need for services to be uniform, and I am grateful to her for that. I agree that requirement 6, which ensures that there are services for blind and partially sighted people, is extremely important, and I confirm that I, along with friends and volunteers, have made recordings of Liberal Democrat “Focus” leaflets and of newspapers and my annual report, which have been welcomed extremely widely. I am sure that I could make them available to colleagues should they want them—I somehow doubt it.

In the last part of her remarks, however, the hon. Lady, having welcomed the minimum service requirements, said that they were somehow under threat. She was both reprising some discussions that we had on clauses 28 and 29 and looking forward to the debate on clause 33. I do not want to anticipate that debate, beyond saying that the protections in the Bill for the minimum service levels are the strongest that this Parliament has ever been asked to agree to, and we will make that case very firmly.

Clause 30 is very important. It enshrines, in the same way as the Postal Services Act 2000 did, the minimum service requirements. Although its wording is slightly different, the clause effectively replicates what was in the 2000 Act, and I hope, therefore, that hon. Members will support the clause.

Clause 32

Nia Griffith (Labour, Llanelli)

I wish to highlight two slightly different approaches to the clause. The hon. Member for Angus, who tabled an amendment to the clause but is not here, seeks to remove the words about geographical conditions and so on being allowed as exceptions, whereas Labour Members seek more parliamentary control over what might happen. Subsection 2 clearly states that there are circumstances in which it is not necessary to comply with requirements 1 and 2 in clause 30. Requirement 1 specifies a six-days-a-week—Monday to Saturday—delivery service for letters and a five-days-a-week delivery service for postal packets, and requirement 2 specifies the same for collection services.

The first circumstance in which the requirements can be waived is a public holiday, which I think we all find acceptable. Paragraph (b), however, could be a get-out clause—horror of horrors—allowing Ofcom the discretion to consider as exceptional particular geographical conditions or other circumstances. I imagine that the hon. Member for Angus would have told members of the Committee something along these lines: the clause gives a lot of discretion to Ofcom—quite possibly rather too much—to decide whether an area should be left without delivery and collection, because it is exceptional due to geographical conditions or other circumstances. It would give Ofcom carte blanche to cut down the number of deliveries and collections to any area that it chooses.

The real difference between this Bill and previous Bills is that it would create a fully privatised Royal Mail. If the clause is left as it is, a privatised Royal Mail, totally determined to cut costs, might put pressure on Ofcom to first designate far-flung, difficult to reach areas as exceptional—the Scottish islands immediately spring to mind—and then to designate the more remote rural areas as exceptional. Before we know where we are, we will have a full scale, two-tier system, with six-day delivery in the larger cities and a poorer service in the smaller towns and rural areas.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I would be grateful if the hon. Lady were to confirm that her criticism really is of Ofcom. This issue is unrelated to ownership; it is about whether the regulator will enforce legal issues around exceptions. Is it right to say that she does not trust Ofcom?

Nia Griffith (Labour, Llanelli)

The clause leaves a lot of leeway for Ofcom. The hon. Member for Angus wants to remove the exception all together, while our approach is somewhat different. What we said in amendment 79, which was not selected but which we have debated in other contexts, was that the Secretary of State should put a regulation before Parliament before such exceptions are allowed. We want a clearer opportunity for Parliament to look at these matters, rather than just leaving them to Ofcom. It is not a matter of not trusting Ofcom; it is that there will be a lot of pressure, because it will effectively be a privatised monopoly. Consumer Focus, the Hooper report and Postcomm have all notified us that the pressures on Postcomm from the current set-up have been significant. With a privatised monopoly, even though Ofcom is much bigger and has more experience of dealing with all sorts of communications industries, there would inevitably be a temptation for Royal Mail to push hard to bend the rules and to be open to creating a two-tier system.

In later clauses, we will look at how other providers could provide help in doing that. By introducing a number of different providers, there would be more leeway whereby this type of exception could become the norm. So, our way of circumventing that particular problem would be to suggest that the Secretary of State brought these exceptions to Parliament, giving an opportunity for scrutiny of any proposed exceptions. Whether such cases would remain as very exceptional or whether they would creep, creep, creep, creep, creep along to include other areas, that approach would at least allow us the opportunity to scrutinise what exceptions are allowed.

Karl Turner (Labour, Kingston upon Hull East)

I do not know whether it is a matter of trust, but in evidence I recall Ofcom saying that it had a plan, but when asked whether it was prepared for this regulation, it said that it would take the plan off the shelf, dust it down and look at it again. My concern is that Ofcom’s plan was made under a different proposal, where the majority of Royal Mail was retained by the state.

Nia Griffith (Labour, Llanelli)

The circumstances are different, which is why we want tighter control and tighter scrutiny of what might be proposed. If we are not careful, the words “exception” and “exceptional” could lead to a service that is two-tier or three-tier, or provided by multiple providers. A loophole in one small subsection of the Bill could destroy the entire universal service. Such a loophole would deny service users what every household or business in the UK has the right to expect—the delivery and collection of their mail on a daily basis, six days a week.

If there are no Saturday deliveries in remote areas, people living there will have further to travel to collect a registered item from a postal sorting office. However, the measure affects not only the people who live in the so-called exceptional areas; it also affects those who want to send items to them. In other words, we can forget the idea that if we post an item first class on a Friday morning it will almost certainly arrive the next day, wherever in the UK it is sent. We will have no idea which rural pockets Ofcom has designated as exceptional—they could be large areas of the Scottish highlands, or much smaller areas, such as parts of mid-Wales or the west country, which are sparsely populated.

The idea behind the amendment tabled by the hon. Member for Angus is to get rid of the mention of any exception at all. Our amendment—amendment 79—would have required the Secretary of State to put regulations before Parliament before such exceptions could be allowed, because we should not leave it to Ofcom alone to decide such matters. If there are to be any no-go areas, the Secretary of State should come before Parliament and justify why some UK citizens would find themselves being treated as second-class citizens, with a reduced service and number of deliveries and collections.

I am not sure whether the Minister can give us satisfactory reassurances on the matter. I find it extraordinary that he might allow the Bill to proceed with the current wording, and with no strengthening of the obligations on Ofcom to come back to the Secretary of State and Parliament. I ask that he provide reassurance, without which we will find it difficult to support the clause.

Sir David Amess (Conservative, Southend West)

Ingeniously, the hon. Lady has managed to discuss not only Mr Weir’s amendment but also her own, which was not selected.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

We are all upset that the hon. Member for Angus cannot join us today, because his amendment raises important issues, even though it is unworkable. I have christened it the Milk Tray amendment. Members of the Committee may remember the Milk Tray adverts and the action man coming out of the helicopter to deliver—

Sir David Amess (Conservative, Southend West)

Order. I have been advised that we should not continue the debate. The debate is on the question that clause 32 stand part of the Bill.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

There is a lot of demand for Milk Tray, Mr Amess.

Hon. Members will understand that, were no exceptions set out in the clause, we would be asking Royal Mail employees to deliver in impossible circumstances, which could put them in danger. I am sure the hon. Lady would not wish that to happen.

I shall set out in some more detail what lies behind the Milk Tray comments. After doing so, I hope the hon. Lady will realise that her amendment—had it been selected—would have not have been sensible, and that the clause is eminently sensible. Without the clause, the burdens on the universal service provider would be absolutely disproportionate. They would add huge costs and, more important, would put at risk the health and safety of hard-working postmen and postwomen.

The clause will ensure that the regulator has discretion to determine exceptional circumstances, in which the minimum delivery and collection requirements of the universal service as set out in clause 30 need not apply. The wording, as the hon. Lady mentioned, directly replicates section 4(1)(a) of the Postal Services Act 2000 and clause 32(6) of the Opposition’s Bill from last year. It flows from the European directive’s article 3(3), which states that member states must take steps to ensure a universal service,

“save in circumstances or geographical conditions deemed exceptional”.

The exceptional situations we have in mind and which are deemed exceptional by Postcomm at the moment are, for example, where there is an address on a remote island to which there is only a single ferry service a week. It would be unreasonable to expect Royal Mail to deliver to that address every day, as it would be required to charter its own boat. I hope that in the hon. Lady’s opposition to the measure, she is not suggesting that Royal Mail should do that to deliver to one address on a remote island. I hope she understands that that is a reasonable exception.

Nia Griffith (Labour, Llanelli)

Our amendment, which was not selected, did not suggest doing what the amendment tabled by hon. Member for Angus did, which was to take out that word completely, but would have had the Secretary of State bring back to Parliament any suggestions for exceptions. What we are saying is that we are worried about the clause’s elasticity, which is the matter the Minister has to address.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Let me reassure the hon. Lady that the way in which the exceptions policy has been interpreted by Postcomm, and how it will be interpreted by Ofcom, is not as elastic as the way she suggests—that large areas are not being delivered to. If Ofcom did that, it would fail in its overall duty as set out in clause 28.

It is important that the Committee understand why we need such exceptions. I could give another example: where an address has dangerous dogs and poses a genuine threat to postmen and postwomen. I am sure that all members of the Committee have, at times, delivered leaflets around their constituency at elections, and will have come across addresses with problems that are less exciting to deliver to. Sometimes such problems are temporary—for instance, where it is impossible to deliver because the calling system for a block of flats is out of action. There are also occasional increases in the number of addresses that cannot be delivered to. For example, there was an increase of 182 in the reported number of delivery points excepted from the universal delivery service between 2009 and 2010. When queried, Royal Mail explained that the increase was due mainly to 110 new exceptions in an east London postcode, where a number of tower blocks were listed as temporary health and safety exceptions because of unsafe delivery environments.

Those are the sorts of examples where such exceptions happen, and in no way will that undermine the universal service. In many ways, it will support that service because it would be unfair to require postmen and postwomen, and the universal service provider, to deliver come what may if there are health and safety or access difficulty issues. I am sure the hon. Lady understands that.

I know there are number of exceptions in the hon. Lady’s own constituency—I am sure she is aware of quite a number—but most of them concern access problems. She will know that where someone has exceptions to their home or business and they are not getting the universal service delivery, they can appeal. There is an appeals procedure, and Royal Mail has to defend itself to the regulator in such a case. In no way is the provision a loophole to undermine the universal service. It is what happens now and what is required by the European directive, as I hope the hon. Lady will understand.

The hon. Member for Kingston upon Hull East said that Ofcom will just dust down its old plan in respect of such matters. The old plan that Ofcom mentioned in evidence concerned the operational merger of Postcomm and Ofcom, not regulation of the postal market. It would have been bizarre had it had a plan for that operation, because the House has not given assent for the Bill to provide that responsibility. Ofcom is rightly planning for the merger, but it certainly has not got round to thinking about how it will regulate in respect of delivery exceptions.

I hope I have dealt with the issues that have been raised, and that the Committee will agree that the clause should stand part of the Bill.

Clause 33

Nia Griffith (Labour, Llanelli)

I beg to move amendment 45, in clause 33, page 18, line 16, after ‘May’, insert ‘after five years’.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Amendment 60, in clause 33, page 18, line 18, at end inserts ‘paying particular regard to the needs of—

Amendment 61, in clause 33, page 18, line 21, at end insert—

Amendment 80, in clause 33, page 18, line 30, at end insert

Nia Griffith (Labour, Llanelli)

The clause is extremely important as it deals with reviewing the minimum requirements. As I have said, we welcome the minimum requirements but we are worried that some parts of the Bill might provide opportunities whereby the service can be eroded in an unhelpful way. Amendment 45 would add the words “after five years” to the clause so that Ofcom can review after such time whether clause 30 reflects the reasonable needs of the users of postal services provided in the United Kingdom. In the difficult times that will ensue following the privatisation of Royal Mail, when everyone is becoming used to new circumstances, it will be important to have stability.

We also consider that the universal service obligation is of such immense importance that it needs a good five-year period to bed in with the newly privatised provider. Our worry is, why on earth would anyone want to start reviewing that universal service obligation within 12 months, 18 months or three years—periods that are referred to throughout the Bill? We want a firm assurance that there will be a proper five-year period during which the full universal obligation will be provided, and to be given an opportunity to see it operating properly in practice. We do not want anything reviewed, revised, changed or watered down before a proper, full five-year period.

When I spoke to clause 29, I reminded the Committee about a potential end of the inter-business agreement about 18 months after privatisation, depending, of course, on when privatisation takes place. So, there would be a huge amount of negotiation as to exactly what the Royal Mail wanted from any inter-business agreement, be it with post offices or other providers. There would be leeway, because there is nothing about the number of access points on which to cut down and the number of access points that it provides. At the same time, a simultaneous review by Ofcom of what is actually required in the universal service obligation leaves the door open for an enormous amount of manoeuvring by Royal Mail to put everything in order in one go, in a way that suits it, rather than the consumer. Ultimately, we are looking at the protection of the consumer, and we want to ensure that that is in mind first and foremost.

The amendment, therefore, is a sensible and easy one for the Minister to accept. One ought to do nice things at Christmas, and accepting the amendment is a nice, easy option for him. Universal service provision would be strengthened in one fell swoop and nothing too complicated would be involved, because the amendment simply extends the situation that would have existed anyway.

Amendment 80 adds a provision towards the end of the clause, after subsection (6):

“providing the Secretary of State has previously ensured that consultation has been undertaken with the devolved, territorial bodies of Government as are appropriate to the provision.”

In speaking to this amendment, I want to make it absolutely clear that subsection (6) is vitally important. It is right and proper for the legislation to include the subsection, which ensures that any amending of clause 30 by the Secretary of State should not include making different provision for different places in the United Kingdom. It is important to have that universality of service across the whole UK, and such a response is likely from the devolved Administrations.

Automatic assumptions by the Secretary of State about what those in the devolved Administrations might say would, however, be presumptuous. At the very least, the devolved Administrations ought to be consulted about any amendment to the clause proposed by the Secretary of State—any amendment to the minimum requirements of the universal postal service. Why? The reason is that many areas in the devolved settlements involve a significant overlap in responsibilities. In real life, devolved responsibilities interlink with the responsibilities reserved to the UK Government in different ways.

For example, the issue of economic development is important to the Welsh Assembly and the Scottish Executive, with their particular attention to the needs of small businesses in rural areas and so on—both Administrations have made significant investment in their post office networks. For those in the devolved Administrations to want any break-up of the universal service might seem extremely unlikely. Nevertheless, given their investment and how they want to support economic development, it would be important for them to be fully involved in any review, consultation or steps taken by the Secretary of State, simply as a matter of a courtesy, and because they see the interlinking of anything happening to the universal service provider and their local economies.

Amendment 80 would provide the devolved Administrations with an opportunity to comment on proposals by the Secretary of State to amend the minimum requirements. If the Secretary of State had some mad idea, which I cannot believe, and wanted to give Ofcom powers to amend minimum requirements in an unhelpful way, consultation with those in the devolved Administrations about any such report or review might head off complete madness and any unacceptable proposals. Consultation with the devolved Administrations is practical, because of their involvement in economic development and, in particular, the sorts of investment they have made in the post office network.

Amendments 60 and 61 are fairly self-explanatory. We are simply asking that vulnerable users, users in rural areas, and small and medium businesses be able to express their particular needs, and that those needs be considered. Clearly, there are people who can and always will speak up and shout the loudest, but the most vulnerable in society do not have that opportunity.

There should be a duty on the regulator to take account of the needs of vulnerable users, such as the elderly, those who find it more difficult to get out and about, those who rely on items coming through the post and who want to be able to post items without having to traipse miles from their homes to do so. We all know what a joy it is for many elderly people to receive items through the post, and they are probably the best at remembering birthdays and sending the delightful things that younger family members enjoy receiving. Vulnerable users who need to be taken into account include those who, for many reasons, are housebound and people who, for one reason or another, rely more on postal deliveries than on their going out to find and buy items, as other people might.

We have mentioned several times the concern that isolated rural communities, in which enterprising people use the postal service to help establish small businesses, should also have their needs taken into consideration. It should not just be assumed that because people live in the countryside, they want to live at a slower pace of life and therefore do not want a postal service on more than five days a week. There should not be assumptions of that nature. We have discussed small and medium enterprises at length, and their needs and requirements from the universal service are all-important. They use the postal service in many ways, and Ofcom should take great note of the ways in which they want it to be run, and of the provisions they would like for facilitating economic growth and for helping to increase the number of jobs, particularly in rural areas.

Amendment 61 would insert proposed new subsection (2A) relating to

“consumer representatives, and…representatives of small and medium enterprises.”

It is self-explanatory that we would want such representatives to be consulted. Ofcom has a responsibility to consumers, who may be members of the public or businesses, and those groups are represented by different organisations. We hope that the present Government will not try, in any Bills that might be around the corner, to get rid of any groups that look after consumers’ needs. It is important that consumer representatives be kept in mind and in the loop about how the universal postal service might be developed and about the review that Ofcom might want to make of the requirements, so that they can state their needs and priorities.

In earlier sittings, we heard several references to surveys that have been carried out among business users and the general public about what they would like to see. We want those types of information and opinion to be considered. We are asking for amendments 60 and 61 to be made to subsections (1) and (2), so that we can be assured that such needs will be looked after when Ofcom reviews the minimum requirements.

To sum up on clause 33, we are concerned that such a review will take place so quickly. It leaves a door open, very early on, for the service to be reshaped in a way that might be detrimental to the consumer, particularly the more vulnerable users, those in rural areas, and small and medium enterprises. We worry that the negotiations that the privatised Royal Mail will have, probably simultaneously, on any inter-business agreement on access points, will put pressure on Ofcom to water down the minimum requirements. For those reasons, we have tabled the amendments.

Karl Turner (Labour, Kingston upon Hull East)

I do not intend to speak for long; I know that the Government will want to make progress as the Committee stage nears its end. Nevertheless, I intend to place on record my support for the amendments, along with an explanation of why they are of particular benefit.

I was not a Member in the previous Parliament but there is no doubt that, had I been, I would have opposed the privatisation of Royal Mail. I make no secret of that, but I accept that some investment is required. In my previous contribution to the Committee, I emphasised the need for the Bill to be absolutely watertight in its instructions to Ofcom in its role as the postal service regulator. My reasons were twofold, and I wish to reiterate them. First, as I have said time and again, the Bill goes much further on privatisation than any previous proposal. It has also been seen through the House at startling speed. It is essential to ensure that Ofcom has the powers to regulate a privatised Royal Mail effectively and in the public interest, so I again urge the Minister to slow down and be more considered in his approach.

