Postal Services Bill

My Lords, this group of amendments relates to the actions that could be taken if Ofcom found that there was an unfair financial burden on the universal service provider as a result of its complying with its universal service obligation to ensure that consumers are protected under the new regulatory regime. Clause 43 sets out three options if there were found to be an unfair burden: a review of the minimum requirements; a procurement process; or the establishment of a compensation fund. If it considered that action would need to be taken, Ofcom would have to recommend to the Secretary of State which of those options would best address the unfair burden. I speak first to Amendment 24X, in the names of the noble Lords, Lord Razzall and Lord Cotter, and the noble Baroness, Lady Kramer. The noble Lord, Lord Cotter, made an eloquent case for the amendment. It is right that we should consider it alongside the other amendment that would prevent a procurement determination for 10 years; the two need to be seen in balance. Your Lordships will need no reminding that our central objective in the Bill is to protect the universal postal service. We have been clear that Royal Mail must continue to modernise and, to that end, have included a new requirement on Ofcom to have regard to the efficient provision of the universal service. No one would dispute that Royal Mail needs to improve its efficiency, and the company has already taken significant steps on its modernisation journey. However, without further modernisation, costs will remain high, increasing the risk of substitution by other forms of communication, in turn exacerbating volume decline and further threatening the universal service. The package of measures in the Bill will greatly assist Royal Mail in its modernisation. We believe that it is important to allow Royal Mail to continue on this modernisation path for a few years, able to take advantage of the benefits of the Bill, before the regulator assesses whether the universal service represents an unfair burden. This would also give certainty to all those who might be required to contribute to a compensation fund, given the reassurance that that would not be on the table for at least three years after the Bill came into force. This is clearly a fine balance. There is no right number; it is a judgment. I would therefore like to take the amendment away to consider it, so I hope that the noble Lord will, for now, consent not to press it. Amendment 24AB was also tabled by the noble Lords, Lord Razzall and Lord Cotter, and the noble Baroness, Lady Kramer. It seeks to prevent Ofcom from launching a procurement process for 10 years after Clause 43 comes into force. While we absolutely need Royal Mail to modernise, we also recognise that, for the foreseeable future, only Royal Mail will be able to deliver the universal postal service. Noble Lords have eloquently made the case for a period of certainty for Royal Mail as the designated universal service provider. I understand entirely that Royal Mail, when making investment decisions related to the universal service, needs to have certainty about its status as provider of that service. We could not expect a responsible management team or board of directors to invest large sums of money in modernising its business if it did not expect that it could recoup its investment. Not only is the procurement option another tool to secure the universal service, but it is also designed to assist the universal service provider. A procurement determination could relieve the universal service provider of the requirement to continue to deliver the universal service in areas where it was an unfair financial burden on it to do so. However, we recognise that there would be risks for it, too. Under the current licensing regime, Royal Mail has a 10-year notice period. In many other sectors, companies providing something like the universal postal service have similar periods of certainty. I cannot in principle see a reason why post should be different, as the noble Lords propose in their amendment. I will take away their suggestion about certainty of designation for the universal service provider to see whether we can do something to deal with the risk here without losing the potential benefit. I will consider this alongside their corresponding proposal to increase the period before a review of costs could be undertaken. If I may, I will come back to your Lordships on Report with proposals to deal with the important issues that have been raised in this debate. Amendment 24ABA, which was tabled by the noble Lords, Lord Young, Lord Stevenson and Lord Tunnicliffe, would require that any direction made by the Secretary of State under Clause 43(12) must give a universal service provider three years’ notice before letting anyone else provide any of the postal services required by the universal service obligations. This amendment would effectively kill off competition in the postal services market. While I have made it clear that the security of the universal service is our priority, we must strike the right balance to ensure that the benefits of competition—and there are indeed many benefits of competition— can be realised as well. Given the impact that Amendment 24ABA would have, I am not able to accept it. However, I have listened carefully to the concerns raised in this House and in the other place about the risk of other operators cherry picking business from Royal Mail, which, as a result, would undermine the long-term future of the universal service. I therefore give a commitment to your Lordships that I will take away and consider this specific issue and bring forward proposals for debate on Report. In respect of Amendment 24AC—