Postal Services Bill

My Lords, the noble Lord, Lord Young of Norwood Green, has said that this is a very large group of amendments. I considered whether it might be possible to disaggregate some of them and came to the conclusion that, as they all broadly address the same subject—access to the network—it is sensible for them all to be discussed together. The amendments in the name of the noble Lord and his noble friends seek to make access more difficult, and those in my name and the names of my noble friends Lady Wheatcroft and Lord Skelmersdale take a different line. Before I speak to individual amendments, I thought it might be helpful to say something about what we are aiming at. I do not think it is all that different from what the noble Lord, Lord Young, has described to us, although I think the balance is different. We want to provide a fair balance between protecting the universal service obligation and promoting competition in the postal sector. Therefore, our overall purpose is to try to find a way in which one can do that. I raised this point at Second Reading and since then my noble friends and I have had the opportunity to hold a number of meetings. We have met the chairman of Royal Mail, Ms Moya Greene, who is a very formidable and able lady—an excellent appointment. We have also had meetings with some of the major companies that entered the postal market under the existing legislation, which was introduced by the previous Government. Turning first to what one learnt from the chairman, it is clear that Royal Mail is still facing an uphill struggle to become profitable, despite the prospective relief from the overhang of the huge pension liability, which we have just been discussing, and despite what seems to be a very welcome improvement in relations with the trade unions. Access to private capital for Royal Mail is seen as absolutely essential if it is to become profitable. That is why it fully supports the provisions in the Bill to remove the existing statutory restrictions on ownership. New capital will help not only to speed up the modernisation of the business, which all are agreed is very necessary, but to secure new sources of business, which it must have if it is to become profitable. Ms Greene also pointed out to us—I quote her words, which I hope is not embarrassing—that there needs to be ““a dramatically different regulatory approach””. I am not sure that we have that yet in this Bill. Ms Greene has described regulation by Postcomm as ““intrusive, extensive interference with no freedom to Royal Mail to price their products or to introduce new products””. Moreover, she put the cost of dealing with regulatory impact at no less than £53 million a year. I find that an almost incredible figure, but she says that that is what it costs. We must return to this issue perhaps at a later stage. One has to ask why the competitors should not pay part of the cost of regulation. They are covered by it and they appeal to it, so why should not part of that cost be borne by them? That is the view from the chairman of Royal Mail, and I find it quite compelling. I also asked the chairman about the upstream competitors, and I put to her the figures that Postcomm gave to a committee in another place—I quoted them at Second Reading. Out of each £10 of business lost by Royal Mail, £9 was due to electronic communications and only £1 was due to upstream competition. The chairman of Royal Mail does not accept those figures at all. We have heard many criticisms of Postcomm and I do not seek to defend its figures. She points to the fact that Royal Mail has lost 50 per cent of bulk mail to the competition and that, therefore, the percentage must be higher than that. I turn to the case put to us by the companies that seek to compete with Royal Mail for bulk collection, initial sorting, processing, data submission, account management, invoicing and the transportation of letters and packets before they are handed over to Royal Mail for final delivery. They point first—this is the core of the argument—to their ability to give an improved service and to reduce costs for their customers. They will increase those costs shortly, but they have made the point that that will be extremely unpopular with their customers. I shall come to that in a moment. Moreover, the companies negotiated and agreed to pay Royal Mail what was intended to be a fair price for the final delivery stage—a price that Postcomm approved at the time, as the noble Lord, Lord Young, has pointed out, as giving Royal Mail a reasonable profit on that part of its business. I agree with the noble Lord, Lord Young, that, in the event, that did not happen. Although we can challenge the precise figure that he quoted of the loss made on the business, one has to look at the reason, which was that the agreement and the figures agreed were based on an assumption that there would be continued significant improvement in Royal Mail's productivity, but that did not happen. Therefore, of course, it was making a loss. However, hope is at hand. I am told that very shortly there will be a new agreement and a new higher price that are intended to achieve that result—that is to say, a fair price and a fair profit for Royal Mail on that part of its business. Another point, which it is important to make, is that the companies have stressed to me very positively that they support the aim that Royal Mail should become a successful and profitable business. They see that as essential for securing the final stage of the delivery of mail under the USO, which, quite rightly—I warmly support the Government on this—is to be retained and safeguarded under the Bill. After all, Royal Mail delivers something like 99.9 per cent of all licensed letter mail and there is currently no viable alternative business model for widespread downstream competition. It is not right that the competition should be able to cherry pick. What are we looking for? I start