Secondly, watertight legislation is required not least because the handover from Postcomm to Ofcom will have its difficulties. I take the point that the Minister touched on in his closing remarks in the previous discussion. Although I have confidence in the professionalism of both bodies, the task is large, and the Bill should be specific in its instructions to ensure that the universal service obligation and the post office network are protected, despite any handover issues.

Amendment 45 is a reasoned amendment that turns on the issue of speed versus proper consideration. It ensures that Ofcom is prevented from undertaking a review of the minimum universal postal service until five years have elapsed, which is helpful for two reasons. First, the amendment protects the minimum requirements for an extended period, ensuring that Royal Mail’s new owner or owners are unable to exert any pressure on Ofcom to re-examine the minimum requirements straight after a sale. Secondly, it prevents Ofcom from undertaking a hasty review, so that when and if a review is undertaken the full effects of privatisation will be understood, modernisation will be complete, and the pension deficit will be far from people’s minds. In short, the amendment ensures that the regulator will not be able to do what the Government are attempting. Ofcom will be able to look at the long-term effects of privatisation and modernisation, rather than making short-term decisions that might themselves have negative long-term effects.

On amendment 60, I welcome any change that tightens the regulatory framework. I see no reason why Ofcom should not pay particular attention to vulnerable consumers, rural consumers and small and medium-sized enterprises when it undertakes a review of the minimum requirements. Those groups are heavily reliant on Royal Mail’s universal service. Any review that results in a watered-down service would affect those groups more than any other, so it seems only right and proper that particular attention be focused on them.

Amendment 61 would ensure that consumer groups and representatives of small and medium-sized businesses are consulted as part of any review of the universal service undertaken by Ofcom. If a privatised Royal Mail is to be regulated effectively and fairly, the affected groups should be given a voice in that process. The fact that those groups will represent people who rely heavily on Royal Mail services would surely enhance the review rather than work to its detriment. It would ensure that people—as well as balance sheets—are included as an important consideration

Amendment 80 seems perfectly reasonable. I would be surprised to hear any objection to it. The Secretary of State is to agree to a change to the universal postal service that affects the whole of the UK. It seems only reasonable that consultation should occur with those devolved and territorial bodies. We should do this in a spirit of co-operative government to ensure that all parts of the unitary state are effectively consulted.

The amendments to clause 33 would mean that any regulatory review was undertaken no sooner than in five years’ time, ensuring that, following the sale, Royal Mail’s new owners would have no incentive to increase pressure on Ofcom to dilute the universal service requirement. They would also allow them to take a wider view of the state of the universal service provision when undertaking a review. The amendments would ensure that the public interest is a large consideration in any change to the universal service. They would put those groups that most rely on the postal service at the heart of Ofcom’s review and draw representatives of business and consumers into the process, ensuring that they are fully consulted.

I do not believe that the amendments alter the substance of the Bill too radically. For that reason, the Minister could perhaps concede them. In my respectful submission, they are reasonable amendments. They seek to change the Bill for the better to ensure a strong and effective regulatory framework is in place to protect the universal service for all who rely on it. For those reasons, I support the amendments. I urge all members of the Committee to do the same.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Lady introduced her amendments, which I am afraid I will not be able to accept. I will explain to the Committee why. I think they should be called the lucky amendments, because the hon. Lady asked for nice things at Christmas, not because we are going to accept them. She may not think this is a nice thing. I am sure I can find the picture that was taken of me at the weekend as the eighth dwarf, named Lucky. Unfortunately, there is no recording of the jokes that I told, which is probably just as well.

The point to get across is that the Bill is about protecting the universal service. That is the starting point. Clause 30 enshrines the minimum requirements for that. Clause 33 tries to show that those minimum requirements can be reviewed, but the powers in clause 33 enhance the safeguards against changes to the minimum requirements. I want to explain that in detail, because people need to understand this. Under the European Communities Act 1972, the Government already have the power to change the minimum requirements of the universal service to the level required by the directive, which is five days a week. There is no requirement under that directive for there to be uniformity in the service. That change could be made by negative resolution. That is not acceptable. We talk a lot—I certainly do—about what was in the 2009 Bill, and it is interesting that there was no protection for the minimum service. The previous Government were happy to keep the powers that they had under the 1972 Act.

Nia Griffith (Labour, Llanelli)

Does the Minister think that there might be more pressure from a privatised Royal Mail than there would have been from a Royal Mail in majority public ownership?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

That goes back to whether one trusts Ofcom. Ofcom has a record of being a good regulator. Across Europe, it is seen as one of the continent’s finest regulators. I thank the hon. Lady for her intervention, but she was not able to explain why the previous Government did not want to enhance the safeguards for the minimum service requirement, which this Government are doing. If we had kept to the previous Government’s policy, we might have seen a Minister, having been lobbied by a partially privatised Royal Mail, coming to the House and seeking a reduction in the minimum service on a negative resolution. What protection was that? We have gone further in clause 33.

Karl Turner (Labour, Kingston upon Hull East)

The Minister is skilful at avoiding the issue, which is that the 2009 Bill was different. It proposed selling Royal Mail, but with the state retaining the majority shareholding. He seems unable to accept that there is a big difference.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Let me help the hon. Gentleman: I completely accept that there is a big difference between this Bill and the 2009 Bill, particularly on ownership. I hope that he will accept that there was no protection—as there is under clause 33—in the 2009 Bill. It would have left the Secretary of State with the power to reduce the minimum requirement by negative resolution.

When I looked at that issue, I could not see how that was acceptable. Clause 33 has been deliberately inserted, because it introduces three additional safeguards. First, before any change to the minimum requirements can even be contemplated, Ofcom must have conducted a review of users’ needs. That seems to be a reasonable thing to do. Secondly, subsection (6) guarantees—I am glad the hon. Lady welcomes this—that no change can result in a different minimum level of service for different parts of the country. The Bill is absolutely clear: it does not permit the minimum service requirement in London to be different from that required in Llanelli, Kingston upon Thames or Kingston upon Hull or any other constituency in the country. That is to be welcomed. The third extra safeguard that it creates is that any change would have to be made by affirmative, not negative, resolution. There would have to be a debate and vote in both Houses to make that change. That means that if the Secretary of State accepts Ofcom’s review recommendations, he has to bring it to Parliament for it to give its assent or not. Those are extremely strong safeguards.

When one considers those safeguards and then looks at the amendments, one sees that the amendments are not needed, in particular amendment 45, which would prevent Ofcom from initiating a review of the minimum requirements until at least five years after Royal Assent. It is important that the regulator can review the market and user needs as and when it sees fit. As a result of getting good information and evidence, Ofcom will be able to make the best regulatory decisions. I therefore see absolutely no value in tying the regulator’s hands in this particular regard.

More importantly, hon. Members will note that Ofcom will merely conduct a review under the clause. There is no imperative to act—indeed, Ofcom cannot act on its findings. The Secretary of State is the person who will make the order if he feels it to be necessary, and it will be for Parliament to debate and approve the order. I think that that is the right approach in an incredibly important area.

David Wright (Labour, Telford)

Regarding the review by Parliament, is it the five-year fixed-term Parliament?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

That was a good attempt by the Whip. I assure him that the service in Telford will be protected under subsection (6). There is no time limit, be it five years or any other term. We have kept flexibility to ensure that user needs can best be reflected as and when they change. We have the safeguard, but I do not expect it to be needed in this Parliament, so I do not think the fixed term issue comes into play. However, it will give long-term assurance to colleagues that there is no desire to undermine the minimum requirements.

Although the intention behind amendment 60 is commendable, Ofcom already has duties to that end. Indeed, its duties go far wider than the amendment, and I would not want them restricted. Section 3(4) of the Communications Act 2003 requires Ofcom, in performing any of its functions, which will now include its postal services role, and therefore any review that it conducts under clause 33(2), to have regard to

“the vulnerability of children and of others whose circumstances appear to Ofcom to put them in need of special protection; the needs of persons with disabilities, of the elderly and of those on low incomes…the different interests of persons in the different parts of the United Kingdom, of the different ethnic communities within the United Kingdom and of persons living in rural and in urban areas”.

That is quite a strong list of protections.

Of course, one of the principal duties of Ofcom is to further the interests of consumers in relevant markets. An SME using postal services would undoubtedly be seen as a consumer under the powers. Therefore, we are in agreement about the importance of the groups named in the amendment, and we are also concerned about others. The 2003 Act already caters for the groups set out in the amendment, so I hope the hon. Lady will withdraw it.

The same arguments apply to amendments 61 and 80. Section 16 of the 2003 Act gives Ofcom a duty to have

“effective arrangements for consultation about the carrying out of their functions with…consumers in the markets for the services and facilities in relation to which Ofcom have functions”.

The Bill gives Ofcom a new function in respect of postal services, and the requirement to have a mechanism for consultation will extend to its new role, including any review of minimum requirements. There is no need to specifically name representatives of either consumers or SMEs. The 2003 Act already requires Ofcom to have regard to that range of groups in carrying out of all of its duties and furthering the interests of consumers. I think those duties cover what the amendment seeks to achieve.

Regarding amendment 80, once again Ofcom has duties to consult, and must have regard to, the interests of persons in different parts of the United Kingdom. Thus we do not need a new requirement to consult devolved or territorial bodies of Government as set out in amendment 80. The needs and views across the whole of the UK are key, and Ofcom will know them better than the Government.

The hon. Member for Llanelli rightly described subsection (6) as vital, as it will prevent the Secretary of State from making an order that results in non- uniform minimum requirements across the United Kingdom. Hon. Members will appreciate that any order made under clause 33 will have strong parliamentary accountability. Members representing constituencies in Scotland, Wales and Northern Ireland and in all the regions of the United Kingdom will have a chance to make their views known. I do not think her amendment will add to those protections. I hope that she feels able to withdraw her lucky amendments.

Nia Griffith (Labour, Llanelli)

Let us reflect on what the Minister has said. I still think it important for there to be a settling-in period and a period of immense stability, so I am minded to press amendment 45 to a vote.

I listened carefully to what the Minister said about the other groups. Indeed, there are specifications that Ofcom consult with a number of different groups and perhaps the consumer umbrella could be used to cover some of those. I am glad that he regards that as part of its role when its duties include the mail services. On that note, I shall not press amendments 60 and 61.

I appreciate that the Minister understands the important nature of the devolved Administrations and their role. Again, we have indicated that it would be usual for Ofcom to consult and have dialogue with them, so, on balance, I shall not press amendment 80.

We are concerned, however, about rushing along into review and change, and watering down. Who knows what might happen if we rush into such things? We would like a proper five-year period, which is why we will press amendment 45 to a vote.

Clause 34

Nia Griffith (Labour, Llanelli)

I beg to move amendment 81, in clause 34, page 18, line 38, leave out

‘may designate one or more postal operators’

and insert

‘must designate a postal operator’.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Amendment 82, in clause 34, page 18, line 40, leave out subsection (2).

Amendment 83, in clause 34, page 18, line 42, leave out subsection (3).

Amendment 84, in clause 34, page 19, line 6, leave out subsection (4).

Amendment 87, in clause 35, page 19, line 39, leave out

Amendment 91, in clause 35, page 20, line 24, leave out subsection (7).

Amendment 93, in clause 36, page 20, line 43, leave out from ‘accuracy’ to end of line 45.

Nia Griffith (Labour, Llanelli)

The amendments concern one theme. Amendment 81 seeks to leave out

“may designate one or more postal operators”

and insert

“must designate a postal operator”

in clause 34(1), and I shall explain why we feel that that is so important. All the amendments in the group refer to that concern in all the different clauses to which they are pertinent.

We suggest that there could be massive fragmentation, and cherry-picking—here, there and everywhere—of different providers providing different parts of the service. Some of our experiences of that to date have not been happy. Providers might have a real interest in compact, densely populated areas, in which they might be willing to do all sorts of things to obtain franchises or services to run, but they might have little interest in providing a service to more sparsely populated areas. It is not difficult to imagine Royal Mail being left with a disproportionate burden of areas that are expensive to service and a loss of income from more profitable areas, which had previously allowed for cross-subsidisation. The difficulty is that there would be a lot of pressure to reduce costs in rural areas by reducing provision, which could easily lead to fewer deliveries or collections of mail, or fewer access points, all as a result of the splitting of the universal service obligation among the different providers.

Among the parallels is the water service. If we look at water providers in this country, the south-west has a reputation for expensive water and sewerage services. The reason is fairly easy to understand: it is a fairly large, sparsely populated rural area, with many kilometres of water and sewerage pipes to and from people’s homes. Providing such a service in that area is expensive. Contrast that with water charges in the south-east, such as those by Thames Water: the area is more compact and densely populated, so it is easier to keep the cost to the consumer down.

Welsh Water, for example, is not far behind South West Water in the league tables of high water prices. Welsh Water has the constant dilemma of how to keep the price down for consumers, when it has high costs in a more sparsely populated area, while making the investment that we are all desperate for—in my area in particular, where we have a precious inlet, with a lot of letters after its name.

Richard Fuller (Conservative, Bedford)

The hon. Lady is using the water industry as an analogy. Can she confirm that different prices can be charged in different areas in the water services sector, whereas postage will still have a universal price?

Nia Griffith (Labour, Llanelli)

That is the issue, is it not? My example concerns the costs incurred by the companies. The problem is that those costs are different because of the different nature of the areas. The companies charging at the high end—Ofwat obviously tries to keep the prices down—have a huge dilemma, because they need the money to invest in infrastructure. Areas such as mine need the investment to stop sewage going out into the sea. However, the companies cannot charge all that much because consumers, and Ofwat on their behalf, will say, “This is outrageous.” The companies have a difficult situation and no opportunity for cross-subsidy.

With the Bill, we could end up with a number of different providers, but the opportunity for cross-subsidy being taken away. Therefore, a lot of interest in the more profitable areas would be likely—the cherry-picking syndrome, with providers rushing in to take the easy ones, wanting to do a nice little compact service for the cities of Birmingham or Manchester, or wherever. They would not be interested in the less profitable parts of the service. The cross-subsidy would therefore be lost, with a knock-on effect in rural areas. If a universal price was kept, the only other way we could end up is with the service being diminished in some way.

Richard Fuller (Conservative, Bedford)

I am not sure I am buying the analogy or the fears. We can understand the possible entry of an alternative universal service provider in some areas, but when the last-mile collection prices in those areas go down, we might see an increase in volume and capacity, which would generate more revenue. Moreover, even if the hon. Lady’s fears were fulfilled, does she not accept that the “financially sustainable” provision would mean that the service is maintained by all operators in all areas under a universal service provision?

Nia Griffith (Labour, Llanelli)

With a universal service covering the whole UK, the opportunity for cross-subsidy is there de facto, because it is already built into the provider company. If, however, there are different companies providing effectively different services, and some services are much cheaper than others, we have to bring in the clause that we will discuss later, in which compensatory money has to come from the providers in the cheaper areas with the lower infrastructure, to cross-subsidise a provider of a universal service in a rural area. That seems to be a rather more complicated mechanism than that of one company providing the service across the whole country. The minute we start breaking things up, we add a lot of complications and take away the opportunity for economies of scale and for cross-subsidy.

I do not know whether my hon. Friend the Member for Kingston upon Hull East recalls the cream and green telephone boxes that there were once upon a time in his area, but he probably does not remember the time when a thruppenny piece was all that was needed to make a phone call there, when a sixpenny piece was required in the rest of the UK. We all can give examples of where services have operated differently, but our real fear is that once we start to have a number of different providers, the door is opened for some to do the easy bits and make quick profits. And what do we do in areas that are more expensive to service? We have to close down access points, because their number is flexible: the Bill does not specify how many there should be. If there is a lot of expense in a rural area, that can be cut by closing down access points, deciding not to collect from a few postboxes or not to use a few post office outlets.

Fragmenting the service between a number of service providers creates a problem, and Royal Mail, because it is the body that currently provides the service, possibly gets left with all the less desirable areas. Other companies come in like vultures, pick up the best bits and make money out of them, leaving Royal Mail to struggle. We hope that there would not be any overlap, because it is specified elsewhere in the Bill that there should be none, but it is difficult to envisage no overlap if there are several companies all having to do collections and presumably bringing their lorries to various depots where they swap the bits and pieces. That is a recipe for some overlap, in spite of the fact that Ofcom is not supposed to allow any. Having more than one provider is a problem, because from one end of the country to the other several providers might have to handle the items before they get to where they are going.

Richard Fuller (Conservative, Bedford)

We are hearing again an argument that I have heard in economics a number of times over the years: one provider is best, and the big provider achieves the economies of scale. I think that that was one of the arguments in the 1930s that led Ford Motor Company to try to run its own steel mills as well as making cars and brought it almost to the point of bankruptcy. Is not the truth that the hon. Lady misses that in many instances competition provides benefits to the universal service obligation? The spur of competition could end up in prices for the universal service, and costs, going down. It would spur innovation in different forms of last-mile delivery. Does she not omit those benefits of competition as she paints her rather grey picture of the future?

Nia Griffith (Labour, Llanelli)

In the present situation, different companies can access the universal service provider so that they can use the last mile, provide the bulk services and so on. I understand from the Hooper report that such a service has had some degree of success. It has provided an opportunity for innovation and competition and enabled people to see how others can do things better.

No one would really want overlap. It would not make sense for two people to walk the last mile. However, if we have more than one universal service provider, we would inevitably end up with each one being a monopoly in its own area. We would not get the consumer choice that we had thought we would have, but a fragmentation of services and a different level of standards and ways of doing things in different areas.

Richard Fuller (Conservative, Bedford)

That is an interesting hypothesis, but it is a hypothesis only, and if the hon. Lady is conceding the benefits of competition in upstream services, why is she so scared about competition in downstream services? Why will they not bring the same benefits? I am not hearing her argument about the overlapping delivery routes. There are many instances when people deliver down streets and follow each other. Such a service can be effective and end up in lower prices overall.

Nia Griffith (Labour, Llanelli)

I am worried that there will not be the sort of choice that is supposed to make the competition system work whereby there will be a genuine free choice and people can choose whatever way they want to do something, such as their choice when buying a new kind of washing machine. With a universal service provision, many people would regard the last mile as part of the infrastructure, such as happens with the water or rail network. As the hon. Gentleman says, sometimes there will be competition.

