It is a good to be here with you today to discuss the Conservative’s views on a sustainable postal service. Earlier you heard from Lord Young, the Minister on ‘securing a future for the postal industry’. By the way you are very fortunate to have had that pleasure as we have been waiting for weeks to find out from the Government what has happened to the Postal Services Bill. The Postal Services Bill was due to have had its second reading in the House of Commons on the ninth of June. However, we have now heard from Lord Mandelson himself, albeit only through an interview with the Financial Times rather than in Parliament, that plans to reform Royal Mail have been delayed[1].

 

As Dave Ward noted, given Lord Mandelson’s concerns at lack of Commons time to debate this yesterday, David Cameron offered the Prime Minster one of our opposition days to have the second reading. Unsurprisingly the offer was not accepted. Politics apart though, given the urgency that the Government placed on reforming postal services, we are astounded that the Government has delayed this much needed reform purely for what seem to be political reasons. We now have serious concerns that this could result in Royal Mail slipping further into decline.

 

We broadly accepted the findings of Richard Hooper’s review of UK postal services and agree with its concerns that Royal Mail is a business that is facing the abyss and urgently needs reform. Sadly, that conclusion comes as no surprise to the Conservative Party. It confirms what we have feared for a long time: that the Government’s negligence in failing to address the vital issues that face the Royal Mail for over a decade have assisted in its losing ground both to foreign competitors and technology.

 

Perhaps the Government’s dithering and now inaction was, as our Chairman conjectured, an indication that the Minister feared the now very apparent dissent of their own party with some 150 Labour MPs signing Early Day Motions’ opposed to the part privatisation. Or possibly the Government has been unwilling to proceed with this Bill for other reasons. It seems as though Lord Young felt that to answer this would be “career limiting”. However, these internal policy issues are ultimately for the Labour Party to ruminate over, not us. Either way, it is indicative, we believe, of a Government in disarray and lacking in direction or leadership.

 

What we, the Conservative Party, are interested in is saving the Royal Mail and securing a sustainable future for the company. We want to see that the universal service is preserved and that the post office network is maintained. Through its network of offices and staff, Royal Mail is best placed to deliver mail to 28 million homes and businesses for a uniform price. We also want to see a viable solution to the frightening pension deficit.

 

The status quo is untenable. The Hooper Report has said that if nothing is done to reform Royal Mail, then postal revenues will fall by 25% over five years, although recent announcements now revise this to a 10% fall this year alone. It is time for the Government to regain the initiative for the sake of Royal Mail and the future of postal services in this country.

 

 

Conservatives understand Richard Hooper’s concern that there should be a sale of a stake to a strategic partner, so we welcomed Lord Mandelson’s endorsement of partial privatisation. If we are to reverse the downward-spiralling fortunes of Royal Mail, strategic outside input is, we agree, essential. We do not know commercially what has been going on with the Government and bidders behind closed doors and to what extent negotiations are still progressing with potential partners. Have these now been called off given the Bills going on ice?

 

Questions always remained unanswered in relation to Lord Mandelson’s proposals. The Government seemed to imply that the percentage to be privatised is to be 30 per cent when the Bill provides for up to 49 per cent. What price, if any, would the Government charge for such a stake and how could they ensure that the stake was not bought for an unduly low price? These are key questions that we will need to know the answer to, to assess whether the taxpayer is to receive full value when this returns.

The proposals must not be just a convenient way to flog assets at any cost to prop up a Government on its last legs and desperate to reduce the huge debt pile that it has created. We need transparency, and although Conservative members of the House of Lords managed to amend the Bill to secure a Government report on the partnership deal once the deal is signed, the Government refused to offer any real reassurance prior to signing.

 

Overall though, we agree with Mr Hooper that, in finding a way forward to modernise, three interdependent aspects must be carefully considered.

 

First, any new partner to the Royal Mail must introduce some much-needed commercial confidence. As admitted by the Government, at present bureaucracy and internal conflict, which includes a long history of—let us face it—terrible industrial relations, frequently paralyse the Royal Mail. This applies when it comes to making decisions and bringing about change such as sorting automation. In 2007, 60 per cent of all the days lost by industrial action in the entire economy were accounted for by Royal Mail[2]. This is a staggering figure and highlights just how terrible industrial relations have been between the management and the unions at Royal Mail.