from the proposition, which I think the noble Lord, Lord Young, had at the back of his mind, of the EU postal directive, Article 11a of which provides that: "““Whenever necessary to protect the interest of users and/or to promote effective competition, and in the light of national conditions””—" and national legislation— "““Member States shall ensure that transparent and non-discriminatory access conditions are available to … elements of postal infrastructure or services””," within the scope of the universal service. I think that some of the things that the noble Lord, Lord Young, asked my noble friend on the Front Bench conflict with that. No doubt my noble friend will be able to deal with that. However, at Second Reading, my noble friend Lady Wilcox made it quite clear how the Government are approaching this issue. She said: "““As Government, it is our role to strike the right balance between protecting the universal postal service and promoting competition in the sector””." Noble Lords will realise that those are precisely the words I used at the beginning of my speech. She continued: "““Our position is clear: competition is beneficial but not where it undermines the universal postal service. Ofcom, the new regulator, will have the regulatory tools it needs to ensure that this balance is protected””." My noble friend then referred to my concern that the new hurdles in the Bill, to which I shall come in a moment, were intended to increase the value of Royal Mail prior to its sale. She said: "““I assure my noble friend that this is not the case. We have two objectives: first, to secure the future of the universal service; and secondly, to secure the future of Royal Mail as the only company capable of providing that service””.—[Official Report, 16/2/11; col. 777.]" The whole of that paragraph—both parts are important—entirely reflects our purpose in tabling our amendments. I must now turn to them. Amendment 24Q is intended to implement the paragraph I cited from Article 11a of the EU directive about giving fair access. Under existing law, each of the three conditions set out in Clause 37(4)— "““promoting efficiency … promoting effective competition, and … conferring benefits on the users of postal services””—" would be a qualification for a regulator to grant access. Subsection (4), however, states that access can be given only if all three purposes are satisfied—what has come to be known as the triple lock. In other words, it is a significantly higher hurdle for competition than that provided in existing legislation. Amendment 24Q substitutes for that the words, "““for either or both of the following purposes … (a) protecting the interests of the users of postal services; and (b) promoting effective competition””." We are looking for a level playing field that is fair to both sides. If, under EU regulation, access is to be provided, there must be a level playing field that is fair to both parties. I am not sure that we have reached that yet. A level playing field must be the right principle to aim for. The trigger point for the application of the subsection is if the regulator has, "““determined that the universal service provider has significant market power””." Given the almost exclusive right and activity of Royal Mail for the final stage of delivery, it seems clear that the condition is likely to be satisfied, so the access provisions will be triggered. Amendment 24R, which is also in this group, would reword subsection (5). Instead of allowing Ofcom to impose price controls on Royal Mail, it would require it to impose price controls if the conditions set out in subsection (5) are satisfied. In other words, it would turn a negative into a positive. Both those amendments are intended to ensure that competition has access to the network if the conditions spelt out are satisfied. If there is an economic bottleneck—when it comes to the final mile, that seems to be so—and a risk of abusive pricing, the regulator must be empowered to impose measures to prevent such abuses. I also want to ensure that the regulator has a level playing field as his objective. I am not sure that the Bill as drafted achieves that. There are two other little groups of amendments—I call them groups because they would amend single subsections. I follow the example of the noble Lord, Lord Young. Amendments 24S to 24W would amend Clause 37(5), and Amendments 24AD to 24AH would amend Clause 48(5). The first subsection applies to the USP access conditions; the second is to general access conditions. Those two clauses, rather strangely, reproduce Section 84 of the Communications Act 2003, which dealt with telecoms as well as Royal Mail. Therefore, perfectly reasonably, it included certain technical considerations that were highly relevant to telecommunications but that seem less relevant when dealing with postal logistics, which involve the physical movement of mail. That creates new and unnecessary regulatory hurdles and added complication. The amendments to both clauses would require Ofcom to consider only two factors: first, whether the access is feasible; secondly, whether it will promote effective competition in the long term. They would do that by amending those two subsections. That is all that is necessary. It would also help to create the level playing field which my noble friends and I seek. I hope that that is an objective which the Opposition can share. We might argue about the detail, but what we are looking for is not that there should be no access—clearly, that would be against the provisions of the EU directive—but that there should be fair access to both sides. I have pointed out some circumstances in which the present system might not be fair to Royal Mail and others in which it is not fair to the competitors. That is what we want to address, and I hope that when my noble friend replies to this group of amendments he can give some assurance that that is also the Government's objective.