We can all think of the urban areas that receive lots of leaflets from their local supermarkets. We also know that those who deliver such leaflets do not visit many rural areas—probably to the great relief of many who live there. If we are to have a universal service throughout the country, there will probably be little interest in certain areas. We will always be left with that position. If that is the case, will the burden be shared fairly if it is dealt out among various providers? If not, what mechanism will be in place to look after the areas that are least well served, to protect them and not lead to a deterioration in service?

Richard Fuller (Conservative, Bedford)

I am trying to follow the hon. Lady closely so that we can tease out her particular areas of concern. I think she has conceded that competition in upstream areas has been of benefit to consumers. I think she is conceding the possibility that, downstream, competition can exist and bring some merit. I think her concern is that, in some areas, that service will be offered but, as a consequence of competition in the last- mile delivery in, say, urban areas, there may be some detriment in other areas of universal service provision. But does she accept that, even if that were the case, there are plenty of provisions in the Bill to protect the universal service obligation in all areas of the country?

Nia Griffith (Labour, Llanelli)

If one company provides the service from one end of the country to the other, there will obviously be more of a uniform service, but if that is not the case, the mechanisms of compensatory-type payments and so on would have to be used to put things right. My fear is that we would end up with a fragmented service, with different types of service being provided in different areas, and I do not think that that is what the British public want. I think they want a proper, unified service. When one is contemplating such matters for 45 minutes on a freezing station on a Thursday night because there are different train companies that do not talk to each other and thus do not keep one’s connection, and that is a regular occurrence, I can assure the hon. Gentleman that one has very strong views about whether there might be more joined-up thinking if there were one provider rather than a number of providers. However, perhaps mail does not mind sitting around and waiting for its next bit of onward transport.

The existence of several different companies providing the universal service in different areas of the United Kingdom would raise complicated issues of logistics. We are not just talking about a bit of upstream sorting and taking the mail to the local access point to let the Royal Mail carry on; we are talking about a different provider in Cornwall passing mail through several other areas before it arrives in Scotland, with each provider having their own different way of doing things. That raises considerable issues.

That is the background to the amendments. They are obviously grouped for a very simple reason. Amendments 82, 83 and 84 would omit the subsections in clause 34 that are relevant to having a number of different providers. The reason for removing them en bloc is, quite frankly, to avoid the possibility of having a number of different providers of the universal service obligation. The amendments follow logically from amendment 81; if we take one out, we need to take the others out.

Amendment 87 is relevant to clause 35, which is about designated USP conditions. The purpose of the amendment is to prevent cherry-picking, which would see some of the nice, easy bits in highly populated areas being picked off by people who would like to provide those services, making it more difficult for those who pick up the more sparsely populated areas. We want to amend clause 35 so that it matches what we are proposing in the amendments to clause 34.

Amendment 91 also relates to clause 35. It is about taking out subsection (7), which states:

“If there are two or more universal service providers—

(a) OFCOM must secure that there is no overlap in the universal service obligations imposed on the providers, and

(b) designated USP conditions may require the providers to make arrangements for securing that a universal postal service operates uniformly and effectively throughout the United Kingdom.”

The reason for those requirements is the significant worry if the universal service is provided by more than one provider. The clause is obviously intended to safeguard that situation. We feel that the problem would not arise in the first place if there were one provider of the universal service. Amendment 91 complements our amendments to clause 34.

Lastly, we have amendment 93, which relates to clause 36. It takes out the reference to two or more providers of universal service provision. Our amendments relate to the same idea—we feel very strongly that there should be one provider of the universal service, and we should keep uniformity so that people have one service serving them across the whole country. For that reason, we have proposed the amendments.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

This group of amendments concerns removing from the Bill the ability of Ofcom to designate in very limited circumstances more than one universal service provider. My hon. Friend the Member for Bedford and the hon. Member for Llanelli had an interesting debate on that subject, but at many points the debate became muddled between two issues. One issue is whether more than one universal service provider can be designated, with all the conditions that apply to a USP, and the other is whether there can be competition in end-to-end delivery, because nothing in current law, regulation or the Bill prevents end-to-end competition. If a postal company operating within the scope of the universal service wished to provide end-to-end deliveries, in the way that I think my hon. Friend contemplated, it can go ahead and provide that.

We will talk about how such operators would be regulated and what conditions Ofcom might chose to put on them when we discuss clauses 39 onwards, particularly clause 40(2). We can then debate issues of concern to the hon. Lady, who has raised the potential for cherry-picking. However, that debate is not relevant to this group of amendments. The amendments seek to change clauses 34, 35 and 36, which are part of a group of clauses under the heading “Universal service providers.” What is at stake is whether more than one company can be designated as a USP.

The intention of the group of clauses is to give Ofcom the power to designate one or, in two specific circumstances, more than one USP to ensure the provision of a universal service. I come back to the fact that the Bill is about providing a universal service, and the special circumstances relate to concerns about whether that universal service can be provided. In the two circumstances, Ofcom would have the ability to designate more than one USP. The designated operator or operators would be obliged to comply with conditions, including the requirement to provide a universal service throughout the United Kingdom, presumably—as we will come on to—working with the other USP.

The group of clauses provides an essential part of the regulatory framework. It is different from the 2009 Bill, but that is because it is an improvement, and it relates to options that are available to us under the European postal services directive. As with other elements of the Bill, the intention is to ensure that it is future-proofed—in other words, to enable the regulatory regime to adapt, when it needs to, to ensure the continued and long-term provision of a universal service. Personally, I think it is inconceivable that Royal Mail will not be the sole provider of a universal service for the foreseeable future. However, it makes sense, as part of future-proofing, to provide for a situation in which that might not be the case. As we will discuss when we come on to the special administration regime, legislation has to provide for the unforeseen or for unlikely situations. That is what Parliament needs to do in making the law, even if we think it unlikely that such provisions might be needed.

Clause 34 allows Ofcom to designate more than one provider under two circumstances. The first is where

“OFCOM have made a procurement determination under section 43”.

Members of the Committee will know that clause 43 deals with the fairness of bearing the burden of the universal service obligation by the incumbent USP, and we will reach the clauses relating to that particular issue in due course. The second circumstance is where

“a postal administration order has been made under Part 4”

and Ofcom considers it necessary to increase the number of USPs to secure the universal service and bring about the end of the administration.

If we have to use the clauses in part 4 in the future, we will be in a difficult position. As the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Wantage, will explain when we discuss part 4, the clauses under “Postal administration orders” mirror similar arrangements, particularly on energy and water, in other legislation. Their role is to be a last safeguard, and the second circumstance under which Ofcom might designate two or more USPs is only an extreme example. I hope that, in respect of these clauses, the hon. Member for Llanelli will realise that that is not likely to happen. We hope that we never find ourselves in either of those scenarios, and we do not expect that we will. Both procurement determination and the special administration provisions are genuine backstops, only to be used if the future of the universal service is at risk.

At times, the hon. Lady talked as though Ofcom could designate alternative providers in profitable areas under these provisions, but that is simply not the case. Clause 34 only allows for the designation of more than one universal service provider if it is necessary to do so in the event of a special administration, or if Ofcom has found that there is an unfair burden on the universal service provider. In the latter case, an alternative provider can only be designated where it can provide the relevant part of the universal service with less of a burden—not in the profitable areas where there is no burden. The fragmentation risk, which she discussed at length, does not exist. I hope that she will be reassured by those points.

As I have mentioned, having the ability to make multiple designations in specific, albeit unlikely, cases is simply a sensible and pragmatic fall-back provision. It is also important to make it clear that having more than one designated universal service provider in no way provides for or permits varying levels of minimum service across the country—at one point, the hon. Lady suggested that it might. Provisions elsewhere in part 3 of the Bill guarantee that the minimum requirements of the universal service must remain uniform. Having given those assurances, and having explained the sensible rationale behind the policy, I hope that the hon. Lady will withdraw the amendment.

Nia Griffith (Labour, Llanelli)

These are very important amendments, because it is fundamental to us that there is a united, universal service obligation provided by one provider. Although I have listened to the Minister trying to reassure us that there are only certain circumstances where these provisions might be used, we feel that the emphasis in a number of clauses—beginning with this clause and continued throughout the Bill—is that there may be more than one provider. I sense that there is a slight difference of approach between the Minister and the hon. Member for Bedford, who was perhaps more enthusiastic about seeing a number of different providers.

On that note of caution I want to press our amendment to a vote, so that we are clear that there should be only one provider of the universal service obligation.

Nia Griffith (Labour, Llanelli)

I beg to move amendment 86, in clause 34, page 19, line 20, at end insert ‘, subject to the Secretary of State placing these regulations before Parliament for approval.’.

The amendment requests that the procedures to be followed on a review must be provided for in regulations made by Ofcom, subject to those regulations being placed, by the Secretary of State, before Parliament for approval. This is simply a way of strengthening the Bill and strengthening the opportunity for parliamentary approval and scrutiny. We are suggesting that the procedure to be followed on a review must be provided for in regulations made by Ofcom, subject to the placing of those regulations before Parliament. I think it is self-explanatory. We have debated before why we think it is important to have parliamentary scrutiny for such matters, and that is what our amendment seeks to include.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

We feel that the amendment would place an unnecessary, inappropriate and cumbersome burden on the making of such regulations. I apologise to the hon. Lady, but her amendment did not feature in the 2009 Bill. In this particular aspect, we have used the same wording as that Bill here. Before the hon. Member for Kingston upon Hull East stands up, let me say that the matter is about the regulatory powers, and I do not think it has anything to do with ownership.

I think the previous Government realised that the amendment would be unnecessary. It concerns the procedure that Ofcom will have to follow in a review of designations under the clause. The procedure will be provided for in regulations made by Ofcom, and such procedures are highly technical and detailed. I think it is for the independent regulator, who will have the details, to determine the procedure. That is a far better place than Parliament to have a review of the process. The amendment would be quite cumbersome, and I can only imagine members of the Statutory Instrument Committee reviewing a set of procedures scratching their heads, wondering why they were there and why Ofcom was not just getting on and publishing the procedures. I do not think there is a big issue here with parliamentary accountability, so I hope the hon. Lady will withdraw her amendment.

Nia Griffith (Labour, Llanelli)

Well, I do not think there is ever a matter that Parliament cannot consider. I always think it is important for Parliament to have the maximum opportunity for scrutiny. When we are setting up something new—Ofcom is going into a new area—there is every reason for a proper scrutiny of the procedures. I will therefore press the amendment to a vote.

Clause 35

Sir David Amess (Conservative, Southend West)

I am afraid that we cannot move amendment 10 because Mr Weir is not here, so we shall proceed to amendment 11.

Nia Griffith (Labour, Llanelli)

I beg to move amendment 11, in clause 35, page 20, line 16, leave out ‘seek to’.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss amendment 90, in clause 35, page 20, line 22, at end insert ‘including the need for future investment and service provision.’.

Nia Griffith (Labour, Llanelli)

The purpose of amendment 11, which was tabled in the name of the hon. Member for Angus, is to strengthen the role of Ofcom by deleting the words “seek to” and leaving “must”. Amendment 90 would require Ofcom to ensure that the prices that it imposes take into account the universal provider’s money for future investment and service provision. We agree with the hon. Member for Angus that the measures under paragraphs (a) and (b) should be strengthened. We have more to say about paragraph (c), however, which I shall discuss shortly.

On paragraph (a), we agree that Ofcom must ensure that prices are affordable; how we define affordable, however, is problematic. Furthermore, the EU directive does not specify uniform, and the way in which the Bill is worded at present affords Ofcom opportunity to modify the universal service requirements and, therefore, scrap uniform price for delivery across the UK. Therefore, the need to keep prices affordable assumes even greater importance.

We would rather the prices always be kept uniform, because that is a vital part of our understanding of the universal postal service. A uniform price would ensure that we all share the actual cost of delivering a letter to the most costly places. However, even if the prices are not uniform they should be affordable, so we very much concur that “seek to” should be deleted to leave “must” in paragraph (a). It is also perfectly reasonable that Ofcom should have to ensure that

“the prices take account of the costs of providing the service or part of a service”.

That it should do so, seems self-evident.

Amendment 90, which is in my name and that of my hon. Friend the Member for Ochil and South Perthshire, who is probably still stuck in Edinburgh airport, would insert

“including the need for future investment and service provision”

at the end of clause 35(5)(c). We know that there has been a drop in the number of items being sent through the post, with an average day’s total being some 71 million letters, packets and parcels, following a peak of 84 million in 2005. We understand, therefore, that there are significant pressures and that the way in which people use postal services may be changing. Therefore, in reaching any decision about pricing, account must be taken of the costs incurred in providing the service.

Before such costs can be calculated, the resources needed to provide the service must be identified. The total cost of resources used to provide the service is made up of a number of different costs including labour, supplies, equipment, facilities and purchased services.

As with any industry—manufacturing or service—investment is required to keep abreast with developments. Five years ago, only half of all mail was being sorted automatically; now more than 80% of it is sorted in that way—right down to the level of the individual postal worker’s walk.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I think I am right in saying that that is not quite true—there has been a big increase in the amount of mail that is machine-sorted, but not right down to the walk order for the individual Royal Mail employee. That is where there needs to be an awful lot more automation, so that Royal Mail can get to that fine level of sorting and save time in the delivery office, and postmen and women do not have to do the final sort, which can sometimes take several hours.

Nia Griffith (Labour, Llanelli)

I am sure that the Minister will enlighten us further on that point. However, the important point that he is making, which is the one that I would make, is about the need for continuing modernisation and, therefore, investment. We heard from Moya Greene excellent stories about wonderful places that she would like to take us to, but she also mentioned places where there is still a huge need for more modern equipment. Progress is certainly being made, and I think we now find that a lot of the A4-sized mail, including magazines and catalogues, is being sorted automatically.

We have talked quite a lot about how Royal Mail has continued to modernise its operations with a considerable amount of investment. However, as with any industry, manufacturing or service, investment is required to keep abreast of developments. It is not just a matter of what has been done, but a matter of looking to the future. It is not just a matter of new equipment and innovations, but a matter of investment in replacing older equipment, particularly in an industry such as Royal Mail, which has a large number of vehicles. All those are cost items.

Through the amendment, we are saying that we think it is important that Ofcom is aware of the matter and takes into account the need for future investment and service provision. That is why we would include, at the end of subsection (5)(c),

“the need for future investment and service provision.”

We think it is important that that is taken in conjunction with the need to provide a service or part of a service efficiently. We have had a long debate on what we meant by “efficiently” and whether it was a good thing to include it in the legislation. Here we want to amend the clause so that efficiency does not stand there on its own, but stands with our amendment, so that Ofcom can take a more realistic look, is not in a situation of simply being driven by the need to maximise profits and looks at the need for future investment to continue to provide the best service. That is where amendment 90 stands. It is difficult for us to support amendment 11 tabled by the hon. Member for Angus because it slightly cuts across what we have proposed. However, before I press any amendment to a vote, I would like to hear what the Minister has to say to our suggestions.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I understand the intention behind the amendments, but I think they are unnecessary and, in the case of amendment 11, unworkable.

Clause 35 allows Ofcom to impose designated universal service provider conditions, which will enable Ofcom, among other things, to require a universal service provider to provide a universal postal service in accordance with the standards set out in the universal postal service order. Designated USP conditions may also set tariffs or price controls for the provision of the universal postal service.

Amendment 11 would, on the face of it, make a relatively minor change. The Bill, as drafted, provides that Ofcom must seek to ensure that prices are affordable, that prices take account of costs and that prices provide incentives for the USP to provide an efficient service. This mirrors the requirement in article 12 of the directive. The amendment would delete “seek to” so that Ofcom must ensure these objectives are delivered.

If one reflects on that, one would understand why that would be quite difficult. It would not be appropriate or workable for Ofcom to ensure, in all instances, that prices were affordable, that they took account of the costs of providing the service or that they provided efficiency incentives. Let me explain that a little more, because however attractive that idea might be, it is the practicalities that are of concern to us.

At any given time, circumstances outside Ofcom’s control might make it impossible for it to deliver such a commitment. For some unforeseeable reason—for example, because of a change in accounting methodology—it simply might not be possible for Ofcom to ensure that prices took account of costs. In such a scenario, Ofcom would, of course, still be under a duty to seek to ensure that they did, but it could not reasonably be expected to ensure that they did. The clause builds in sufficient flexibility to deal with such a scenario, and I hope that my explanation satisfies hon. Members. Although the hon. Member for Angus is not here, I think he will understand why amendment 11 is not needed.

Amendment 90 would make a different change altogether. It would add a requirement on Ofcom, when setting price control tariffs, to seek to ensure not only that the prices provided incentives for the USP to be efficient, but that the level of the prices took into account the need for future investment and service provision. Obviously, one understands the rationale behind the proposal, but it really is not needed.

Clause 28 provides that Ofcom must carry out all its functions in a way that it considers will secure the provision of a universal service. In doing so, it must have regard to the need for the provision of the universal service to be financially sustainable and efficient, and the hon. Lady can refer back to our discussions on those points. The need for future investment and service provision is clearly implicitly included in those considerations. It is difficult to see how Ofcom could fulfil the key duties in clause 28 if it was not taking account of investment. In setting price controls, Ofcom will have to give consideration to those primary duties, so the amendment is not needed, and I hope that the hon. Lady will not pursue it.

Nia Griffith (Labour, Llanelli)

We still feel that it is important that the future need for modernisation and investment is taken into consideration. It is not sufficient for Ofcom just to look at prices in terms of incentives to provide the service efficiently. Given the way in which paragraph (c) is worded, we want to press amendment 90 to a vote, because it adds a different dimension and introduces a more realistic appraisal of the costs and the way in which a universal service provider must look to the future to make sure that it can invest appropriately. On that note, I would like to press amendment 90 to a vote.

Clause 36

Nia Griffith (Labour, Llanelli)

I beg to move amendment 92, in clause 36, page 20, line 38, at end insert—

I expect that hon. Members are getting hungry and will not want me to speak for too long on this amendment. You will be pleased to hear, Mr Amess, that as part of the amendment is similar to what has been said before, we will not detain the Committee long.