 

The General Secretaries of several unions, which include the CWU but also the GMB, Unite and Unison have said that they are ‘unanimous in opposition’ to the part-privatisation proposals which were ‘electorally unpopular, politically unwise and damaging to the concept of universal service provision’[3]. On the contrary, we believe that Royal Mail needs a strategic partner in order to transform its business so that it is best placed to provide the universal postal obligation in the future.

 

The picture across the country is more complicated however, and in some areas, not least for instance in St Neots in my own constituency, staff productivity has been significantly improved. I don not doubt Dave Ward’s sincerity that he wants the best for the service and we recognise this. However, only recently, postal workers staged a 24 hour walkout in London and some have predicted that the London vote will prove to be the “starting pistol in a long summer of industrial strike action”[4]. I hope that this is not the case.

 

The problem here is due to the structure of the CWU. Although there are agreements in place nationally between Royal Mail and the National Executive Committee of the CWU against strike action, local branches are still able to hold a ballot and strike. It is hard for Royal Mail to make industrial relations progress when the local branches of the CWU can undermine the national consensus.

 

Secondly, we were pleased that the Government accepted that outside experience will be invaluable in moving the Royal Mail forward, although we consider that a careful review of the qualifications and track record of any third party as a strategic partner will be essential. Royal Mail alone, at present, is not we believe equipped to bring forward the vital changes that it needs.

 

Thirdly, the Hooper review maintains that private investment will be required to modernise the Royal Mail fully. We endorse this view, but have insisted that the employees be included in the process. Following amendments in the House of Lords, the Government have assured us that they would not preclude the establishment of an employee share scheme. We want to go further and ask the Government that they include provisions for such a scheme in the Bill.

 

Furthermore, private capital, as Mr Hooper states, is more tolerant of commercial risk than the tax payer, and can generally be used for a wider range of purposes. It is also not subject to the often lengthy process of state aid approval, which has effectively precluded any further public investment.

 

 

Current estimates of the pension deficit range up to £10 billion with a revaluation underway. A workable solution must be achieved if the Royal Mail is to move forward.  Pension funds all over the world are now faced with greater burdens due to the longer life expectancies of members. The Royal Mail Pension Plan is no different. In 2003, the official actuary’s assumptions were that a male fund member aged 60 would live for an additional 22 years; but by 2006, it was expected he would live for an additional 26 years. The assumptions for women changed from an additional 25 years to 29 years over the same period. These really are significant increases in a short period of time and have placed a large burden on the Royal Mail Pension Plan.

 

Conservative members of the House of Lords were able to extract from the Government that they intend to leave the Royal Mail Pension Plan fully funded, if state aid rules permit. We therefore support the Government’s move to guarantee a proportion of the pension scheme. However, questions remain. Who will administer this public scheme? Will they be independent of the Government? What will prevent the Government, with such an atrocious deficit itself, from conducting a fire sale of the assets? So will these assets be ring-fenced and not sold to help cover the Government’s massive deficit. Again, we must insist on the taxpayer receiving value – both now and in the longer term. 

 

Conservatives agree with the Government that ‘tackling pensions on their own would not be a panacea for Royal Mail’s difficulties’[5]. We wholeheartedly support the Government’s view that it would indeed be ‘irresponsible for the Government to tackle the pensions alone without policies in place to ensure that Royal Mail can transform quickly to compete in a fast changing market’[6]. The question is whether this now remains the Government’s view?

 

 

Let us also keep in mind that Royal Mail’s dominance of the market ensures the need for strong regulation. The Hooper proposals for a transfer of regulator from Postcomm to Ofcom are generally welcomed, although we will need to be satisfied that the regime is properly workable. We have made significant progress in the House of Lords as an affirmative resolution will now be required in order to impose a levy on the industry to protect the universal service obligation. However, there is still much to debate in terms of how to address issues such as appeals and the scope of regulation.

 

Although we agree on Ofcom becoming the regulator for postal services, we are concerned that the scope of Ofcom’s remit to regulate the postal services market should not be far broader than is necessary. The Postal Services Bill, as it currently stands, allows Ofcom to regulate almost any firm operating in the postal services sector. Services that have been exempted under the Postal Services Act 2000 and subsequent European legislation could now be subject to regulation from Ofcom. These services such as international bulk mail and DX services will at the very least be reviewed by Ofcom. So service providers in these markets may have up to two years of uncertainty about whether their businesses will be regulated, under the Government’s current proposals. It is clear to us that the scope of regulation needs further consideration.

