Postal Services

Mr Peter Hain (Neath) (Lab): I agree with many of the points made by the hon. Member for Mole Valley (Sir Paul Beresford). In the remote former mining villages in my constituency, up the valleys, there are many pensioners and others who do not have cars and are not online and for whom rural postal services are absolutely vital. As my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) argued persuasively, the universal service provided by the Royal Mail makes a vital contribution to life in remote and rural communities. However, I think that that public service is currently under threat from the combined effects of Government privatisation and end-to-end competition from private postal operators like TNT.

The hon. Member for Hereford and South Herefordshire (Jesse Norman) claimed that the universal service will not be threatened because it is enshrined in law through the Postal Services Act 2011, but that covers only the bare minimum of the universal service. Many aspects of the universal service are set by the regulator, Ofcom, and could easily be changed while remaining legally compliant. For example, Ofcom recently looked at various ways the universal service could be changed to make it cheaper to run. It considered getting rid of first-class mail, and therefore the next-day service, reducing quality of service standards and cutting delivery days from six a week to five. Thankfully, it did not proceed with those changes, but with a privatised Royal Mail those options are likely to be raised again and again because of commercial pressures. On 23 December 2012 The Daily Telegraph reported that Conservative Ministers were thinking about future changes to the universal service obligation and that an all-Conservative Government could perhaps seek to relax it.

Privatised postal services abroad have been successful in pushing Governments and regulators to downgrade the universal service. For example, as my hon. Friend the Member for North Ayrshire and Arran mentioned, the plans to drop Monday deliveries in the Netherlands were the result of pressure from the private company PostNL. A privately owned Royal Mail would be under pressure to generate a return for shareholders and might similarly want to cut the burden of the universal service and lobby for similar changes here in the United Kingdom. Downgrading the universal service in that way would disproportionately affect consumers in rural areas. Services outside the universal service would not be commercially justifiable and would either become very expensive or not be sustained.

Dr Eilidh Whiteford (Banff and Buchan) (SNP): Does the right hon. Gentleman agree that it is not only consumers in rural areas who will suffer but businesses? In fact, the whole local economy of large swathes of rural parts across these islands will be severely detrimentally affected.

Mr Hain: I completely agree with the hon. Lady, who makes a valid point about the impact on businesses, especially small businesses.

Equally, if quality of service targets were downgraded it would be the harder-to-reach locations that would be most affected. Ofcom’s recent review of user needs suggested that removing Royal Mail’s air network in the name of cost-cutting could mean areas of Scotland, Northern Ireland, south Wales and rural England seeing first-class quality of service fall to just 50% to 75%.

The Government say that they have no plans to change the universal service requirements in law for the duration of this Parliament, but that is hardly a long-term commitment, given that we are just two years away from a general election. Royal Mail privatisation is likely to place pressure on the Government to downgrade those aspects of the universal service that hurt the bottom line. Private companies are primarily responsible to their shareholders, and the public sector ethos behind the Royal Mail’s universal service does not sit well within that model. We need only look at private parcel delivery companies to see what happens when profitability rather than public service is the driving force.

As my hon. Friend the Member for North Ayrshire and Arran said, consumers in remote and rural locations are frequently charged extra. She pointed out that there are reports of £45 being charged for the delivery of £25 phones. The Government say that Royal Mail faces imminent danger and that privatisation is the only answer, but that is simply not the case. The most recent financial results show that under public ownership its profits more than doubled in the past year to £403 million. That demonstrates that Royal Mail can be profitable in the public sector, which is where most people—two thirds of the public, not just the vast majority of staff—want it to remain.

Privatisation of the letters service will also impact on post offices in remote and rural locations. The post office network is reliant not only on Government subsidy but on the commercial relationship with Royal Mail that allows its postal products and services to be sold through that network. The current chief executive of Royal Mail says that the commercial success of both companies is best served by their working closely together, but a new chief executive of a privatised Royal Mail may take an entirely different commercial view. There are legitimate concerns that a privatised Royal Mail responsible only to shareholders would seek to sever this relationship in line with its commercial interests. That would have a disastrous effect on the entire post office network, but branches in remote and rural areas would be at particular risk because of their low population density and their revenues. The last Postcomm annual report on the post office network in 2010 found that fewer than 23% of rural branches generated over £40,000 per annum, compared with 70% of urban branches and two thirds of branches in deprived urban areas.