There is a keen interest in the devolved government territories in the future of Royal Mail and the universal postal service. As I and hon. Members from Scotland have said, there has been specific investment from the Scottish Executive and the Welsh Assembly Government in the post office network with the challenge fund in Scotland and the post office diversification fund in Wales.

The amendment is about making a report concerning each of the devolved Administrations, not because we want a fragmented service that is different in any of the devolved territories, but because of the importance of Royal Mail with its universal service to the devolved territories, and the interest that the devolved Administrations take in its future.

The universal service is particularly important to small businesses, and links in with the devolved Administrations’ responsibilities for economic development. They know how important the universal postal service is to the many small businesses in their territories, and they have put by significant sums of money for investment in their post office programmes. They are particularly keen to have full consultation about the future of the universal service provision. The amendment would require an independently audited performance report to be published annually on the specific Government territories.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I often begin by making the point that the Bill’s overall aim is to secure the universal service. By definition, that service benefits consumers throughout the United Kingdom. If I have understood the hon. Lady’s intentions correctly, she is keen to ensure that there is no reduction in service in the devolved Administrations. The amendment would place an additional requirement on Ofcom to publish an annual independently audited performance report concerning each of the devolved Government territories. I understand her intentions, but hon. Members have no cause for concern. Ofcom already has statutory duties and powers relating to consumers, and the Bill extends them to cover the interests of postal service consumers. Furthermore, Ofcom has well established advisory committees representing the interests and opinions of those living and working in England, Wales, Scotland and Northern Ireland. Those committees offer advice to Ofcom on the needs of those they represent.

I assure the hon. Lady that the universal service is for the benefit of consumers throughout the entire United Kingdom, and preserving it for all consumers is what the Bill is about. Given that existing protection, I invite her to withdraw her amendment.

Nia Griffith (Labour, Llanelli)

As I have said, the devolved Administrations have a particular interest because we know that considerable sums of money have been invested in providing updated post office counters and so on. It would be very nice if those post office counters were protected in the Bill with some reference to access points or a specific reference to the Post Office. The interest of the devolved Administrations is specific, because of the money that they have put in. That is why we bring it to the Minister’s attention a second time this morning, and why we want the provision about the publication of information on performance, with specific relevance to the devolved territories.

However, if the Minister can give a full assurance that all the necessary consultation will take place, perhaps it will be possible for us to consider withdrawing the amendment; but I do not really see why we should. It is a perfectly good amendment and would ensure that there was additional involvement for the devolved Administrations. On that basis, I will press the amendment to a vote.

Clause 37

Nia Griffith (Labour, Llanelli)

I beg to move amendment 106, in clause 37, page 21, line 36, leave out ‘and’ and insert

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Amendment 95, in clause 37, page 21, line 37, at end insert—

Amendment 108, in clause 40, page 24, line 10, at end insert

Amendment 112, in clause 48, page 30, line 10, at end insert

Nia Griffith (Labour, Llanelli)

We now embark on a new and different chapter, and no doubt the hon. Member for Bedford will be extolling the virtues of the opportunity for all sorts of providers to use the final mile of the Royal Mail. It has certainly been a matter for considerable discussion in the past. Hon. Members may recall that way back in the Hooper report and again in the evidence sessions at the beginning of our sittings there was considerable concern about the exact operation of the arrangements.

There were two sides to the story: Royal Mail always reckoned that it did not have the right price for the provision of the universal service for that last mile, and that therefore those who were, in the jargon, joining upstream—bulk carriers such as TNT, who do a lot of mailing for large companies and put a lot of similar, easy-to-sort and easy-to-deal-with mail in one place, at one price, for companies that want that—would pass it on to Royal Mail for the difficult bit, or the last mile.

Therefore Royal Mail felt that the prices were not effective for it, and did not take into account its real costs. It considered that the arrangement was an unfair form of competition. On the other hand, submissions from some competitor providers argued the other case—that there was not in fact such difficulty for Royal Mail, and that it was those competitors who were perhaps not getting a fair deal.

The clause is immensely important in trying to get things right for the future and ensure that Ofcom’s role under the clause will be performed effectively. We do not want to end up with a situation like that in which Postcomm was accused by both sides of not getting the sums right or doing things correctly and properly.

Our amendment 106 would insert, at the end of subsection (4)(b):

“provided in either case that such action would not be likely to adversely affect the ability of the provider to provide the universal postal service in accordance with the service standards specified in the universal postal service order”.

We want to insert that because we understand why people want competition—the hon. Member for Bedford made a good case for competition and all its possible benefits. However, we have the strange situation of what the Bill describes as the “burdens”—that is not me putting in an emotive aspect, but because the additional responsibility or cost of that final mile is well recognised.

While Ofcom is looking at the universal service provision conditions, and in particular the access conditions, our amendment would provide that it needed to take into account each of the following purposes. We would not just extend paragraph (b) so as to promote effective competition but also put in an amendment that would, in some ways, seek to protect how the universal service is provided—in other words, it would not be detrimental.

The hon. Member for Bedford is anxious to explain a bit more about competition policy.

Richard Fuller (Conservative, Bedford)

The hon. Lady is extremely generous in giving way—perhaps too generous. As my hon. Friend pointed out, I rather jumped the gun when discussing a previous amendment, in extolling the virtues of competition, but I was getting warmed up for now.

Is the hon. Lady concerned that her amendment is drawn so widely that it gives a provider the opportunity to cry wolf all the time? The definition of what might adversely affect a provider’s ability is so broadly drawn that it could have the chilling effect of damping down any form of competition whatsoever.

Nia Griffith (Labour, Llanelli)

That is an interesting observation. The difficulty is how to leave a regulator any leeway in which to operate if some things are not widely drawn. We have had that discussion, in part, elsewhere in the Bill. The Minister has pointed out that Ofcom needs some leeway, while we have tried to tighten up on that leeway. Here is a possible opportunity for Ofcom to have such discretion, but if it is not stated in the Bill—in other words, without the requirement to look carefully at what might affect the universal service provision and the ability of any universal service provider to provide that service for the last mile—I am not sure where that protection is to come from. It is easy to open the doors to all sorts of competitors, but it is much more difficult to provide the necessary framework and protection for the provider of the universal service provision.

I do not know whether the hon. Gentleman had any particular example in mind, but we thought Ofcom ought to have the opportunity to have as a must that it has got to do something. It can then turn around and say, “Well, the reason we have had to set such and such a price is because we had to take into consideration the needs of the universal service provider.” That is precisely the sort of criticism that Postcomm came under previously. Ofcom would then have a legitimate reason to look at such matters but, I hope, with enough flexibility for it to be able to make an appropriate judgment and balance the pros and the cons and the necessary factors that have to be taken into consideration when allowing for certain access provisions and when setting certain prices.

Under subsection (4), Ofcom

“may not impose a USP access condition unless it appears to them that the condition is appropriate for each of the following purposes”.

The purposes are not (a) or (b) or (c) as under the 2009 Bill, but the condition has to be appropriate for each of (a) and (b) and (c) provisions. To make it more appropriate for the universal service provider, we would not remove “promoting efficiency”. In the past, we have been accused of wanting to do that. For obvious reasons, we would not remove the provision under paragraph (c) of

“conferring significant benefits on the users of postal services”,

nor would we remove the idea of effective competition. We are not saying that there should not be competition. Sometimes, we are portrayed as a monolithic, dinosaur socialist party. At some stage, the Minister was trying to convey to us some rather insulting comments.

We are saying that there should be competition, but that Ofcom would need to look carefully at the way in which people were to have access, to what they were let access for and for what price. That would need to be balanced by the needs of the universal service provider. Obviously, we want the provider to continue to provide the service as specified under the standard in the universal postal service order. That is why we specifically want to include such a provision in the clause. We are not anticompetitive. We simply want a firm way in which to ensure proper consideration of all the arguments.

Amendment 95 deals with the condition being commercially negotiated at a proper commercial price. An earlier argument in respect of Postcomm was that the price was not a real reflection of the cost. If something were commercially negotiated, we would hope that both sides agreed the right price for the job to be done. The amendment would link in clearly with the need for consideration of what is both efficient and good for the service while at the same time being a viable and proper commercially negotiated agreement.

Richard Fuller (Conservative, Bedford)

When we were talking about the relationship between Royal Mail and the Post Office, the hon. Lady spoke eloquently about disparities in commercial negotiations, and about her desire to maintain the agreement between the two for a very extended period. Will she admit that, in these circumstances, we find ourselves in a situation of even greater disparity of competition between a Royal Mail monopoly provider of the last-mile service and a potential entrant into that market, which—if subject to the amendment—would be in a very inferior situation to Royal Mail, which could always say, “We are just not going to provide commercial terms” and, as if that was not bad enough, could also cry wolf because it would undermine the universal service obligation. If the hon. Lady does not accept that amendment 106 would be chilling on competition and perhaps make us fall foul of our obligations under European—

Sir David Amess (Conservative, Southend West)

I remind the Committee that with this we are discussing the following:

Amendment 95, in clause 37, page 21, line 37, at end insert—

Amendment 108, in clause 40, page 24, line 10, at end insert

Amendment 112, in clause 48, page 30, line 10, at end insert

I think that when the Committee adjourned for lunch, Mr Fuller had finished his intervention.

Nia Griffith (Labour, Llanelli)

If I understood the hon. Member for Bedford—he will correct me if I am wrong—we are ironically almost in a situation where I am arguing for commercially negotiated agreements and he is arguing against them. That is not the usual position in which we would find ourselves, as he is a great champion of free enterprise.

The reasoning behind all this is simply that there have been allegations on both sides, as has been well documented by Hooper. On the one hand, the competitors of Royal Mail have felt that prices have not been fixed in their favour, and on the other hand, Royal Mail has felt that prices were not helpful to Royal Mail. The idea behind the amendment is that these types of negotiation should be commercial negotiations so that they make sense in the context of the real world. That is the purpose of the amendment and it links in with the previous amendment to which I spoke, although it approaches the issue the other way round.

Richard Fuller (Conservative, Bedford)

The hon. Lady has an excellent memory of our discussions earlier. I understand the intent of her amendment, and she is correct to say that there should be a balance, but does she not understand that the impact of the amendment would be that the balance would move substantially against those who may be thought of as providing competitive services? I stress again to her that we did talk about getting the balance right, in terms of the relationship between post offices and the Royal Mail where there is an imbalance of power, as she asserted. Will she not accept that without any agreement or understanding between the competitive providers and the Royal Mail, leaving the matter to commercial negotiations would be like sending the competitor to the slaughter at the hands of a private monopoly—or a public monopoly?

Nia Griffith (Labour, Llanelli)

That is a very difficult question to answer. I think that Hooper summed it up rather nicely in his report when he came down on the issue very ambivalently, saying:

“The regulator has to be able to take effective action to regulate a market which has room for competition with the benefits competition can bring, and to deregulate and take other action where appropriate to ensure that the universal service is sustainable.”

I am not sure whether that really gives us the answer to the question. We are trying to create a situation in which it is practical for Royal Mail to carry on with universal service provision but it is possible for competitors to come in. I would hope that by allowing commercial negotiation, but also putting in safeguards for the universal service provision, competitors would be able to come in, but I can understand what the hon. Gentleman is saying.

I suppose that if a regulator were very biased or veered too far towards helping the provider of the universal service obligation, that could be very unfair. The accusation by some of the competitor organisations has been about whether they would be subsidising an inefficient Royal Mail, or something of that nature. The regulator will have to be very careful, but I would have thought that the regulator would not want to get that involved; it would like to leave some leeway for commercial negotiation.

Richard Fuller (Conservative, Bedford)

I fear that the hon. Lady is trying to have it both ways. She talks strongly of regulation, but her proposal is for commercial negotiation, so which is it? Is it commercial negotiation, or regulation? Again, I fear that the amendment would have a chilling impact on competition.

Nia Griffith (Labour, Llanelli)

The bottom line for me is clearly the preservation of the universal postal service, and the actions of the regulator to preserve that and to ensure that it is a viable business and that everyone in the country benefits from it. That is the input that I would like to have.

The issue is finely balanced, as I said, and I will not read to the Committee the several pages written by Hooper on the subject. However, in getting the right balance, there is clearly quite a tension between the regulator allowing what is called headroom—enough opportunity for competitors to come in—and not damaging the universal service provision.

Let me turn to the other amendments in the group. Amendment 108 to clause 40 proposes inserting at the end of subsection (1):

“OFCOM shall exercise its power under subsection (1) if it considers that the provision of a service within the scope of the universal postal service by a person other than the designated universal service provider may impede the ability of the designated universal service provider to comply with its universal service obligations.”

The purpose of the amendment is to ensure that the opportunities for cherry-picking the services within the universal service are minimised. It prioritises the delivery of the whole universal service over the provision of a particular service. For example, it would prevent a postal provider from securing a limited delivery service in a highly profitable area while leaving the universal service provider to provide deliveries in the remaining areas at greater cost. The funding of the universal service is a complex arrangement. Such studies as have been undertaken on how much of a burden the cost actually is seem to be contradictory. What has certainly been mentioned in Hooper and in Committee is the need—[Interruption.] I welcome my hon. Friend the Member for Ochil and South Perthshire to the Committee. I am pleased that he has arrived safely.

How much of a burden is involved is a complex matter, partly because of the lack of sufficiently clear accounting—an issue that has been raised in Committee and by Hooper. We need much clearer accounting, so as to single out the cost of the universal service provision. The exact effect of another provider offering a partial service, while obliging the universal service provider to sustain the whole service, is difficult to state. We know from experience of the current access regime that failing to protect the universal provider can make it vulnerable to cherry-picking by competitors. Amendment 108 therefore offers protection to the universal service provider. Some hon. Members might think that we are being too protective, but protecting the service is an absolute priority for us, as is its viability, so that it remains accessible for all of us.

Amendment 112 would insert into clause 48, at the end of subsection (4):

“provided in either case that such action would not be likely to adversely affect the provision of the universal postal service in accordance with the service standards specified in the universal postal service order.”

That is fairly self-explanatory, and reflects the same arguments that were made for the other amendments in the group; it is about ensuring that the universal service provider can carry on providing the universal service, despite competition for parts of the service.

To sum up the importance of what the regulator will be doing in this respect, I go back to the Hooper report of 2008. Without reiterating the quite complex arguments explaining the good and the bad from all points of view, Hooper clearly said that the

“regulator should take an approach which balances the benefits of competition with the risks to the universal service. Preserving the universal service should remain the regulator’s primary duty.”

Our amendments should strengthen that position. We understand that the access regime has brought benefits and should be continued, but there is a need to review the way in which that access or headroom works. We must also bear in mind that the regulator has the important role of preserving the universal service, and that should be his primary duty.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

In the evidence sessions, we heard from Royal Mail and other operators that establishing a fair access regime would be critical for the new regime. When I was reviewing the 2009 Bill provisions, it seemed that the key was to get the right balance between protecting the universal service—a matter rightly stressed by the hon. Lady—and allowing all the benefits brought by competition and enabling deregulation. To be fair to the hon. Lady, she has acknowledged that we are involved in a balancing act, and getting it right is not a science but a judgment.

I should be absolutely clear to the Committee, as we were in our policy statement, that the Government are committed to encouraging competition in the postal service market. We have not moved away from that. That is absolutely critical, but it cannot happen at the expense of a universal service. That is the prime objective, so we have to manage and encourage competition in that regard.

I agree with the sentiments behind the amendments: nothing Ofcom does should undermine the universal service. However, that is exactly what we have provided for in the Bill. We have made those judgments, and we think that the Bill gets it right. All the amendments would add to the Bill something that is already catered for in the drafting—except the first part of amendment 95, and I will come back to that. I wish to reassure members of the Committee that I have looked carefully at the wording of amendment 106 to see whether it would add anything of substance to the Bill, because, as I say, I agree entirely with the sentiment behind it. I ask hon. Members to turn their minds back to last Tuesday evening, when we discussed Ofcom’s overarching duty to secure the provision of the universal service. It is that prism through which Ofcom will view all its regulatory decisions. It will always have to go back to clause 28(1), in particular, which states that

“OFCOM must carry out their functions in relation to postal services in a way that they consider will secure the provision of a universal postal service.”

That provision is not optional; it is not something that Ofcom does on day one and no other day, and it is not something that it does on some days and not others. It is what it has to bear in mind the whole time. Therefore, all decisions that Ofcom will have to take about post will have to begin and end with the question, “Does this help secure the universal postal service?”

In fact, clause 28(2) makes specific reference to Ofcom’s power to impose access conditions, so the clause that tells Ofcom that its primary duty is to secure the universal service refers to how it should go about that, in setting the access conditions. That reinforces the fact that Ofcom’s power to impose such conditions is subordinate to its requirement to secure the universal service. Indeed, Ofcom would be in breach of its statutory duties if it applied any access conditions that undermined the universal service. We deliberately made that change to last year’s Bill to meet concerns such as those that members of the Committee have expressed today. I hope that the hon. Lady will accept that the way in which we designed the clauses has strengthened the commitment to the universal service.

One might ask, as I did, “If the wording in amendment 106 does not contradict Ofcom’s duties, why not insert it for good measure?” The problem with adding wording for good measure is that it rarely has the desired effect; it can often have the opposite effect. My concern is that the additional wording would confuse and might undermine what is already clearly set out. It is therefore unnecessary. Highlighting the duty to secure the universal service in relation to one of the regulatory controls that the Bill gives to Ofcom could be interpreted as undermining its application to Ofcom’s other powers under part 3. I am sure that none of us would want that to happen.

The same arguments apply to amendment 112. Ofcom’s duty to protect the universal service applies whenever it considers imposing access conditions, so I hope that the hon. Lady recognises that the additional wording is unnecessary, and that she will not press the amendment.

Amendment 108 is slightly different from the others in the group. My understanding is that it seeks to clarify that Ofcom could use clause 40 if it felt that another postal operator was putting the universal service at risk by cherry-picking a universal service provider’s more profitable elements and providing a significantly reduced standard, by delivering letters on only two days a week, for example.

