Postal Services Bill

My Lords, I thank all noble Lords who participated in this short debate. I shall speak to the amendment the name of the noble Lord, Lord Young. It would remove from the Bill the ability to designate, even in extremely limited circumstances, more than one company as a universal service provider. The intention of Clause 34 is to give Ofcom the power to designate more than one universal service provider in two specific circumstances only, in order to ensure the provision of the universal service. As with other elements of the Bill, Clause 34 has been drafted to ensure that the Bill stands the test of time. It enables the regulatory regime to adapt when it needs to, in order to ensure the continued and long-term provision of the universal service. The measures we are taking in this Bill are designed to put Royal Mail on a sustainable footing so that it can continue to provide the universal service that we all value so highly. However, it makes sense to set the legislation in this way to ensure that the universal service could continue to be provided in two specific, and extreme, circumstances. The first of these is where providing the universal service is found to represent an unfair financial burden on the universal service provider. The Secretary of State agreed with Ofcom’s advice that the best way of addressing that burden was through a procurement exercise, provided for by Clause 43. I want to be clear that this is not about another operator being able to cherry pick profitable parts of Royal Mail’s business. This scenario would transpire only if it was determined that Royal Mail was subject to an unfair burden in providing the universal service. Ofcom would then assess whether another company could provide the relevant part of the universal service with less of a burden—in effect, removing the burden from Royal Mail. It is in this scenario that another company could be designated the universal service provider for that part of the universal service. The second circumstance—and we all hope that this will never happen—is where Royal Mail has become insolvent and has entered special administration. Where a postal administration order has been made under Part 4, and it is not possible to rescue Royal Mail as a going concern, some of its activities could be transferred to another company, and Ofcom could then designate that company as a universal service provider as well, in order to secure the universal service. As I have said, the full package of measures in the Bill is designed to secure the future of Royal Mail and the universal service, and therefore to ensure that we do not end up in either of those scenarios. Both the procurement process and the special administration provisions are backstops to be used only if the future of the universal service is at risk. However, as already has been mentioned, having the ability to make such designations in these specific cases is a sensible and pragmatic safeguard. It is also important to make it clear that having more than one designated universal service provider in no way provides for or permits a varying level of minimum service across the country. Provisions elsewhere in Part 3 guarantee that the minimum requirements of the universal service remain uniform. I hope that, with those assurances, the noble Lord will feel able to withdraw the amendment. Turning now to Amendment 70A in the name of the noble Lord, Lord Young, let me start by saying that I could not agree more with the intention behind this amendment, which seeks to protect the universal service provider from harmful cherry picking that could undermine the universal service. However, I hope to convince the noble Lord that this amendment is neither as strong nor as targeted as government Amendment 68, which we discussed in an earlier group, and government Amendment 70, to which I will come shortly. Amendment 70A would apply only after several conditions had been met. First, a review of the costs of the universal service under Clause 42 would have to have taken place and, as we will discuss shortly, we are proposing that this cannot take place for five years. Secondly, Ofcom would have to have determined that the universal service provided an unfair burden, and would then have to report to the Secretary of State setting out its recommendations for dealing with any unfair burden identified by Ofcom. Finally, the Secretary of State would have to make a decision on what action to direct Ofcom to take, and all this would have to take place before Amendment 70A would apply. However, government Amendment 68, which gives Ofcom the power to impose notification conditions on any operator who is starting or expanding a service within the scope of the universal service, will apply from day one of the new regulatory regime coming into force. I ask the noble Lord, Lord Young, to accept that the government amendment therefore offers even stronger protections for the universal service than his Amendment 70A. Our amendment is also targeted at the area of activity that really threatens the sustainability of the universal service. The noble Lord and I agree that that is the cherry picking of letter delivery. I therefore hope that the noble Lord will consider not moving Amendment 70A in light of the government amendments whose purpose is to deal with his concerns. Turning now to government Amendments 69 and 70, we all recognise that Royal Mail needs to modernise and become more efficient. My noble friend Lord Jenkin, more than anyone, has referred to that. As part of that process, Royal Mail will need to invest in new machinery and new technology and, before making long-term investments, boards and shareholders look for certainty. Amendment 70 seeks to give certainty to Royal Mail that for a significant length of time it will remain the universal service provider throughout the whole United Kingdom. As your Lordships know, in this Bill we were keen to put more tools in the regulatory toolbox to ensure that Ofcom can fulfil its overarching duty to secure the universal postal service. To that end, if Ofcom concludes, following a review under Clause 42, that providing the universal service represents an unfair burden to Royal Mail, we have included in Clause 43 a number of options for addressing that burden, including that of a procurement process. The procurement option will allow Ofcom, if the Secretary of State so directs, to carry out a form of competitive tendering to see if any other postal operators are able to provide some or all of the universal postal service in a manner that eliminates or reduces the extent of the unfair burden. The advantage of this would be that it could result in the requirements of the universal service being met, but at a lower cost. It could therefore provide benefits to consumers in securing the long-term future of the universal service, on which we all rely. However, as my noble friend Lady Kramer eloquently argued in Committee, there could be some unintended dangers resulting from the current drafting of the Bill. Some have seen this procurement option as a potential mechanism to transfer all, or a large part, of the universal service provider designation to a new provider. This is not our intention, nor is it how we would expect such an option to be used. Our expectation is that a procurement determination is much more likely to apply to small areas where, for example, a local provider or possibly a community provider might be able to deliver savings. We accept, however, that the clause as drafted could give rise to doubts over the certainty of Royal Mail’s designation as universal service provider in the short-to-medium term. The Bill as currently drafted effectively gives a three-year moratorium period before there could be a procurement determination. We accept that the risk of Royal Mail losing part or all of its designation after three years may discourage the company from making otherwise rational and important investments in its infrastructure to provide the universal service that payback over a longer period. That is absolutely not the Government’s intention and that is why we have brought forward Amendment 70. That amendment will give Royal Mail a 10-year period of certainty. We believe that this length of time is appropriate to the sorts of decisions the Royal Mail board will be taking. The same period of notice is currently in Royal Mail’s licence from Postcomm and is not dissimilar to the length of time that is common in other regulated sectors where obligations such as the universal service are imposed. However, let us not forget that the procurement option could potentially be to the advantage of Royal Mail by relieving it of the requirement to provide the universal service in an area where it is an unfair burden. Our amendment does not therefore rule out a procurement determination entirely for 10 years. It allows for one if Royal Mail also agrees. We believe that this combination is the best way of meeting our central objective of securing the universal postal service, and I hope that all noble Lords will feel able to support this amendment. Although we need Royal Mail to have the certainty that I have described, we also need there to be pressure on it to press ahead with modernisation, and this brings us back to my noble friend’s point. We must recognise that the threat of a compensation fund means increased uncertainty for Royal Mail’s competitors. It is therefore not unreasonable to seek to delay the possible introduction of a compensation fund until necessary modernisation has taken place. Following the earlier helpful suggestion from my noble friends Lord Razzall, Lady Kramer and Lord Cotter, we have looked again at the moratorium period before Ofcom can conduct an unfair burden review. We have concluded that a period of five years is appropriate, and that is reflected in Amendment 69. This means that neither a compensation fund nor a procurement determination can be initiated for five years unless the Secretary of State directs Ofcom to carry out a Clause 42 review. Preventing the introduction of a compensation fund for this period maintains the pressure on Royal Mail to continue essential modernisation. As has been made clear time and again, unless Royal Mail modernises, the universal postal service will be under threat. Therefore, I hope that all noble Lords are able to support Amendments 69 and 70.