The Government and Ofcom need to make sure that the universal service obligation in its current form endures and postal services in rural and remote areas are protected. This requires Ofcom to use the powers that it has to tackle the end-to-end competition from private postal operators such as TNT UK. It also requires the Government to consider an alternative business model for Royal Mail that would keep the postal service run in the interests of the public and properly engage the work force. The main problem is that the model of competition under the 2011 Act has meant, in a privatised context, cherry-picking of the most profitable parts of Royal Mail’s business—for example, taking the profitable parts such as business mail, sorting it and then delivering it to city centres, but dumping it back into the Royal Mail network for delivery to the most remote and costly rural areas. That imposes a double burden on Royal Mail, taking revenue away and then forcing it to bear the extra cost.

TNT’s stated aim over the next five years is to increase its end-to-end operations to a work force of approximately 20,000 and to deliver business post—that is, the most profitable post—to doorsteps across the UK. Evidence from Communication Workers Union members in the trial areas of London shows that Royal Mail’s postal volumes have been materially affected because of this competition. Loss of revenues on the scale that TNT is working towards would have very serious consequences for Royal Mail. It means Royal Mail missing out on the most profitable business that would usually subsidise the high cost of delivering to remote and rural locations. Such unchecked competition places the current universal service under significant threat.

Lady Hermon: The right hon. Gentleman may be surprised to learn that I agree with every word he has said on this occasion, though that may not have been the case when he was Secretary of State for Northern Ireland. I think it would strengthen his argument if he could throw a little light on the last part of the motion which

“calls on the Government to provide more concrete, long-term protections for postal services in rural areas”.

Will he explain what concrete, long-term protections for postal services in rural areas would be introduced if there were a Labour Government in 2015? That would be enormously helpful.

Mr Hain: I am grateful to the hon. Lady. I mostly agreed with her when I was Secretary of State, even if she did not agree with me, but there we are. I would want the next Labour Government elected in 2015 to ensure that the competition regime was fair and that Ofcom regulated the market to ensure that competitors did not cherry-pick the most profitable parts of the business. That is quite an easy thing to do, but it has to be driven ultimately by Government policy.

Royal Mail needs a level playing field where its competitors also have an obligation to deliver up remote Welsh mountains, or to the Scottish islands or the Yorkshire dales. That is why Ofcom must use the powers it already has to introduce general universal service conditions on competitors such as TNT which provide services that fall within the scope of the universal service. GUSCs do not require legislative change or ministerial approval, and they provide the best option for intervention on cherry-picking in the short term. Requiring Royal Mail’s competitors to deliver to a minimum area of geographic coverage for a specified number of delivery days and to a representative proportion of the population would go some way towards ensuring that competition was on much fairer terms.

Ofcom could also seek to introduce a universal service compensation fund through which rival postal operators would compensate Royal Mail for the costs of providing the universal service. Similar support funds are being established in a number of other European countries to ensure the long-term viability of the universal service.

Running Royal Mail as a not-for-dividend company, such as, for example, Welsh Water, would provide a suitable alternative model, and that is entirely compatible with the 2011 Act. The Government could choose that model and I urge them to do so.

Royal Mail’s recent profitability shows that it could raise investment capital through its own profits, which would be a step towards becoming a self-financing, not-for-dividend company under the Act. Without changing ownership, Royal Mail could borrow from money markets, at a cheaper rate, as is the case with Welsh Water, even under the terms of the Act. That would be a much better model for protecting rural postal services. Otherwise I fear that the future will be an end to door-to-door delivery in remote rural areas and the appearance of personal letter boxes in village centres, with the post office network all but disappearing.