Again, I have a great deal of sympathy with the intent behind amendment 108. I have been clear at every stage of debate on the Bill that although I fully support fair and open competition in the postal service market, it cannot be at the expense of the universal service. I do not believe that the amendment would help in the way that the hon. Lady suggests that it might; on the contrary, it might have some extremely undesirable unintended consequences. In common with the amendments that we have just discussed, and for exactly the same reason, I believe that amendment 108 would call into question the overarching application of clause 28, and the extent to which that primary duty on Ofcom applies to its other functions under part 3, which would be deeply unhelpful. Furthermore, it is unlikely that the amendment would be compatible with the directive.

I was mindful of cherry-picking when we were designing the Bill and revising the 2009 Bill, and we shall discuss that in more detail when we reach clause 40. This morning, I discussed the importance of clause 40(2), which will provide Ofcom with the power to impose conditions to prevent cherry-picking by other postal providers working within the scope of the universal service. We shall debate that in greater detail later, but I refer to it now because it demonstrates that the hon. Lady’s amendment, which was designed to deal with cherry-picking, is not needed—other parts of the Bill deal with such concerns.

Nia Griffith (Labour, Llanelli)

Perhaps I should wait until we come to clause 40, but will the Minister explain his views on sharing the universal service obligation between providers?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I thought that we had dealt with that this morning. Under clause 34, Ofcom may decide to designate more than one universal service provider. Such a situation would occur only in two strictly limited circumstances: if there were a postal administration order, which would be an emergency situation, or if, under clauses 42 and 43, Ofcom decided that there was an unfair burden and wanted to remedy that by using the procurement option. Under the procurement option, measures would have to be taken and conditions set out to ensure that if there were more than one universal service provider—it is worth pointing out that just because one goes to the procurement option, it does not automatically mean that it will result in more than one universal service provider—they would have to work together to ensure that a universal service was provided across the whole of the United Kingdom. Part 3 makes that clear and builds on clause 34.

I mentioned amendment 95 earlier, because it is a bit different in that it would prevent Ofcom from stepping in to mandate access. I agree that access arrangements should be negotiated on commercial terms between Royal Mail and other operators. Indeed, that is exactly how the current access arrangements came into being and because Ofcom has a presumption against intervention—it may not impose an access condition unless tests are met—that is what we expect to happen in the future.

The purpose of clause 37 is to enable Ofcom to step in, if those commercial discussions have failed. That is not always as widely understood as it should be. Ofcom can step in only if it appears that to do so is appropriate for promoting efficiency and effective competition and conferring significant benefits on users. These are tough tests, so it will not be a free-for-all by any stretch of the imagination.

It is worth pointing out to those who have expressed concern that these are the same tests that must be met in the regulatory framework that applies to communications more generally. For the past seven years, since the Communications Act 2003 came into force, Ofcom has been working with these tests and using the tools to enable access, where appropriate, to the BT network. Consumers and competition have, without doubt, benefited from that, and we have seen improved access to a wider range of services and exposure to competition. That has made BT more able to compete with the new entrants, and it is a better business as a result of that competition. Everyone can benefit, but the question is about getting the structure right. The way in which we have set out the three tests in subsection (4) is robust, which shows how the commitment to the universal service with respect to access conditions will roll out.

The intention of the three tests—taken together with Ofcom’s general duty in respect of post and the requirement that any regulation it imposes must be objectively justifiable, non-discriminatory, proportionate and transparent—is to focus regulation, laser-beam like, on economic bottlenecks. By that I mean access to Royal Mail’s final-mile delivery network. Royal Mail, as I am sure that the Committee is aware, currently delivers 99% of all letters in the UK, so while there continues to be a monopoly, the regulator should be able to step in. The Bill ensures that the regulator can do so only in a limited set of circumstances, but it is important that it can step in to ensure that there is no dominance. If Ofcom did not have those powers, there would be a danger that we would snuff out competition. I believe that we have the balance right. Ofcom needs to be able to come in to protect the competitors without over-regulating the universal service provider. If Ofcom did not have the ability to step in to mandate access, there is a risk that dominance would go unchallenged and, ultimately, customers would suffer. I do not think that it was intended that the amendment should remove such important protections. Certainly the hon. Lady’s comments did not suggest that that was her intention. Given that our approach was included in last year’s Bill and that we have improved on it, I had hoped that we might have consensus on the point.

I hope that the hon. Lady will, on reflection, withdraw amendment 95 and not press the others in the group.

Nia Griffith (Labour, Llanelli)

I am never quite sure exactly how far the fine words will carry over into practice. That is always my problem. There are times when I feel that assurances imply that things will probably be all right, but there is a slight sense of a wing and a prayer. That is why we have tabled our amendments—to strengthen things and make them more watertight.

I find it bizarre that despite the compliments that have been paid to amendment 106, it was nearly accepted, but not quite—I wonder what it did wrong not to win the Minister’s approval. If the will is there, it seems unhelpful of the Minister not to want to include our amendments. It would make a change, now and again, in the spirit of Christmas, to take one or two on board. I want to press amendment 106 to the vote, because it exactly expresses our meaning.

Hooper clearly made the point that talking about the Royal Mail is different from talking about some other utilities, which have huge infrastructure costs. There are aspects of the networks of enterprises such as the national grid or BT that are very difficult for anyone else to replicate. The point made by Hooper in his report was that something like 70% of the costs of Royal Mail are labour. It is footwork, as it were.

Indeed, the hon. Member for Bedford has mentioned other people being able to do something about the final mile. Hooper says that that, combined with the falling mail volumes, puts the Royal Mail in a tricky position with respect to the universal service obligation. It is probably easier for competitors to walk in and compete than it is in the fields of some other utilities, where the infrastructure needed is so great that they cannot simply set up and participate.

As Hooper has made that point, I feel that we are justified in trying to protect the provider that has the universal service obligation, because there are additional costs and responsibilities in comparison with any competitor who comes along to do the nice bits.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Does the hon. Lady at least agree that the way we have set out clause 37(4), which some people have described as the triple lock because of the conditions that Ofcom must recognise—

“(a) promoting efficiency,

(b) promoting effective competition, and

(c) conferring significant benefits on the users of postal services” —

is a stiffer test than was in the 2009 Bill? I understand what she is saying, and have some sympathy with it, but will she at least admit that?

Nia Griffith (Labour, Llanelli)

Indeed, as I noted earlier, the 2009 Bill specified (a), (b) or (c), whereas the Bill before the Committee specifies all three; nevertheless, there is never anything wrong with a bit of icing on the cake, and the amendment would make the provision even better.

On the commercial matter in amendment 95, the Hooper report made the point, which I have outlined, about a slightly different situation from that of the utilities—a situation that it is slightly easier to push in on. Therefore I do not think that the amendment is as detrimental as the Minister has suggested. The other amendments relate to later clauses, so I will finish my comments on that note, but we should certainly press the amendments to a vote.

Sir David Amess (Conservative, Southend West)

Does the hon. Lady want a Division on amendment 95? If so, that would take place after the Division on amendment 106.

Nia Griffith (Labour, Llanelli)

Yes, because although it relates to the same clause it is different from amendment 106.

Sir David Amess (Conservative, Southend West)

We shall take the divisions on amendments 108 and 112 later.

Nia Griffith (Labour, Llanelli)

I beg to move amendment 107, in clause 37, page 21, line 38, leave out subsections (5) to (7).

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following: amendment 115, page 65 [Schedule 3], leave out lines 17 to 37.

Amendment 116, page 65 [Schedule 3], leave out lines 38 to 41.

Amendment 117, page 66 [Schedule 3], leave out lines 1 to 10.

Amendment 113, in clause 57, page 35, line 39, leave out from ‘tariffs)’ to end of line 43.

Amendment 114, in clause 57, page 35, line 46, leave out from ‘decision’ to end of Clause.

Nia Griffith (Labour, Llanelli)

That looks like a large number of amendments, but they are all similar in meaning. The amendments to schedule 3 are simply a logical implementation of the amended clause 37. I will not, therefore, need to speak to each individual amendment, but I will give a general overview.

Essentially, we are looking at price controls. The amendments are similar to those we have just been talking about, but they would take out of the Bill the insistence on price controls because we have talked about the commercially negotiated way of doing things and see that as the way forward. Any agreement on access to the universal service provider could be made on a commercial basis, and the regulator would always have regard to the need to preserve the universal service obligation and to ensure that that did not in any way suffer. If we are to have that, logically we need to amend the parts of the clauses and related schedules that refer to price controls. It is not that we are suggesting that, for example, there is something wrong with the schedules themselves. The principle is that if we are not going to have those price controls expressed in that way, those elements of the Bill become unnecessary.

I do not want to repeat at great length the arguments we have been through this morning and this afternoon, but the idea of each of the amendments is to remove those sections of the Bill that refer to price control. Amendment 107 would remove subsections (5) to (7) of clause 37. That same idea is reflected in amendment 113, which would take out of clause 57 the chunk that refers to price controls. Amendment 114 likewise would take a chunk out of clause 57, removing subsection (13). The same thing happens in the amendments to the schedules. We are proposing to delete paragraph (3) in schedule 3 to the Bill.

The logic of the amendments is exactly as I have described. Given that the Committee has heard a lot about that, I will finish on that note.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am not surprised that the hon. Lady has been brief on this occasion, because this set of amendments is unsurprising. They remove important protections for consumers and the rest of the market, which the Opposition included in the 2009 Bill when they were in power. If I may pre-empt any intervention from the Opposition—particularly from the hon. Member for Kingston upon Hull East—the need for the protection of competition, which these amendments removes, is strengthened, because Royal Mail could end up entirely in private hands under this Bill. The hon. Lady has got herself into rather an odd position. When they were in government, the Opposition wanted regulation for a state-owned Royal Mail, but they are now arguing that there should be no regulation for a privatised Royal Mail. That is rather an interesting position, so I am not surprised that the hon. Lady has been briefer in support of these amendments.

This group of amendments would remove Ofcom’s ability to impose price controls through access conditions. Clause 37 ensures that proper protections are in place in the event that a dominant player abuses its position in the market, as we heard in discussing the previous group of amendments to the clause. It may be that Ofcom never has to use the powers under the clause; indeed, there are a number of hurdles that Ofcom will have to overcome before using them. In the previous debate, I made reference to subsection (4), which sets out some of those obstacles. If Ofcom could overcome those obstacles, it would make sense for it to use those powers, but it is properly constrained in the Bill. I discussed the circumstances in which Ofcom might have to step in to mandate access, and I will not go over that again. They are a limited set of circumstances, and decisions will be viewed through the prism of the fundamental duty to secure the universal service.

It is worth reminding the Committee that Ofcom can only mandate access where it is appropriate for

“(a) promoting efficiency,

(b) promoting effective competition, and

(c) conferring significant benefits on the users of postal services.”

That has got the balance right between protecting the universal service and competition, to which we keep having to return. The hon. Lady’s amendments would take the whole sense of balance away, and certainly do not reflect the judgments her colleagues made when they were in government.

Richard Fuller (Conservative, Bedford)

My hon. Friend is right to point out the Opposition’s muddled thinking on the value of regulation in nurturing competition and the problems of regulation in stifling competition. I know that for Opposition Members, the idea of a public sector monopoly and bureaucratic fiat is preferable to freedom of choice and competition. There are some specific issues that the Minister was right to put in the Bill—we need to have them explicitly set out. Will he confirm that without the protection in subsection (5)(b), there is a potential for Royal Mail to manipulate prices so that competition is snuffed out, as there might not be enough margin to play with between wholesale and retail prices?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

My hon. Friend is absolutely right. In fact, he is just ahead of me—I am about to discuss that part of the clause. It speaks to the need for Ofcom to have such powers, and I want to discuss those in relation to the amendments, so we can see how damaging the amendments would be to competition.

The amendments would remove Ofcom’s ability to set price controls as part of an access condition. If Ofcom had sweeping powers, perhaps one could understand the need to restrain them, but we are talking about limited circumstances where Ofcom can use such price controls. It absolutely cannot do so unless it appears to it that the provider concerned—Royal Mail in the case of clause 37, but it could be any operator under clause 48—

“might otherwise fix and maintain some or all of its prices at an excessively high level with adverse consequences for users of postal services, or…might otherwise impose a price squeeze with adverse consequences for users of postal services.”

These are restricted conditions, but if there was a danger of such a price squeeze to snuff out competition, one would expect Ofcom to have the power to act. That is why we have put it in the Bill.

I am quite surprised that the hon. Lady wants to take that power away from Ofcom, particularly as the Bill is privatising Royal Mail. In many other amendments in other clauses, Opposition Members were worried that a privatised Royal Mail could seek to abuse its position. This is not terribly consistent with the story we have been hearing so far.

Let me finish by asking this: what might happen if Royal Mail abused its position and Ofcom did not have such a power? Prices for bulk customers could go up, meaning that more of them—such as insurance companies, banks and utilities—would move their mail away or communicate electronically through the internet. That would further damage a declining market.

Nia Griffith (Labour, Llanelli)

Is the Minister suggesting that there would be some sort of price cartel—that Royal Mail’s commercial competitors would negotiate prices with it and fix them artificially high?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

No—quite the reverse. It is Royal Mail that would have the dominant position and would seek to exploit it. The competitors, however much they clubbed together, would be in a weak negotiating position compared with Royal Mail—if it sought to abuse its position and Ofcom did not have the powers that the hon. Lady’s amendment, if accepted, would remove. If Ofcom did not have those powers, access operators and private competitors would be forced out of business. Some may think that a really good thing, but I believe that appropriate competition that supports the universal service is good for consumers, driving efficiency and innovation.

I accept that it has been a testing situation for Royal Mail, but that is one reason why we have done some modest rebalancing in the Bill towards the universal service provider, compared with the 2009 Bill. We have taken account of the evidence gathered by Sir Richard Hooper and of the concerns expressed in our oral evidence sessions by Royal Mail, the Communication Workers Union and others. We have got the balance right, but the hon. Lady has gone to the other extreme. In all conscience, we could not take so many powers away from Ofcom and leave a private universal service provider in a position to abuse its dominance.

We have been clear that Ofcom’s powers are limited and that we prefer that Ofcom is required to regulate, particularly in the authorisation regime, by showing bias towards deregulation, which it has a track record of doing as a regulator. It has to ensure that it does not intervene in the market between private players, be they the universal service provider of postal services and another postal operator in this case, or be they other players that it regulates in other markets. In its DNA, Ofcom is designed to be a regulator that does not try to over-regulate. It is therefore a very appropriate regulator for Britain’s postal market today. Where competition is well embedded, it will enable more and more deregulation.

That is why the hon. Lady’s amendments are rather unwise. Although we are moving in the direction of more competition and more deregulation, and giving a clear signal that we want to go as fast as competition will allow—with a regulator whose DNA has a bias towards deregulation—we still need to ensure that the universal service provider, which certainly has a dominant position, cannot abuse that dominance. That is the fundamental balance that we have sought to strike. We have got it right; the amendments would take us in completely the wrong direction. Let me rephrase that—they would go too far and lead to an abuse of dominance, which we cannot accept.

Nia Griffith (Labour, Llanelli)

The Minister has made some useful points, and he seems to understand that we see the protection of the universal service provision as very important. He feels that there are several safeguards to ensure that the regulator behaves in the most appropriate way. We are not entirely convinced, but there are now opportunities for Ofcom to intervene in the most difficult of circumstances. It is not terribly clear how much commercial negotiation can take place, but the Minister has commented that such matters might be left to the experience of Ofcom. On that note, I beg to ask leave to withdraw the amendment.

Clause 38

Gordon Banks (Labour, Ochil and South Perthshire)

Before I start, I apologise to the Committee for not being here this morning. I had another 30-hour journey to get here.

Ed Vaizey (Conservative, Wantage)

It was worth the wait.

Gordon Banks (Labour, Ochil and South Perthshire)

Perhaps it will be later, at an appropriate point in time.

I am grateful for the chance to say a few words on clause 38 in the stand part debate. I am grateful to my hon. Friend the Member for Llanelli for holding the fort this morning. I am sure she did it as admirably this morning as she did last Tuesday morning.

Clause 38 relates to the accounting conditions that Ofcom may impose on a universal service provider to maintain separate accounts on different issues as directed by Ofcom. I have a few questions for the Minister. First, what will be the costs of the burden that he may be placing on private business? We have seen the Minister refuse to countenance any proposals in our amendments, often claiming a regulatory burden on private industry. I simply ask what impact assessment he has made of such a burden. Will Ofcom have to prove an overall benefit for the concept of universal service provision before imposing such conditions? If so, to whom?

In clause 38(2)(d), Ofcom “may” impose a condition requiring specified systems to be

“audited annually by a qualified independent auditor.”

Why is the independent auditing of such a condition “may” and not “must”? Will the Minister tell the Committee whether the auditors currently employed by a universal service provider for other areas of its business would be appropriate to carry out that work? May I also ask whether the issues laid down in such conditions, and indeed the criteria to which any audit would be carried out, would be made public? Or would they be subject to the judgment of Ofcom as empowered in clause 38(6) and (7)? Can the Minister advise the Committee whether Ofcom will be able to impose such conditions on different universal service providers at different times, so that one provider has to comply with an accounting condition but another does not? What is the hurdle that has to be failed to have Ofcom impose such a condition? Should we see the imposition of such a condition as an indication that Ofcom is not content with how a universal service provider is running that part of the business? Can the Minister also tell the Committee why it only “may” be necessary for the separate accounts to be published? What criteria will be used to determine whether publishing takes place?

Subsection (5) allows for Ofcom to impose the condition that the costs of following its requirement for a universal service provision to be independently audited are met by the provider itself, so if the provider was not charged with meeting the costs, who would be? What criteria would Ofcom use to determine whether a universal service provider should meet the costs itself? I hope that the Minister is able to answer those questions, and accepts that the inquiries are an opportunity for him to expand on some of the details in this part of the Bill.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I think that I speak on behalf of all members of the Committee when I welcome back the hon. Gentleman. I had hoped to hear a little more about Edinburgh airport; we heard a bit about it in our proceedings last week. Perhaps we can hear more about how the hon. Gentleman’s Christmas shopping has been going, while he has been waiting for planes. That reminds me of this morning’s debate on the exceptions granted under clause 32 to the universal service provider on geographical or health and safety grounds. Clearly, exceptions need to be attached to a Member of Parliament if there is bad weather and they cannot come down to do their parliamentary duties. However, I digress.

