DWP00000084 - Memo from Mr Craig Lewis to Mr McCordell re Extract from Hansard 13.01.1999
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To: = Mr McCorkell From: Craig Lewis
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3%
is
15 January 1999
Copy: Mrs Graham
Mr Hanson (0/r)
Issue Extract from HANSARD, Wednesday 13 January 1999.
Timing For information only.
Background Please see the attached Hansard report of a Select Committee Reform
debate about the Post Office, which took place on 13 January 1999 about Post Office.
The debate included two references to the automation project. Mr Richard Page asked
if the Minister of State, Department of Trade and Industry, would make an
announcement regarding the Government’s commitment to the Horizon automation
platform. In response, Ian McCartney confirmed the Government’s public position on
the project, using our agreed lines to take. Mr McCartney also attributed the delays to
the Horizon project to the previous administration, something we have not done
before now.
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4 265 Select Committee Reform 13 JANUARY 1999 266
s Post Office
oe 12.30 pm
‘Mr. Richard Page (South-West Hertfordshire): 1 am
re I grateful for this opportunity to raise the subject of the Post
al Office. I have regularly submitted my name in the ballot
on for the past three months on this item, so Lam obviously
ee very pleased to have secured a place in today's
ig Adjournment debates. It is particularly apposite because
tis the Select Committee on Trade and Industry reported on
ct Monday and, this week, the Post Office has made an
ae important overseas purchase, on which I shall touch later.
he The Post Office is an important and massive business.
be We must remind ourselves time and again that, through its
or four main operations---the Royal Mail, Parcelforce, Post
an. Office Counters Ltd. and Subscription Services Ltd.it
a employs 190,000 people and has a turnover in excess of
nm Va n £6.7 billion. It is facing increasing, serious competition
be from overseas rivals, as well as pressures from the growth
ad of fax and electronic mail services. There is also the
prospect of greater liberalisation through the European
wt Union.
ito To me and several others, it has been clear for some
an time that such a situation could not be maintained
w indefinitely without losing market share~ notwithstanding
” the announcement by the previous Secretary of State for
es ‘Trade and Industry, the right hon. Member for Hartlepool
te (Mr. Mandelson), just before Christmas. A publicly
owned and financed business that is subject to all the
traditional constraints on pay, pricing, acquisitions,
re borrowing, partnerships and joint ventures has become
he increasingly at odds with the commercial world.
ve As the previous Secretary of State announced just
pe before Christmas, postal administrations in countries such
he . ! as Denmark, Germany, the Netherlands, New Zealand and
is ~ ~ Switzerland are already benefiting from much greater
commercial freedom. The Dutch postal business, KPN,
has bought the private sector carrier TNT, which operates
ul in this country and throughout the world, for the massive
de sum of 2 billion Australian dollars. Such sums will be
ts necessary if we are to create a world player in our Post
en Office. The German post office has bought a 20 per cent.
ad share in DHL, for which it also paid a substantial sum.
© In both the Netherlands and Germany, and in France,
the machinery and rules of the European Union are being
is used to strengthen their postal organisations before they
we are fully or partially privatised. It is certain that, when the
. European Union directive on postal markets starts to work
fully, direct mail and cross-border services will be open
w. to more direct competition. Unless we are very careful,
as our rivals will be better placed to utilise and take
uo advantage of it.
x ij It is with regret that I say that the previous Government
or did not reach a final conclusion on these challenges. I felt
a at times that they should have gone much further,
is although I plead in mitigation the obvious lack of a
e. substantial parliamentary majority. This Government
1 4 cannot plead that. The decisions announced in the House
s i by the former Secretary of State on 7 December 1998
an show that the Government are fundamentally divided on
SoG the way in which to proceed. Signs of a major quarrel
e, between the Treasury and the Department of Trade and
mo Industry were all over his statement. The
aoe “radical new form of public sector enterprise”~LOfficial Report,
ou 7 December 1998; Vol. 322. ¢. 22.4
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267 Post Office
IMr. Richard Page]
that he announced, in which a minority shareholding in a
prospective public limited company can be sold, and which
allows for an exchange of equity with other businesses, is
a slogan, not a solution. As the Communications Workers
Union pointed out in September,
“a minority share sale would amount to privatisation for all
practical purposes”.
It would have been far better to have acknowledged that
outright last month and to have followed the union's
logic, instead of cobbling together yet another policy
fudge.
I understand why the former Secretary of State could
not do so. With the Chancellor to his left, the former
Paymaster General, the hon. Member for Coventry,
North-West (Mr. Robinson), to his right and Charlie
Whelan ahead of him, it would have been the political
equivalent of the charge of the Light Brigade. But, the
political landscape has changed; the Government have
suffered a few casualties, and the new Secretary of State
has only the wounded figure of the Chancellor of the
Exchequer to tackle.
