Postal Services Bill

My Lords, we have had two very interesting contributions—I am tempted to call them Second Reading speeches, but perhaps that is unkind or does not fully take into account where the argument has reached. They have been an overall look at where we are. We should remember, first, that the price of stamps went up substantially on 4 April. We should not forget that in all these discussions. Secondly, we have talked a lot about regulation. Regulation is indeed central, and we have concluded across the House—the Government have certainly concluded—that Postcomm, for one reason or another, has not understood the situation correctly. I think that that is the right way to put it. I cite Mr Tim Brown’s opening to Postcomm's February report: "““There is consensus that deregulating where it is safe to do so is the correct approach and that change is urgently needed””." That is a pretty comprehensive sentence for a regulator who has been regulating for the past six years. Then there are some qualifications, but he continues: "““That said, all interested parties acknowledge that the current framework is not fit for purpose””." I do not think that you could go further than that. In his final paragraph, he concludes by saying two things: "““The 2012 price control may look and feel very different to the current price control developed in 2006 … Regardless of the ongoing Parliamentary process, the coming months will be crucial in putting in place the building blocks for a new and sustainable regulatory framework””." In the ongoing conversations between Postcomm and Ofcom, it is pretty clear that Postcomm has come to the conclusion that it does not know what is going on. I make that comment with all seriousness. I think the reason is competition. Motor car manufacturers assemble motor cars. Many years ago, I spent some time in Dagenham in the Ford Motor Company’s engine block foundry—not a place I would recommend then or now. Motor car manufacturers, in general, do not make their own engines. They rely on subcontractors. In this case, we do not have true competition, except, of course, those postal operators that operate end-to-end; that is to say, the courier on his bicycle who goes to one firm of solicitors in the City of London and picks up some documents that are to be delivered to another firm of solicitors in London. That is end-to-end, but the 12 operators who have access agreements into Royal Mail are not end-to-end. They cannot be end-to-end because they do not do what we rather loosely call the final mile. They do not want to do that final mile. If you look at that, they have a common interest with Royal Mail that greatly exceeds their allegedly competitive interest. The problem is created by the price of the stamps, which is the overall ceiling that sets all the commercial negotiations that go on between Royal Mail and the 12 companies that have access agreements. I have nothing against access agreements. Indeed, if I was in the rather unlikely position of running Royal Mail, I would quite welcome other people coming in to collect bulk mail and sort it out. After all, every envelope from Barclays Bank, for example, is printed very neatly and the post code is in exactly the same position, and I am sure you can get a machine that sorts out Barclays Bank mail a lot quicker than it would be able to sort out the things that come from my two granddaughters who do not write terribly well yet. For my money, we are not looking at a truly competitive situation at all. We are looking at a complex monopoly because everybody who has an access agreement has an interest in common with the so-called final delivery and an interest in the fact that within this complex monopoly Royal Mail has to pick up all the difficult things. It has to provide the service to the blind or partially sighted. It has to do things that other postal operators are not required to do. I have no objection to that. It seems entirely sensible because if you were running Royal Mail and you could not raise any capital and therefore could not buy the machinery that you would like—incidentally, the most important machinery for Royal Mail to buy is sequencing machinery that sets out the way in which the final delivery should be most economically made—if you were looking at very complicated sorting arrangements, I think you would be quite pleased that TNT or UK Mail came in and put in the capital. After all, we have been spending a lot of time talking about how Royal Mail gets capital into its business. All this brings one back to saying that whatever the regulatory system, there must be a margin in the final delivery. It is crazy not to make sure that there is a margin in the final delivery. When people talk, as some other operators do, about Royal Mail’s inefficiency, I do not think that the delivery to 28 million destinations, the collection and the other matters that are in the service and are in Clauses 30, 31 and 32 are inefficient at that part of the market. This is where I come from. This is my version of the level playing field spoken about by my noble friend Lord Jenkin. I think that at the moment there has not been adequate analysis of how you create a level playing field. It is quite clear that Postcomm has not succeeded. Within what it has done—the £53 million and the £10 million a year cost of Postcomm are relevant here—understanding Royal Mail’s costs remains one of its objectives. I think it is not worth trying to understand the costs of any business as big as Royal Mail and, indeed, the costs of TNT or UK Mail, in that detail. Many years ago, I was a member of the Monopolies and Mergers Commission. When we looked into competitive circumstances, we did not spend a lot of time on costs. We spent our time on prices and on return on capital. We looked at the prices being charged and at the return to the people who were charging them. I revert to something else which I think is another market. I could go back to motor cars. What would happen if there was a complaints system for the suppliers of all the components to motor car manufacturers about unfair competition? I should think that the Ford Motor Company would never be out of the court. The way it treated me when I was a supplier of motor car parts was a complete disgrace. I could make a wonderful argument about how disgraceful it was, but we did not go to law because it was not worth it and we did not have a regulator. That leads me to my final point before talking very briefly about my amendments, which are only an opening shot to try to get us to think about this matter. Why are we regulating at all? If we set the price of the stamps, look at the returns being made, have parity of information coming to Ofcom from the Royal Mail and the other postal operators and if the auditors are signing off accounts in a proper way so that we can see the results of these operators and their return on capital, what are we doing? When you come down to the bottom line, we are carrying out a social function. We are trying to perfect, quite correctly, a universal service for social reasons, not only for economic or business reasons. Therefore, in looking at this regulation and remembering that we have been assured that it will be light-touch, I ask that we consider how light much of the regulation may—happily, the word ““may”” is used a lot in the Bill about Ofcom—turn out to be. I hope that Royal Mail becomes a private company by way of an offer of shares—an IPO—because when all is said and done, the most likely person to offer to come into Royal Mail as a shareholder at the moment is one of the people with an access agreement—one of the ““competitors””. All that my amendments are intended to do is to draw attention to the costing position, not in order to say that it should be made more onerous, but to start a discussion about why we are bothered about the detail of costs. It takes you into huge arguments about whether there is cross-subsidisation and one thing and another. Royal Mail is to be required to provide certain information. I pick up the point made by my noble friend Lord Jenkin about who pays. It is not in the amendments, but I agree with his suggestion. Why is it not right for a parity of information to be available to Ofcom from all the other postal operators so that if you really want to see what is going on, at least you see the whole picture and do not concentrate on what has been concentrated on so far, which is that it is only Royal Mail that should be required to do these things because it appears to have a monopoly—in my submission there is no monopoly power in the final mile—and to be inefficient. I think that is a very hard judgment in a sharply declining market with no money. My level playing field is to make the suggestion that the Government go back and have one more real thought about what this market is about. They cannot get the correct advice from Postcomm—that is very clear—and it is a bit soon to get it from Ofcom, so it really will have to come out of their own internal resources. When they come to that conclusion, they will want to alter this Bill quite substantially between Committee and Report.