Clause 38 sets out the accounting separation conditions that Ofcom may impose on a universal service provider, to assist in establishing cost transparency. We have to understand how difficult that whole notion is. Postcomm has been working with Royal Mail for a number of years to try to tease out the different cost allocation issues in the business. As a network business, many of Royal Mail’s products use common systems, such as sorting machinery, and so identifying the individual costs of particular products can be complex. Cost allocation and transparency has proved difficult, but if we are to answer some of the thorny questions that arise when we look at regulating a network business such as Royal Mail and at ensuring that price controls are fair for all parties, we have to get to grips with that issue. Some complicated accounting methodologies are applied, and I will not pretend to be an expert on them, but I want to stress to the Committee that cost allocation and cost transparency is a priority that needs to be addressed, to assist in monitoring the universal service, to help to set appropriate universal service prices for users, and to ensure that any access price controls are set so as not to provide an unfair subsidy to certain operators. That is what lies behind the clause, and it is why the clause is so important.

We have kept to how the clause was in the 2009 Bill, which is not surprising because the clause speaks to a requirement in the EU postal services directive. That directive has provisions requiring member states to ensure that the universal service provider keeps separate and transparent accounts. That is widely understood to be a knotty problem, and the regulatory regime in that area has to deal with it. So that Ofcom has the ability to require the universal service provider to establish cost transparency, clause 38 allows it to impose USP accounting conditions to maintain accounting separation across different services, facilities and products, and across different areas, and to require the USP to use particular accounting methods. The clause therefore includes quite a lot of flexibility. One or two of the questions by the hon. Member for Ochil and South Perthshire asked why we had “may” and not “must” and so on, but it is quite important that we ensure flexibility for Ofcom.

At the beginning of his remarks, the hon. Gentleman asked whether the burden would be expensive and what all the costs were. I am glad to hear him make such valid points, but our problem is that giving an absolute estimate to the Committee is not possible, because so many attempts have not quite got to the answer. We do not have an estimate of the cost of the accounting separation. We might have been able to give the Committee a cost but, despite a huge amount of work—I pay tribute to colleagues in Postcomm and the Royal Mail who worked on the area—that work remains ongoing.

Postcomm and Royal Mail are currently in discussion about how to handle the different approaches. Given disagreement on the methodology for allocating and sharing the costs between different products and services over the network, the Government would find it difficult to make the sort of impact assessment that the hon. Gentleman wants. In an ideal world, I would very much like to give him a figure, but given this developing theology about how it should be achieved, it would be very difficult—I think impossible—for my Department to give him that answer.

Gordon Banks (Labour, Ochil and South Perthshire)

I am grateful to the Minister. He said nothing that I did not expect him probably to say but, basically, he said that he is imposing a burden on private business without knowing what the cost of that burden will be. It seems to me that that is something that he has resisted significantly throughout another hour of other batches of amendments. I am not saying that the objective of the clause should not be achieved. However, I had hoped for—but not expected—a little more detail from the Minister on what he envisages the cost might be, even in percentage terms, if for instance it was applied to Royal Mail as a whole at this time.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I do not think that I can satisfy the hon. Gentleman with either a percentage or an absolute figure. The question is, what is worrying him about this? I hope he agrees that it is important for Ofcom to have the power. I hope he agrees that we need cost transparency and accounting separation in order for Ofcom to do its duty. They are a fundamental part of the regime—without them, Ofcom would not be able to undertake its regulatory duties properly, so they are important. I hope we can at least agree that the power should be in the Bill.

The hon. Gentleman might be worried—this might lie behind his question—that the burden seems an unreasonable one to put on the universal service provider and not on other postal operators. I understand that point and I hope to give him some satisfaction.

Royal Mail has a turnover of around £7 billion. Access competitors have only reduced that by around 2%—they are taking a huge volume of letters but, in terms of turnover, only around 2%. Asking competitors to pay for the audit would therefore seem to be an unfair burden to place on private operators. Given that the universal service provider is in a dominant position and has a special place—that is why it has to be regulated—it is not unreasonable for it to have to meet the requirements.

Gordon Banks (Labour, Ochil and South Perthshire)

When the sale of Royal Mail progresses—if the Bill receives Royal Assent—we have talked at some length in Committee about the potential for many universal service providers. Has the Minister given any thought to when some idea of the cost of the burden might be determined? Will it be determined before any potential sale of Royal Mail?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I genuinely wish that I could say yes. If we knew exactly what will be entailed, presumably we would have got to the answer. We would already have achieved accounting separation and cost transparency, and would be on the path to what some might describe as the holy grail. We would know the exact information that would resolve some of the disputes about whether the universal service is a burden or whether Royal Mail is subsidising the postal operators, as is alleged. We would have concrete information to enable us to answer such questions. Without wanting to be too much of an anorak on the issue, one of the first questions I asked officials when I came into office and was reviewing such matters in the early days was why had we not got to full accounting separation and cost transparency, as a result of which I was informed of a long saga.

I hope that I have given the hon. Gentleman some comfort that such issues are not easy. I do not pretend to understand the detailed cost accounting methodologies. Some people enjoy that sort of stuff, but it is not my idea of fun. However, it is critically important. I do not think that, overall, the costs involved are huge. If the hon. Gentleman is now worried about the size of the regulatory burden, although he was not earlier, it would not be large but it is critical that such work is done.

Gordon Banks (Labour, Ochil and South Perthshire)

In his last few sentences, the Minister touched on what I was about to ask him. He does not regard such issues as having a negative impact on potential purchases.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

No. Any person operating a universal service provider would prefer to have no conditions, but if we are to make sure that there is competition and that the whole regulatory framework set out in part 3 of the Bill has some real teeth, we must have such a provision. Without it, we will not get very far. I hope that the issue is not one of controversy. I do not detect from the hon. Gentleman’s argument that he opposes the clause for philosophical reasons. He is rightly probing some of its detail, and I completely accept his questions. Perhaps I can deal with a few more.

It is right that Ofcom has the flexibility to decide in such unlikely circumstances, when there is more than one universal service provider, how it goes about implementing the accounting conditions. Instinctively, I would assume that they were similar. However, if one universal service provider were providing a universal service in a rather small area, the issues may be relatively different from those for the main universal service provider, which is providing the service throughout the majority of the country. One can imagine that Ofcom might approach that in a slightly different way, but I do not think that that should in any way concern the hon. Gentleman.

Gordon Banks (Labour, Ochil and South Perthshire)

Would not that be potentially similar to what we heard just now when the Minister was comparing the figure of 2% and Royal Mail’s 98%? If there were a very small universal service provider, would it be fair for Ofcom to impose the accounting conditions?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is right to say that those are the sorts of questions that Ofcom would want to deal with. If, say—and I shall exaggerate to illustrate the point—the second universal service provider were providing a universal service to one island somewhere, clearly one would not want to impose the same sort of USP accounting conditions on it as on the main universal service provider, which would be providing a universal service to the 28 million addresses in the rest of the United Kingdom. I would assume that Ofcom would approach the imposition of the condition in a proportionate and justifiable way.

That sort of philosophy would underpin Ofcom’s approach in the circumstances. I am sure that if the approach were not proportionate, and if Ofcom could not justify it, one or both of the universal service providers would take Ofcom to judicial review. It would be in their interest, if Ofcom were not to abide by Hampton principles of regulation.

Gordon Banks (Labour, Ochil and South Perthshire)

The Minister has created a scenario in which two different sets of accounting principles could be applied. Would not it be possible, therefore, for the end users to have some concern that the universal service providers were being regulated in two different ways?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I do not think that they would be concerned, because they would want to be sure that regulation was appropriate and proportionate. This is an interesting theological discussion. I am not quite sure whether, in the hypothetical situation that we are discussing, there would be too much concern about how the powers in clause 38 were being used. Instead, let me bring the hon. Gentleman to the reality of what we are talking about.

Let us say that after the modernisation agreement the main universal service provider has 30 big sorting sites, with massive machines that are sorting mail at 40,000 items per hour—I think that is the rate. In other words, let us think about trying to apply cost-accounting methodologies to that universal service provider—trying to work out, in relation to the universal service products that are being sorted through the machines, how much of the cost of the machines and the labour and all the other associated costs relate to the universal service products, as distinct from those being sorted that are not in the universal service.

A comparison could be made between that level of cost transparency and the account separation and cost transparency requirements imposed on, say, a one-man band who was providing the universal service for an island—

Gordon Banks (Labour, Ochil and South Perthshire)

Your house.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Or my house, as the hon. Gentleman said. I think one can readily see that different methodologies would have to be applied, and I do not think that that would cause any third party any consternation. It would be ludicrous if the same approaches were applied to both universal service providers.

Gordon Banks (Labour, Ochil and South Perthshire)

The principles should be the same. The details might be different, but the overarching principles should be the same.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The need for separation and transparency should be the same, and the approach to regulation—the principles behind how Ofcom decides to regulate the two different universal services—should be the same. I guess that the hon. Gentleman is right: but the way those principles would be applied in reality—because it could be a matter of dealing with two very different circumstances—would be different.

I shall deal with the hon. Gentleman’s other questions. He asked why we should insist on an independent auditor if the condition is only a “may”. Let me reassure him. If Ofcom decides to impose an accounting condition, then it will be appropriate for the accounts to be properly and independently audited.

The hon. Gentleman asked whether Royal Mail could use its normal auditors for accounting separation. Subsection (8) sets out what is meant by an independent auditor. I am not aware of any reason why it should not use its normal auditors as long they meet the definition in subsection (8). I do not know whether the hon. Gentleman has a problem with the definitions set out in subsection (8). They were mirrored in the 2009 Bill. To me, they seem fairly straightforward definitions and they do not unreasonably restrict Royal Mail.

The hon. Gentleman asked—we had to come back to our musty set of amendments from two or three sittings ago—why we were using “may” and not “must” in the clause. Subsection (1) states:

“OFCOM may impose a USP accounting condition on a universal service provider.”

We had the debate about “may” and “must” in some detail earlier. I refer the hon. Gentleman to the remarks that I made some days ago. If Ofcom thinks that it is necessary, then it may impose an accounting condition. Let us imagine how the mail market may evolve. One can imagine that many years hence we will be looking at a completely different market. The user needs and the structure of the markets could have changed and in that situation, Ofcom might feel that it is unnecessary to impose such conditions. In circumstances that we cannot yet foresee, it might feel that it would be disproportionate and not justifiable to impose such conditions and, therefore, it would choose not to. I must say, though, that is quite a long way off. Given that we have yet to reach the holy grail of accounting separation and cost transparency with respect of this particular network, he does not have much to worry about unduly.

I conclude by saying that Ofcom may require the application of presumption on fixing the determining costs, and the universal service provider to publish accounts or other information required as a result of these provisions. Such publication would provide transparency to the market and assist in the discovery of any areas of inefficiency. At one stage, the hon. Gentleman was worried about how Ofcom would go about publishing this and whether it was appropriate. It is all in the name of transparency. It is important that the wider market of postal operators can see that. They are the ones who are being charged for access to universal service providers downstream and, therefore, it seems to me reasonable that Ofcom can decide that that information should be published.

Gordon Banks (Labour, Ochil and South Perthshire)

For clarity, why should not the accounts be published? Why is it only “may” and not “must”?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

We are going back to our famous debate about mays and musts. If the original decision about whether this accounting condition should be imposed on a universal service provider is a “may”, it follows, therefore, that whether they publish should be a “may”. There could be a reason why Ofcom would not want them published. It may be that it may choose to publish part of the information. Ofcom may decide that parts of this information are genuinely commercial and confident and would want to keep them out of the public domain. That shows why it is important that Government, and this particular Bill, do not set all of this in stone, but give Ofcom flexibility, as we discussed at length some time ago.

Ofcom may secure USP’s compliance with the cost accounting system that is audited annually. Annual audits would be a sensible approach, but Ofcom must decide whether it wishes to do that. It can do that at the universal service provider’s expense, not at Ofcom’s or the taxpayer’s. Ofcom must ensure that any regulatory conditions are objectively justifiable, do not unduly discriminate and are proportionate and transparent.

Gordon Banks (Labour, Ochil and South Perthshire)

Just before the Minister finishes, he has not addressed the issue of the costs of the independent audit. The Bill says that Ofcom may require the universal service provider to meet them. One of my original questions was that if the universal service provider is not responsible for the costs, who is, and what criteria would Ofcom use to determine that someone else—presumably itself—would be responsible for them?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

If I have understood the hon. Gentleman’s concerns, Ofcom has the power to get the universal service provider to meet the cost of the audit. I think the presumption is that that would happen. However, referring back to our “may” and “must”, it is trying to give flexibility. I guess it is possible for Ofcom to decide that it would pay for the audit itself. I think it is highly unlikely, but it has the power to recover the costs. As we go into other parts of the Bill, we have generally tried to ensure that any costs involved with this aspect of transparency are recovered by the key players involved rather than falling on the regulator or on the Government. That is the right approach.

Gordon Banks (Labour, Ochil and South Perthshire)

So the Minister does not see a position developing where Ofcom will require this practice to be carried out, but that the costs are met by Ofcom and not recovered at any stage by Ofcom from the universal service provider. Does the Minister envisage that the cost will always be recovered from the universal service provider, either directly from a reduction in its accounts or by other costs that Ofcom will levy on it?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The way in which I understood it is that the universal service provider, in meeting the USP accounting conditions, would have to ensure that there is an independent auditor, following subsection (8), and that Ofcom could ensure that those costs were met by the universal service provider. That, I imagine, is the default position—I feel increasingly confident that that is so. Unless the hon. Gentleman has any other concerns, I beg to move that the clause stand part of the Bill.

Clause 39

Gordon Banks (Labour, Ochil and South Perthshire)

The Minister enticed me to give the Committee slightly more details on my recent escapades. This time, most of the 30 hours were spent on the M9, and not in Edinburgh airport, so that was even less pleasant.

I would like to make a comment on the clause, rather than ask the Minister a particular question, although I am perfectly happy to hear his response. The clause defines the meaning of services within the scope of the universal postal service, and subsection (1)(b)(ii) highlights that the clause applies if

“the service is not provided throughout the United Kingdom”.

I do not suppose that any of my hon. Friends object to the measure being imposed on such a provider, but I would like to highlight to the Committee that the words acknowledge the likelihood of a break-up of the universal service provisions throughout the country. That is a matter that concerns me and my hon. Friends, and something that we have raised in various debates at different stages in Committee. I do not think we will take any comfort from the potential impact and direction of Government thinking in such words being in the clause. The possibilities highlighted in the clause make our worst fears, including the challenge to the Post Office as a front office for Royal Mail, more of a reality. I would like to hear Minister’s response to the concerns emanating from the words in the clause.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am slightly concerned by the hon. Gentleman’s comments and I hope that I can reassure him. I am glad that he is no longer on the M9—there was some speculation that he was trying to get back from Zurich after trying to help with the Word cup bid, given his namesake, but clearly he was doing his constituency duties.

The hon. Gentleman seems to have misinterpreted clause 39. He suggests that we have included it because we were envisaging the break-up of the universal service and that it is a disaster for the post office network. That is not the case and is not the clause’s purpose at all.

One has to consider whom we are regulating in part 3. There are three tiers of regulation. The first is that of the universal provider, which is Royal Mail—the incumbent. It is envisaged in clause 34 that there could be more than one such provider, but that would be in only very specific, limited circumstances, as we discussed this morning. The main and top tier of regulation is the designated universal service provider.

The second tier is the set of other postal operators, which is what we mean by “persons providing services”. Such operators provide services within the scope of the universal postal service and are not, therefore, other USPs; they are competitors to the main USP. They are competing within the scope of the services that are envisaged within the universal service—whether that be from the minimum requirements or from the universal postal service order. Effectively, the measure ensures that Ofcom has the ability to regulate USP competitors.

When we debate clauses 46 to 50, we shall discuss the third tier of regulation, which concerns postal operators generally. Such operators could be postal companies that are not operating, particularly, within the scope of the universal service, but are clearly postal operators. For example, they could be express couriers, who specialise in carrying very heavy parcels that are not included in the universal service, or other postal operators, who provide services that fall well outside the scope of the universal service.

It is important to understand that there are three tiers of regulation. I reassure the hon. Gentleman that clause 39 concerns not USPs, but postal operators who are within the scope of the universal service. Sometimes we can sound tautologous in the way in which we bang these phrases around, but I hope that I have made myself clear. If I have, I hope that he will accept that the clause should stand part of the Bill, and that the Committee will agree.

Clause 40

Nia Griffith (Labour, Llanelli)

I rise to speak briefly on clause 40, particularly subsection (3) and its link with clause 44. We have already discussed the difficulties with getting that transparency for Royal Mail’s accounting. Can the Minister enlighten us on the expected timetable of when that accounting and the cost of the universal service provision will become clearer? That will be relevant if privatisation goes ahead. How will a prospective purchaser regard the purchase of Royal Mail without that particular information? Can he give us some indication on that timetable? Secondly, the mechanism for surcharging the competitor organisations, if it became necessary to shore up the universal service provider, is complicated. The provisions of clauses 40 and 44 are designed to do that. Are there any other models, either in this country or abroad, where that sort of process takes place? How successful have those models been?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am grateful to the hon. Lady for her questions. She referred back to the previous clause and how long we expect it to be before there is definitive accounting separation and cost transparency, when we can therefore fully understand the cost of the universal service. One would hope that we could get that rapidly. I would not want to put a date or a timetable on that, because getting complete independent agreement with the regulator has proved difficult up to now. The idea that we will be able to magick them up next year or the year after or have a specific timetable would be ambitious. I hope that we can determine the costs quickly—it is important. No doubt many estimates will be made of the different costs involved. There have already been some estimates. It is not as if people do not have views; it is just that it is inherently difficult to make those estimates. There have been a number of assumptions based on different methodologies. Different people want to put different elements and different interpretations on the methodologies that suit their own purposes.

Let us remember that a lot of money is at stake here. A competitor might have a different approach to the one taken by the regulator, which might have a different approach to the universal service provider. Inevitably, they will want to put the best gloss on it, which either increases or decreases the costs, depending on where their interests lie. I hope that the hon. Lady understands how inherently difficult it is. While a huge amount of work has been done in this area, and while there are people in the country who say that they know what the universal service costs, getting to a consensus on that is likely to take some time. I hope that it can be done more rapidly than we have seen in the past, but we cannot be absolutely sure.