If rumour is right, the new Secretary of State is looking
over this terrain again before the publication of the
forthcoming White Paper. That is one of the reasons why
I was so pleased to be able to secure today’s debate. I
hope that the White Paper will address the questions
raised in the Select Committee report on the degree of
control that the DTI will have over Post Office borrowing
and the scale envisaged.
All that is second best to my principal hope that the
new Secretary of State, unlike his predecessor, will have
the courage to accept that the only way in which our Post
Office will compete effectively with its European and
global rivals is to set it free-~just as the previous
Government had the courage to set free British
Telecom—to transform itself from a national player to a
major contender on the world stage, just as BT has done.
I shall give a few simple examples of the problems
facing our Post Office and what the Government's
policies will entail if they remain unchanged. On Monday,
the Post Office purchased the German Parcel Company,
the third largest carrier in the Federal Republic, which has
annual sales of £250 million. We do not know what the
Post Office paid for it--it wants the matter to remain
commercially confidential—-although estimates in the
press range from £200 million to £300 million.
Even with the reduction of the Government’s dividend
from Post Office profits from an average of 80 per cent.
in recent years to 40 per cent., which I welcome, such a
transaction will inevitably effect the Post Office’s
capacity to invest in its automation and development
programme-~-unless, of course, the money comes directly
from the Treasury. We do not know whether that will be
so. If such sums come directly from the Treasury, we must
ask about accountability. We might ask what other sums
are earmarked for future purchases. To operate in such a
way is a recipe for confusion. Let us not forget that the
purchase, which I welcome and on which I congratulate
the Post Office, is only the start of creating a world-class,
worldwide postal business. Entrées into the Spains, Italys
and Frances of this world must be found and funded. That
is when we shall start to talk about serious sums of
money.
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13 JANUARY 1999
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Post Office 268
I remember being in the House when, before BT was
privatised, it announced that it wanted £2 billion for an
investment programme. We ran around in circles trying to
facilitate that within Treasury rules. There was talk of
Busby bonds, and all sorts of alternatives were examined.
At the end of the day, the only way that BT could get its
money for expansion was through privatisation.
Private companies operating within national borders
will be purchased at an increasing premium as major
players strive for world positions. To put it bluntly, it will
get harder and harder for the Post Office to make further
acquisitions under the rules of external financing that
were announced in December. Internally, Post Office
revenues will fall by several millions of pounds when the
adjustment to the Rheims agreement is made. I shall not
go into the details of the Rheims agreement, suffice it to
say that it is an arcane form of intemal and exterior
movements of mail. It boils down to—the figure is from
two years ago—the enhancement of the Royal Mail's
profits by £40 million. Following the adjustment, we shall
lose that amount, and probably more. All that will restrict
the Post Office’s ability to expand.
Anyone discussing the commercial freedom or
privatisation of the Post Office is told that such moves
would put daily deliveries at risk throughout the country,
that it would affect the universal price for letters and that
the network of rural post offices would face extinction.
I do not believe that. We heard exactly the same alarmist
scare stories from the same sources when BT was
privatised. Were we not told that prices would soar, and
that country telephone boxes would go? What do we have
now? We have more telephone boxes, new operators and
competing services--which benefit the public, as
consumers, more than ever before-~along with much
lower prices.
I believe that greater freedom~~indeed, privatisation,
with the spur of competition from other providers—-will
bring comparable gains to our Post Office. At the same
time-—-and this is the underlying raison d’etre of all that I
i it will bring about the creation of our Post
Office as a world player. 1 think that, if the right measures
are adopted, that can be achieved alongside the
maintenance of a nationwide postal service, I am not here
to outline Conservative party policy, but I am sure that
Conservative Members are as committed as anyone to a
universal service and to sustaining a viable network of
rural post offices, whatever method of privatisation may
be employed.
Inevitably, there will be changes in the location and
number of post offices. Although 28 million people use
tural post offices every week, the number in operation has
fallen from 20,000 to 18,000 in the past few years. It is a
brutal commercial fact of life that a minimum amount of
business must be done in a post office if it is to be viable,
and that minimum rises every year. New policies must be
devised if the sub-post office is to give its postmaster or
postmistress a decent living, and also provide the local
community with a wide range of services. I know that the
aim of the sub-post office movement is the creation of a
bank in every village, and I want that as well.