 

The Postal Services Bill also proposes to give Ofcom significantly greater power to enforce regulations on both Royal Mail and, potentially, other private sector operators. We believe that this power should be offset by giving firms a right of appeal over Ofcom’s decisions. The Postal Services Bill, as it currently stands, only allows appeal by Judicial Review. We believe that this could be insufficient and there should be an independent appeals system, which should be as cost efficient and as easy to use as possible.

 

 

At the start of the Bill in the House of Lords, we were very concerned that it purposefully ignored Post Offices as an issue. This was wrong. Post Offices are an essential component of our society, providing a lifeline to communities up and down the country. They are part of our economic and social glue and the Government needs to recognise that their future is closely linked with Royal Mail.

 

Due to the progress of the Bill made by Conservative members of the House of Lords, the Government would now have to lay before parliament, an annual report in relation to the network including factors such as number and location of, and accessibility of post offices. If this Bill is passed there will now be transparency for the post office network and we would, for instance, be able to see better any detrimental effects that the Government’s closure programme has had on the public.

 

 

The current situation is untenable and the fortunes of Royal Mail have been deteriorating on a monthly basis. Lord Young said earlier that “the Government cannot stand by and do nothing”. But this level of deterioration will be accelerated by the Government’s sudden failure to take the Postal Services Bill forward. It is clear to everyone that this has been done for political reasons and Lord Mandelson has now confirmed this. As we have seen the fortunes of Royal Mail deteriorate and the need for change become even more desperate, we have also seen the Prime Minister’s authority deteriorate. It appears that in order to satisfy Labour backbenchers the Postal Services Bill has been severely delayed may even have been dropped.

 

However, we cannot simply forget about the Royal Mail and not advance the much needed reforms to secure an efficient and profitable postal service in the UK. We fear that the Government has simply kicked the Postal Services Bill into the long grass and with it the best chance that we have in a generation to reform the Royal Mail and secure a long term solution that is best for the company, its employees, its customers and the taxpayer. If Ministers think that we are going to join their collective amnesia on the need for Royal Mail reform – they would be severely mistaken.

 

Customers, businesses and individuals alike, are cutting costs, including postal costs. Technology is directly impacting on postal services, and offers a quicker and cheaper alternative. We cannot let the Postal Services Bill remain in the long grass and let Royal Mail decline. Modernisation is imperative and the best way to achieve the modernisation required, we believe, is to follow Richard Hooper’s proposals.

 

Richard Hooper stated however, that if modernisation is to succeed, the regulatory regime and the vast pension deficit, need to be dealt with as a package, alongside the involvement of a strategic partnership. We agree that we cannot pick and mix between these issues, and that they need to be dealt with at the same time. If the Postal Services Bill does come back on the Government’s agenda, then they must continue to follow Richard Hooper’s proposals.

 

In February of this year the Government confirmed that they ‘accept [Richard Hooper’s] recommendations as a package in the way that they were proposed’[7]. Furthermore, the Government confirmed that they would ‘not select one to the exclusion of another’. It would be catastrophic if the taxpayer was forced to take on the vast pension deficit and the regulatory system was changed but on some deal that the strategic partnership was dropped in order to appease Labour backbenchers.

 

 

We, the Conservatives, have held a consistent position on creating a sustainable postal service. The only way that we can save Royal Mail and successfully reform postal services for the future, will be if we continue to deal with reform as a package. If the Government propose to do otherwise, then they could be sealing the decline of Royal Mail and securing more debt on the taxpayer at a time when the taxpayer has been stretched like no other time in history. We cannot let this happen. The current drift, with no deal, no Bill and no Government timetable is disastrous for the business and very unsettling for the staff – it represents Government incompetence and failure at its worst.

 

Across Europe, former state owned monopolies are now efficient and profitable enterprises. There should be no reason why the same cannot be said for Royal Mail within the next 5 years if action is taken now. The universal postal service, which we see as an essential part of the fabric of this country can be retained if we act now. The Government must continue the work that they have started and, with Conservative support, we can secure a prosperous future for the Royal Mail and a sustainable postal service across Britain if we act now. The current Government position of doing nothing is simply unacceptable.

 

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