The hon. Lady’s second question related to the compensation fund, which is foreshadowed in clause 40 and is discussed in the subsequent clauses, in particular clause 44. She asked whether there were any other models. We are certainly not aware of any other models for the compensation fund. It is only one of the options set out in the directive, and the provisions in the Bill mirror those in the Communications Act 2003 for telecommunications, so this is a sort of genesis of the proposals. I am sure the hon. Lady is aware that the compensation fund idea is not something that we dreamt up. It was in the 2009 Bill and it is in the directive. It is not unheard of. In many ways it has been a central proposition in postal economics for many years. That is how one would deal with the “unfair burden” that the universal service provider has to meet.

There have been debates about whether compensation funds should be paid for by the taxpayer or by competitors. In the Bill we have decided, as is standard in the directive, that it should be competitors. Then, of course, there are arguments about who those competitors should be and how we define within regulations who should come under the regulation that would link to the compensation fund. There are all those sorts of questions, which no doubt will be teased out in due course. The model that we have gone for is a standard model. We have not gone for anything particularly unusual. With that reassurance, I hope that the hon. Lady will support clause 40.

Schedule 4

Gordon Banks (Labour, Ochil and South Perthshire)

Schedule 4 is quite long. It covers the recovery of administrative costs incurred by Ofcom. It allows Ofcom to impose different costs on different operators provided that they do not exceed Ofcom’s overall costs in carrying out its duties—I presume that Ofcom cannot make a profit. I can grasp that it may be more costly to regulate one part of the service than another, which brings us back to the concept of splitting the service. Schedule 4 seems to pose a difficulty in that there may be different levels of charges to providers delivering a service in the same section of provisions—letters, for example. If I am wrong, I am sure that the Minister will point that out in his closing remarks. However, if I am right, how will the charges be determined on a provider-by-provider basis?

Paragraph 1(5) of schedule 4 informs us that Ofcom must publish a financial statement setting out the total charges received that year, the total charges outstanding that year and the cost to Ofcom of carrying out its postal services functions. That is important, relevant and necessary information. Will the Minister expand on whether Ofcom will provide a breakdown of the charges received on a company-by-company basis rather than simply an overall figure, as I read it at present? Or will it be necessary to publish figures on a separate basis—for example, letters separate from parcels?

As I have said, paragraph 1(5) of schedule 4 informs us that Ofcom will publish the total amount of charges outstanding that year in its financial statement. Again, will the Minister state whether that will be on a provider-by-provider basis, and if not, why not? Will he describe the circumstances that could lead to such charges being outstanding? I note that the surplus or deficit will be carried forward into the following year’s charges, and those charges will be adjusted accordingly. Will that be done within Ofcom on a sector-by-sector basis, such as letters, parcels or packets, as designated in clause 26? Or will it be less discriminatory and perhaps lead to a particular sector overpaying or another sector underpaying?

In respect of Ofcom’s ability to impose a penalty on a person acting in contravention of a requirement to pay the charge outlined in paragraph 1 of the schedule, what criteria were used to determine the restriction to limit the charge to twice the amount of the charge fixed for the year in which the contravention took place? What processes will be incorporated by Ofcom in determining how to levy that charge? Where in the scale of its management will such a decision be taken, and will it need approval by the board? Paragraph 7 allows Ofcom to suspend an operator from providing services. In such a situation, what safeguards are in place for ensuring the provision of service in the area covered by the suspended universal service provider? With that, I am happy to listen to what the Minister has to say.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman has got me.

Gordon Banks (Labour, Ochil and South Perthshire)

I wish it had been an amendment.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

If it had been, the hon. Gentleman would not have got me, but perhaps he should try the surprise approach more often by bowling a googly without giving me any notice. I must confess that I am not sure of the answer to some of those questions, including at what level Ofcom would decide how the charging operation worked. I shall try to deal with them, but if I fail to, I will certainly write to the hon. Gentleman. In general, however, some of the answers to his detailed questions have probably not yet been worked out in my Department or in Ofcom, although they may—I am sure that they will—learn lessons from how Postcomm operates its regime.

My hon. Friend the Member for Pendle keeps saying from a sedentary position, “Postcomm;” he does not like the pronunciation, “Posstcomm.” This is a theological question, like “schedule” and “skedule.” I am a “schedule” man—I do not know about you, Mr Amess—and I am happy to be a “Posstcomm” man on this occasion.

On Ofcom’s operation of the charging regime, it will learn from experience, and if the hon. Member for Ochil and South Perthshire has particular suggestions or proposals about how that should be done, I am sure that it will be keen to hear from him.

I will broadly outline what the schedule is intended to do, while inspiration arrives. The schedule’s core function is to set out how Ofcom can recover its costs in relation to its postal functions. It allows Ofcom to fix a charge that postal operators providing postal services within the scope of the universal service must pay. It is important that that does not apply to operators outside the scope of the universal service, for the good reason that they may only be small companies and doing a small amount of business, so it would be unfair, unjustifiable and disproportionate to ask them to pay costs. The charges that would fall under the schedule are targeted only on those operators within the scope of the universal service.

Ofcom is allowed to fix a charge only when it has made a statement of the principles that it will apply in fixing those charges, and the charge must be fixed in accordance with those principles. There will, therefore, be a lot of transparency about how the charges are made. The principles must be such that Ofcom believes that, on a year-by-year basis, the total amount of charges payable meets, but does not exceed, the annual cost it occurs in carrying out its postal functions. The principles must also be objectively justifiable, proportionate and transparent, as the hon. Gentleman would expect. The charges can be different for different types of operators, and certain descriptions of operators may be excluded from the liability to pay. As long as the principles are met, that seems an appropriate way forward. That deals with the hon. Gentleman’s point about whether the charges will be done by company or by sector.

Ofcom is required to produce a financial statement at the end of each charging year, setting out the charges that it has received, the charges that are outstanding and the cost to Ofcom of carrying out its postal services functions. Any deficit or surplus must be carried forward when determining charges for the following year. The schedule sets out the meaning of Ofcom’s postal services functions, including incidental functions as defined in paragraph 2(3), such as any preparatory or facilitating steps taken by Ofcom before and after the schedule comes into force.

The schedule also details the different steps that Ofcom may take if an operator does not pay the administrative charge—I think that the hon. Gentleman is concerned about that—and allows for proceedings to recover the charge and for the imposition of financial penalties. The final step that Ofcom may take is to suspend or restrict the entitlement to provide postal services, and the hon. Gentleman wanted to know what criteria would be used in making that decision. Returning to my initial remarks, I do not think that those criteria have yet been decided, but no doubt when Ofcom sets out the principles, as required under the schedule, it will give some thought to how the penalties will be applied under them.

I confirm that Ofcom cannot make a profit from regulatory fees. As I have already said, costs must be applied on a transparent, non-discriminatory basis, and Ofcom will set out all the details in its published statement of principles. I am happy to send the hon. Gentleman a copy of Ofcom’s existing statement, which is in the public domain, of charging principles as they apply to telecoms, for his study and enjoyment when he is on the M9 or in Edinburgh airport. I am sure that many of the principles set out for telecoms will read through to postal services.

Gordon Banks (Labour, Ochil and South Perthshire)

I want to take the Minister back a minute or two to when he was discussing the revocation of the ability to provide a service. I asked in my opening remarks what would happen to that geographical or service area if the ability of the provider was taken away by Ofcom. Who would then provide that service to that area?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I need the hon. Gentleman to clarify his question. We are talking about the charging regime for Ofcom, and about how Ofcom charges different postal operators to ensure that it is funded, and funded through the industry not the taxpayer. That is a completely separate point to how the universal service is provided.

Gordon Banks (Labour, Ochil and South Perthshire)

I understand that paragraph 7 allows Ofcom to suspend an operator from providing services. If that came about, presumably for non-payment of charges, what would happen to the provision of services in that geographical area?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am now with the hon. Gentleman. He refers to postal operators that might be providing a service within the scope of a universal service but are not the universal service provider. The universal service provider is the one that has to provide the universal service under the duties set out in clause 28, with Ofcom ensuring that that happens. The suspensions for non-payment that the hon. Gentleman is worried about will not apply to the universal service provider but to the other postal operators. There is no hidden threat or danger to the provision of the universal service, and I hope that that reassures the hon. Gentleman.

Gordon Banks (Labour, Ochil and South Perthshire)

I am glad that I have eventually delivered the Minister a googly during the length and breadth of the Committee. It was brought about by his destroying my faith in Santa Claus in a previous sitting. With all due respect, the Minister is wrong, because Santa Claus was in Alloa on Saturday, and I have a photograph of me with him.

Clause 42

Nia Griffith (Labour, Llanelli)

I beg to move amendment 118, in clause 42, page 25, line 35, leave out subsection (10).

I really do not know how to follow that.

Subsection (10) is strange. It states:

“Unless directed to do so by the Secretary of State, OFCOM may not carry out a review under this section before the end of the period of 3 years beginning with the day on which this section comes into force.”

We want to explore with the Minister why that aspect of the negotiations, provisions and new set-up is subject to such a time limit. Our amendment would delete the subsection, which would bring in an arbitrary action in respect of one aspect of the work undertaken by the regulator.

Under the Bill, Ofcom may not carry out a review of the costs of universal service obligations for at least three years after the clause comes into force. What exactly is the reasoning behind that? We have heard discussion today about the need for transparency in accounting. We must sort out what the universal service obligation will cost and what the costs incurred by the universal service obligation provider will be. If Ofcom will be regulating that market, we will have to see greater transparency of the costs, so why does the clause seem to stop Ofcom from getting on with that work?

It strikes us, particularly with different patterns by which people use mail services and the decline that we have heard about, that there could be a rapidly changing scenario in respect of the costs for the USP. It is a bit odd that we have a particular limit on an aspect of Ofcom’s work. Why is it that Ofcom cannot carry out a review earlier, unless it is directed by the Secretary of State? Surely, given the types of comments that we have heard, the Minister would have wanted Ofcom to have had the discretion to be able to choose when it wanted to review the costs. It is strange to prevent the regulator from establishing costs for regulatory purposes before the three-year period is up, because there might be difficulties. We will have to examine what the USP will be up against, and it will be important to discuss whether the costs are being met and whether the right regime is in place.

The provision is of a slightly arbitrary nature. We heard the Minister arguing about the importance of the regulator having the freedom and independence to act as he wishes, but under the clause the regulator is subject to a particular restriction and to a requirement for him to return to the Secretary of State if he wishes to review matters earlier. Surely the larger the amount of information gathering that takes place, the better. Given the particularly difficult circumstances that the provider of the universal service obligation might be working under, Ofcom would want the flexibility in case revisions and a review of the costs are required or if it wants to start looking at things sooner.

Mention is made elsewhere in the Bill of periods of 12 months or 18 months for the review of regulations, so it is strange to have the three-year rule under the clause, given the implication that, almost as soon as the Bill is enacted and Royal Mail is privatised, the opportunity will be there for Ofcom to start revising and looking at things. Will the Minister give us a little bit of his wisdom and enlighten us about the thinking behind the measure? Why has subsection (10) been made part of the Bill?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am grateful to the hon. Lady for precipitating the debate, because it gives me a chance to explain the rationale behind the clause, if it is not immediately clear to the Committee.

Let us remember the overview. We are not talking about the work being done on understanding the costs involved of the universal service. A lot of that work will be done, as we have seen in our debates, as part of cost accounting and cost transparency—that is important for Ofcom and its standard duties as a regulator. Under clause 42, we are talking specifically about whether a financial burden is involved. We have to read subsection (1) carefully:

“OFCOM may from time to time review the extent (if any) of the financial burden for a universal service provider of complying with its universal service obligations.”

We are not looking specifically at the cost of a universal service. That needs to be done in the normal course of events—we have those provisions in clause 39. In clause 42 we are looking at whether a universal service obligation is proving to be a financial burden.

The reason why we have a three-year delay is simply because we want to ensure that the modernisation agreed between the Communication Workers Union and Royal Mail continues and that no one believes in some sort of get-out clause—that Royal Mail does not have to modernise or become more efficient, that it can just wait until Ofcom does a review about the unfair financial burden of a universal service and that a compensation fund is miraculously created, coming to the aid of Royal Mail and bailing it out. We would not want to put into the regulatory framework any perverse incentives for Royal Mail not to become more efficient.

Nia Griffith (Labour, Llanelli)

I am perturbed about what the Minister has just said. The implication is that anything that goes wrong, as far as Royal Mail is concerned, must be to do with what is going on inside Royal Mail—possibly the trade unions or management, although he did not mention management on this occasion. What about external factors making circumstances very different? Those could be anything from escalating fuel costs to a completely different approach to dealing with mail—we have not yet got “Beam me up, Scotty!” but one never knows.

Three years seems a long time to be unwilling to look at any possibility that the burden might have been caused by anything other than what Royal Mail has brought on itself—that is what the Minister seemed to suggest—by sitting back and hoping that someone will come along, pick up the pieces and bail it out. That is an image of a helpless Royal Mail, always hoping that it will be picked up, put back on its feet and subsidised by someone else. I hardly think that that is the image that we should have of this dynamic organisation, which we have seen is modernising at a huge pace. The Minister believes that it might be given even more dynamism by being privatised.

Sir David Amess (Conservative, Southend West)

Order. Interventions must be reasonably short.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I was enjoying the hon. Lady’s speech—she was doing so well that I left it to you to bring the intervention to a close, Mr Amess.

Let me be absolutely clear: we do not believe that Royal Mail will want to avoid its responsibilities. I am sure that it will want to press ahead with its vital modernisation, working in close partnership with the unions to deliver on the modernisation agreement. We expect that to happen—I would even go as far as saying that it must happen. We have to see efficiency improvements. The modernisation agreement is very welcome, and I hope that it delivers on those efficiency improvements. It would be wrong of the Government to create a regulatory framework that created poor incentives. If there were a compensation fund available to Royal Mail on day one, the incentive to press ahead with the modernisation agreement might be somehow weakened. That is not to cast aspersions on Royal Mail and its employees by saying that it has poor motives or poor aspirations. It is just that it makes sense that the compensation fund should not be available on day one. Waiting three years for this review is the sensible way forward.

Let us remember that competitors and customers will effectively pay for any compensation fund, were it decided that it was necessary after the review. They need to be reassured that they are not paying for Royal Mail’s inefficiency. We therefore need to ensure that there is not some immediate get-out clause for Royal Mail. I hope that the hon. Lady understands that this is not an attempt unnecessarily to bind the regulator. She is right that in many other clauses we have emphasised the importance of regulatory flexibility and of the regulator making its own decisions. That has not always been the case—I refer her back to clause 33, where we were discussing a review of the minimum service requirements. Explicitly, the Secretary of State and Parliament will decide whether the minimum service requirements can be changed.

In other parts of the Bill we have made it clear that Ofcom is not running the show completely. In this case, we think that Ofcom would welcome the tying of its hands, because it wants to ensure that the incentives on the universal service provider to be more efficient are right. That is part of Ofcom’s duties, as we discussed in clause 28. Ofcom would not, therefore, want anything to be built into part 2 that would prevent the delivery of the modernisation agreement. I hope that the hon. Lady is reassured by that.

I will make a few more comments to reassure the hon. Lady, and then I will return to some of the thinking behind this, particularly the rationale behind this subsection. I hope that she agrees, as I think she has on past occasions, that for the universal service to survive, this provision needs to be more efficient. That was Richard Hooper’s conclusion, and that is the basic starting point for the whole Bill. The 2009 Bill had the same starting point as well, so a lot of this is common ground.

Like the hon. Lady, I accept that Royal Mail has been making huge efforts to modernise, and there has been some progress on that. If the universal service provider does not have the right incentives to continue with that work, the truth is that without greater efficiency the cost of the universal service will continue to rise. That will mean more switching to alternative forms of communication, which will become ever more attractive, and more decline in volumes. We could reach a point where there is no way back for the industry and the universal service. I want to keep stressing the importance of improving efficiency in Royal Mail.

I have seen, as I mentioned in previous debates, some of the excellent work that has been done. We have talked a lot about the Gatwick mail sorting centre. Perhaps that is where we ought to have our Christmas party to celebrate the return from the snowy north of the hon. Member for Ochil and South Perthshire, who believes in Santa Claus, so we can see for ourselves the strides forward that are being made in efficiency and how much more there is to do. If every sorting centre learned lessons from Gatwick, we would be moving forward.

I do not believe I have told this anecdote before: I was talking to some Royal Mail employees at the Gatwick centre about how they have taken strides forward and improved efficiency. They were frank and open with me, with the managers agreeing with them. As they are now adopting some Japanese management techniques and working closely together, they have decided to co-operate on a basic analysis of the processes that they undertake every day. When they started that, they recognised that the machines—some of the sorting machines are 19 years old, and are not exactly cutting-edge technology—were breaking down frequently. Clearly that was not efficient. It was increasing the unit costs of sorting a letter, and they wanted to try to reduce the down time of the machines to increase productivity and efficiency.

They came to a joint and startling conclusion that it would be a good idea to clean the machines. They did, and they now maintain the machines in a way that the machines have never been maintained before, which has significantly increased productivity. The machines do not break down as often, and what was interesting and, I think, hopeful for the whole way that world class mail is rolling out is that the involvement of the employees in maintaining and cleaning machines in a way that had not happened in the past has improved the enjoyment and autonomy of the individuals working on those sorting production lines. They have started naming their machines. [Interruption.]I think they have rather more usual, standard names.

I am trying to remember the name of the machine that we looked at. I think it was Sue. Having been cleaned, Sue was performing more effectively. It was interesting. The employees were almost like car mechanics. They were now more attuned to the sounds that the machine made and could tell and follow effectively and more quickly if a machine was not functioning properly. Rather than calling in engineers, they themselves were tackling some of the problems, and they were monitoring the effectiveness of each part of the machine—they are long machines, with many different parts. Each individual employee working on the sorting machines got to understand how their bit worked, and they were monitoring the efficiency of each part of the machines.

The anecdote was not simply to allow the Whip to get to his place; it was also to express the fact that Royal Mail can make leaps in efficiency. We do not want the pressure to be taken off it to continue to deliver on greater efficiencies, which are absolutely critical. That is why there is this three-year period before the review can be made. I hope that the hon. Lady will understand that analysis and withdraw her amendment.

Nia Griffith (Labour, Llanelli)

I think the Minister has made our case for us. He has described in such wonderful terms what we have heard, in rather more boring terms from the sources of information that we have had, about improved relations in Royal Mail—Hooper makes a point of stating that in his September report, and witnesses in our evidence sessions said the same. However, the Minister forgot to give the amendment a name. Bearing in mind that lovely picture of the Minister—the dwarf or the elf—visiting the machines that were being cleaned, and the idea of those little creatures he sees in his imagination sorting out Santa’s mail, there is only one thing we can do, which is refer to his comment this morning and call it the elf and safety amendment. That is the Minister’s joke, not mine. Does the Minister wish me to give way?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

No. The hon. Lady tells the joke far better.

Nia Griffith (Labour, Llanelli)

Let us return to the serious business. We have a Royal Mail that is modernising apace. We have had a good report, both from Hooper and from the witnesses in the evidence sessions. We understand that it is modernising not because somebody is about to offer it a great subsidy, but because relations have improved and there has been a real determination on the part of management and the work force to work together. So often, it is the people who are directly involved who know how to make processes more efficient.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Does the hon. Lady agree that the modernisation agreement must be implemented and adhered to, and that it is important that the pace of modernisation is maintained and, if anything, accelerated?

Nia Griffith (Labour, Llanelli)

Certainly. Those people who are directly involved are the best placed to judge and they seem to be very much in favour of continuing the modernisation programme and moving forward apace.

That brings me back to comments about clause 33, which concerns what we, as consumers, want—the minimum requirements and when they might be reviewed. The Secretary of State, indeed, may wish to have a distinct influence over those important provisions.

Clause 42, however, deals in much more subtle detail with the ins and outs of the financial burdens. It concerns how such burdens might be viewed in relation to other costs and the other competitors, whether that is realistic, and whether that is Royal Mail’s fault or somebody else’s. The regulator should have the freedom to choose when and how a review is made, which would be in keeping with the other responsibilities that we expect the regulator to undertake. For that reason, I wish to press the amendment.

Clause 43

Nia Griffith (Labour, Llanelli)

I beg to move amendment 119, in clause 43, page 26, line 25, leave out from ‘burden’ to end of line 26.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Amendment 120, in clause 43, page 26, line 27, leave out subsections (9) and (10).

Amendment 109, in clause 43, page 26, line 36, at end insert—

Amendment 110, in clause 43, page 26, line 46, at end add—

Nia Griffith (Labour, Llanelli)

I shall speak to the amendments together. To translate amendment 109 into simpler language, it concerns who the provider of the universal service obligation should be and for how long. The suggestion that it should be 10 years is to try to give stability to the provider, who in the first instance is most likely to be Royal Mail. At the moment, there is not a serious suggestion that any other company could provide the delivery of the universal service obligation in the near future. To fulfil the universal service obligation, it is obviously necessary to have a comprehensive set of mail centres, delivery offices, large fleets of vehicles and other substantial capital requirements—and, of course, the work force.

Despite the introduction of a liberalised mail market, no competitor of Royal Mail has yet considered making the type of investment that would be required to provide the universal service obligation in reality. Some of them would be happy to skim a little cream off from the universal service obligation, because there are areas where they would like to do the work. They feel that they would make a good job of it and do it in a competitive fashion, but that confirms the point that none of them has the wherewithal at the moment to sustain a universal service obligation.

Nor is the provision of the universal service obligation simply a matter of capital investment and large-scale employment. Royal Mail embodies generations of expertise and innovation from those who have worked for it or managed it. That is why, despite the continued physical expansion of the universal service obligation to more than 28 million addresses today, Royal Mail’s quality of service figures are at record levels. Let us be realistic and accept that the universal service obligation, which the Government say they want to protect, can be delivered only by Royal Mail at the moment. The amendment acknowledges that simple fact. It also gives Royal Mail the certainty to make investment and business decisions, confident that it will remain the universal service provider for a reasonable amount of time. In business terms, 10 years is not long. The replacement of complex machinery operates in cycles of eight to 10 years, unless, of course, the 19-year-old machinery is given that wonderful clean-down by the Minister and employees.

We all know that something such as the universal service obligation involves massive investment. If that investment is made, there needs to be certainty for investors in the business that there will be at least a 10-year period in which Royal Mail will be the universal service provider. I hate to mention this, but sub-postmasters are still looking for that inter-business agreement to be 10 years. For business, 10 years is not a hugely long time.

The amendment seeks to deliver a realistic scenario in which Royal Mail, if it is the universal service provider, will be able to invest for 10 years rather than wondering “shall we or shan’t we invest, because we might lose the service after a short amount of time?” Or there might be cherry-picking going on, which would mean losing parts of it. Therefore it would not be worth its while investing and pushing ahead with—dare I say it?—the modernisation programme.

Linked into the matter is our amendment 110 in clause 43. It specifies that

“A direction under subsection (12) must specify that a minimum of three years’ notice be provided to a designated provider”

of the universal service obligation

“before any other operator may commence providing any of the postal services required to be provided by the universal service obligations.’.”

It is about planning ahead, and businesses having to decide what they will prioritise and where their investment will be. It would give some certainty either to the provider that it will no longer be the provider and therefore must make other provision and look elsewhere, or that perhaps it will not be the provider for the entire universal service obligation but for only part of it. In such circumstances, the new provider would have the time to make the necessary investment, get up to speed and be ready to provide the service with a seamless handover.

The amendment would offer protection to the universal service provider by making sure that adequate notice is given, should that provider have the service taken away and offered to another operator. Clause 43 allows Ofcom to draw a conclusion that the universal service obligation poses a financial burden on the universal service provider, although it does not guarantee that the universal service provider would have to agree that assessment before Ofcom acts. The matter is entirely at the discretion of Ofcom, which would then report its recommendations to the Secretary of State for action.

The Secretary of State might then direct Ofcom to take action. Again, the Bill offers the universal service provider no guarantee that it will necessarily agree with the course of action recommended by Ofcom, endorsed by the Secretary of State and then implemented by Ofcom. We are trying to make sure that there is a proper opportunity for the planning that could be necessary if there were to be a change in the universal service provider. There might be various attempts, for example, to make the USP provide things a lot more cheaply. Other pressures might be put on the universal service provider in different ways. We want an element of stability and a proper transition period, so that if a different provider were to be chosen, the original provider would have a proper period of notice and anyone taking on the service would obviously have time for a lead-in period. We are saying that, in business terms, if we are to expect people to do the job, we have to make sure that it is worth their while. We have to give them something like a 10-year period in which to do it and, if we are to make a change, we need time for people to withdraw and further people to be put in place so that there is a proper notice period.

Amendments 119 and 120 are about the proposed power for Ofcom to make a procurement determination. Amendment 119 would remove the proposed power from subsection (8), and amendment 119 suggests that subsections (9) and (10) be left out. The proposed power seems to be an innovation under the Bill. It is an element that could easily seek to undermine the universal service obligation. It means that competitor mail companies that are keen to lobby Ofcom could be anxious to cherry-pick parts of the universal service obligation that they foresee as profitable.

Procurement determination is the technical term for saying that Ofcom will be looking after another company to take over part of the universal service obligation provision. If it were removed from the Bill, Ofcom would still have power to carry out a review of the universal service obligation. We have discussed such matters at length, so I shall not go over all the different ways in which Ofcom can carry out such a review. It would also have the power to act under clause 44, which we have also mentioned, if the regulator believes that there must be some further change in the universal service obligation.

Our main fear about the procurement determination is whether the universal service obligation will be broken up to give some postal providers the opportunity to make partial provision. That would obviously have a specific and possibly detrimental effect on the current provider of the universal service, as it could become less financially viable. We are concerned about that, and for that reason, we are anxious that this particular element should be taken out of the clause to take away the opportunity for Ofcom to make a procurement determination. In our mind, it would be giving Ofcom powers that Postcomm does not have at the moment. To make a procurement determination is to introduce a real and determined threat to the integrity of the universal service obligation.

Those are the reasons for our amendments. First, we want to provide a proper tender period for proper business planning. Secondly, we want to ensure that any switchover to another provider has a three-year running period, for both the provider pulling out and the provider pulling in, and that there is no opportunity to hive off bids in the meantime, here, there and everywhere, to the detriment of the universal service provider.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am grateful for the way in which the hon. Lady has introduced the amendments. I understand where she is coming from. Her intentions in tabling them are laudable, and I have a lot of sympathy with the thinking behind them. However, I hope to reassure her that while I am sympathetic to her intentions, in my view the amendments are not needed.

The matter returns to something that I am afraid I have repeated many times in our proceedings, which is that Ofcom’s primary duty is to secure the universal service. Therefore, it is not going to act, following its own review, in a way that could potentially undermine that service, whether it is thinking about a compensation fund or about particular procurement options, as the hon. Lady was talking about.

Ofcom would fail in its primary duty if it looked at and used options before it in a way that undermined the provision of a universal postal service. That is the fundamental point of this part of the Bill. It is a fundamental protection, whether for Royal Mail, competitors or a potential investor looking at this part of the Bill and at the procurement compensation fund. People can be reassured that Ofcom’s primary duty is to ensure that a universal service is provided. I do not believe that there will be more than one company in the foreseeable future that is able to do that and meet Ofcom’s requirement. Of course we have had those two specific issues—this is one of them—where one can imagine that Ofcom or, in terms of the postal administration order, the Secretary of State, looks to more than one universal service provider.

Our thinking in this part of the Bill does not lead to the prospect of there being two national universal service providers, which I think is the fear behind the hon. Lady’s concerns. When we debated clause 38, I said that one might imagine another universal service provider operating in a very small area of the country, perhaps providing services to one island, and to one address on one island. The hon. Member for Ochil and South Perthshire said that that would be my address. I live in a terraced house in Surbiton, and it would, therefore, be a particularly unusual procurement to provide a universal service provider for just my own address. However, anything is possible.

When devising the policy, I always imagined that if Ofcom, in ensuring that it was meeting its primary duty, under clause 28, to provide the universal service, decided to take the procurement option because of an unfair burden on the universal service provider, that would be in pretty unusual circumstances and would apply only to small geographical areas. I hope that that reassures the hon. Lady and other Members who might be concerned but, having made those preliminary remarks, let me delve into more detail, to reassure her further.

Because the aim of the Bill is to secure the provision of a universal postal service, one has to look at everything in the round. The pension, employee share and regulatory provisions all come together to ensure that the universal postal service can be provided. However, we have to ensure that we take precautions in case the solution that we have come up with in our policy does not work. It would be absolutely irresponsible of any Government not to make provision in a Bill for things that might happen if everything went wrong. We are talking about safeguards, not about what we expect to, want to, or predict will, happen—far, far from it. The approach of our overall proposal will sustainably deliver a universal postal service, but if things get even worse than we expect and letter volumes fall off a cliff far faster than even the worst predictions, or other market changes erode Royal Mail’s ability to meet the costs of providing a universal service, we need safeguards. Clauses 42 and 43 try to provide those safeguards.

Clause 43 addresses the risk by providing a menu of three possible actions that Ofcom may take, after carrying out a review and as directed by the Secretary of State on acceptance of that review, should the provision of the universal service represent an unfair financial burden on the universal service provider. The first option is a review of the minimum requirements of the universal service, as set out in clause 33. Option 2 is the creation of a compensation fund to share the cost of the unfair burden on the universal service provider. We have discussed that option, and it is set out in more detail in clause 44. The third option is the making of a procurement determination.

So, there are three options if things go wrong, and I contrast that with the 2009 Bill which contained only one option—the compensation fund. Unclear, and hidden, was the provision of the European Communities Act 1972 for a reduction in the minimum service requirement through the negative procedure. That was not a very satisfactory approach, but those were the two options, and only one of them was in the Bill. In this Bill we give Ofcom and the Secretary of State three options for action if things go horribly wrong.

Let me briefly set out how we get to that point and how the actions might work. In brief, once Ofcom has conducted a review of the cost of the universal service, and if it concludes that there is a financial burden, clause 43 requires Ofcom to determine whether it is unfair for the universal service provider to bear that burden. If Ofcom concludes that the burden is unfair, it must submit a report to the Secretary of State with a recommendation for the action, if any, it considers should be taken to deal with the burden. That is the initial process, with Ofcom at the heart of it. For the avoidance of doubt, I re-emphasise that the powers are extremely unlikely to be needed or used. They are safeguards to future-proof legislation in the event of a crisis.

A procurement determination, which is what the group of amendments is about, would mean that another operator could provide part of the universal service with less or no need for compensation from users or the market, and with a reduced risk that minimum requirements would need to be reviewed. That is a valuable tool. The fact that more such tools are available is a step forward from the 2009 Bill. That is the process by which we would have to operate.

I will deal with the specific amendments because they raise useful issues. Amendment 110 would require Ofcom to give a universal service provider three years’ notice before designating anyone else as a universal service provider in relation to any part of the universal service. I understand the sentiment behind the amendment—a universal service provider would need time to wind down relevant operations without incurring a large unfair burden, if it is found that someone else will provide part of the universal service. The hon. Lady went into some detail about the sorts of costs and investments that would have been sunk and, therefore, what would be involved.

Again—this is critical in answering the amendments—I refer the hon. Lady to the primary duty of Ofcom, which is to secure the provision of the universal postal service. That means the whole of the universal postal service, having regard to its financial sustainability and efficient provision. With that in mind, the proposed amendment is unnecessary.

The Bill gives Ofcom the tools it needs to secure the universal service. If the Secretary of State directs Ofcom to make a procurement determination, it would still need to ensure the provision of the whole of the universal service having regard to its financial sustainability. It could not do anything that would go against that. Therefore, if it felt that it was necessary to give a period of notice in order to provide for the smooth transition of one part of the universal service from one provider to the new provider, it would need to do so—Ofcom could not act capriciously, taking a course of action that would in any way endanger the delivery of its primary duty.

The hon. Lady talked about a figure of three years in amendment 110. From her remarks, I was not quite sure why she had set upon three years—there might have been a particular reason. However, I hope that I have at least convinced her that the amendment is unnecessary and I hope that she will not press it.

In a similar vein, amendment 109 prevents Ofcom from making a procurement determination for 10 years from when the clause comes into force. I understand and have sympathy with the intentions behind the amendment, but the arguments I have made should reassure the hon. Lady. It is important to ensure that Ofcom has the tools it needs to secure the universal postal service. I have yet to see a justification for preventing the use of one of our menu of options in the event of an unfair burden on the USP. Let me repeat: the provisions are there to protect the universal service in the event of a crisis. Obviously, we do not expect such a crisis within the next 10 years—or at all—but it seems more prudent to retain the option just in case such an intervention is needed.

Let me be absolutely clear. The powers are a prudent precaution—we do not expect them to have to be used. They are not a way of creating some tendering or franchising process, or some hidden way of introducing it. The powers are safeguards and purely precautionary. It is important that I keep emphasising that, not just for the hon. Lady but for the Royal Mail and any potential investors—they need to know that the provision is not some approach to creating a bidding process every so often. It is about protecting the universal service in the event of a crisis.

In conclusion, amendments 119 and 120, in contrast to the other two amendments in the group, seem to want to get rid of procurement as an option altogether, even if there is an unfair burden. I will not repeat my arguments but, for the record, procurement is a sensible option to allow Ofcom to recommend, in case it is necessary for the provision of the universal service. It gives them another arrow to their bow.

I refer the hon. Lady to article 7(2) of European directive 97/67/EC, of December 1997, which, in the chapter on financing of the universal service, speaks to the procurement option in the same article as it speaks to the compensation fund. It is not an option that has simply been dreamed up by the Government. It is there in the directive that underpins the legal framework on this issue. The previous Government did not include it in the 2009 Bill—I do not understand why. It is sensible to have that option available, even though I do not think that it will be used. It is worth noting for the record that if one looks at how Deutsche Post operates and the legal framework that it operates in, there is a provision for the procurement of the universal service in Germany, should that be necessary, but it has never been used. I am sure that those people who studied Deutsche Post—

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

Doctors.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Be they doctors, professors or pure commoners, they will conclude that the procurement option is not something that would be considered under normal circumstances. It is just an important safeguard. With that little trip to Deutschland, I ask the hon. Lady to withdraw these amendments.

Nia Griffith (Labour, Llanelli)

Well, I was expecting to hear all sorts of interesting facts about Deutsche Post, but I will obviously have to wait for another time. The issue is that 10 years is a short period of time. It is a new scenario and a new adventure for the universal service provider to be a privatised company in this country, when for centuries it has been in public ownership. It needs to be given a fair chance, albeit we do not agree with the idea of its being privatised in the first place. If it is going to have a go at providing an excellent universal service, but within the private sector, it needs to have the proper opportunity to do so. That is why we think that there should be an opportunity for a 10-year period to be granted to that provider, so that it can make the necessary investment, build on the fact that it has done all that modernisation and, we hope, provide an excellent service for the next 10 years. For that reason, I would like to press amendment 109 to a vote, because it secures that 10-year period for the provider to provide the universal service obligation.

Following from that, it would be possible to find another provider, I suppose, in less than three years. We would much rather see a proper three-year run-in period, but we would consider withdrawing amendment 110. We still think that it would be best practice to have at least that amount of time, but maybe we do not need that fixed in the Bill. We want to press our two amendments on procurement determination to a vote.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

On a point of order, Mr Amess. In his fantastic remarks on schedule 4, the hon. Member for Ochil and South Perthshire bowled a few googlies, and I may have inadvertently given the Committee some incorrect information during that debate.

The hon. Gentleman asked about the application of schedule 4 paragraph 7 to the universal service provider. Contrary to what I said earlier, I understand that that paragraph could apply to the universal service provider. He may wonder what would happen to the universal service if that situation arises, but I can reassure him that, should that happen, it is almost inconceivable that Royal Mail would not pay the charges required of it. Given Ofcom’s duty under clause 28, it is even more inconceivable that Ofcom would be able to take the extreme step of suspending the provision of the universal service, and when one thinks about it, that immediately becomes apparent. In such unlikely circumstances, Ofcom would be able to take legal proceedings against a universal service provider for payment of the charges due, rather than follow the suspension option. I hope that assists the hon. Gentleman and the Committee.

Sir David Amess (Conservative, Southend West)

The record will be duly amended, and we are very grateful to the Minister.