I would be more confident about the Government's
assurances to sub-post office operators last month had
they not so far failed to commit themselves to the Horizon
platform for automation. Perhaps the Minister will
announce such a commitment today; if he does, } shall be
delighted. If he says that the last Government made no
268
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269 Post Office
such commitment, I shall roll over and say that I entirely
agree. The fact is, however, that no one wants a future
of indefinitely diminishing returns and ever-lengthening
hours for the operators of sub-post offices, but unless
changes are made that is a real danger.
‘The prospect of a Post Office obliged to submit its
strategic plans to the Department of Trade and Industry,
subject to Treasury approval for its borrowing to finance
new investment and operating without “undue
cross-subsidy”-whatever that delicate phrase means—
between Royal Mail and Parcelforce, with employees paid
within the necessary context of public-sector pay policies,
is frankly disappointing. It constitutes a return to the way
in which the state-owned organisation was run in the past,
and from that it will be only a short step to the lunchtime
directive. It represents a false and not a new dawn.
Realistically, can any hon. Member envisage the Treasury
giving our Post Office enough money to purchase an
organisation such as TNT? A purchase of that kind,
however, is necessary if the Post Office is to move into
the world market.
I see nothing wrong with an open and transparent
accounting system, or an independent regulatory system
to ensure standards of service and fair competition, and I
know that is what the private operators in the sector want.
Without change, we shall have a Post Office with its
hands tied behind its back, exposed to increasing
competition, particularly from European _ postal
organisations. I realise that the Minister cannot pre-empt
the White Paper which I hope will soon be before us, but
I hope he accepts that what I suggest would benefit the
Post Office in the long term, and that the status quo is not
a long-term option,
12.45 pm
The Minister of State, Department of Trade and
Industry (Mr. Ian McCartney): I congratulate the hon.
Member for South-West Hertfordshire (Mr. Page) on
securing the debate, and am happy to respond. If I did
not remember the hon. Gentleman’s record as a Minister
responsible for the Post Office, I would not disagree with
much that he said; but he has a record of failure as long
as his arm. 1 would not have mentioned that if the hon.
Gentleman had not been rather churlish in his speech
about the steps taken by the Government so far--~first to
deal with the shambles that the hon. Gentleman left us,
and secondly to introduce measures for the future of the
Post Office in a sophisticated way, involving all the
stakeholders who use it daily as ordinary customers or as
business customers for whom it is a major distributor.
The reforms announced by my right hon. Friend the
Member for Hartlepool (Mr. Mandelson) on 7 December
1998 broke the deadlock with which the last Government
left us. They give us a real opportunity to provide the Post
Office with commercial freedoms. The hon. Member for
South-West Hertfordshire was, in fact, responsible for the
Post Office on two occasions: one would have been bad
enough, but he returned for a second bite at the cherry.
He claims that he was always in favour of reform, but he
never achieved it. His party enjoyed a majority in the
House for 18 years, and, owing to an intellectual
Straitjacket, the only show in town was the privatisation
of the Post Office. The Conservatives allowed it to float
away in the ether, which damaged management, personal
relationships and the Post Office's economic future and
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13 JANUARY 1999
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Post Office 270
offered a prospect that was wholeheartedly rejected time
and again by the British people, and by management and
workers in the Post Office.
The hon. Member for South-West Hertfordshire is
known in the Department of Trade and Industry as
“Swag-bag Page”. As a Minister, he was responsible for
the second biggest hike in the external financing limit ever
imposed by the Government. He took 91 per cent. of
post-tax profits in 1995-96, and came back for a second
bite in 1996-97. That money—91p in every pound~—-was
money that the Post Office needed to invest in new
opportunities, here and throughout Europe. It was
hamstrung by a Minister who handed the money over to
the then Chancellor of the Exchequer, who squandered it
rather than investing it in postal and telecommunications
services.
There was chaos. Industrial relations were in turmoil,
with 810,900 days lost through industrial relations in the
second year during which the hon. Gentleman was a
Minister. It has taken the present Government to resolve
the position, securing a 1,800 per cent. reduction in the
number of days lost through industrial action.
Not one joint venture was established with the Post
Office on either occasion when the hon. Gentleman was
a Minister. Since I have been the Minister responsible, I
have established a number of joint ventures. The Post
Office has acquired a stake in a Swedish mail delivery
company, linked up with a Dutch letters and parcels
delivery company, established a joint venture for the
catering arm and, in conjunction with Microsoft, launched
a service enabling customers to receive paper mail sent
electronically. Since day one of their inheritance, the
Government have sought proactively to establish a new
framework for the Post Office, and new opportunities for
it to compete here and abroad.
I am grateful to the Trade and Industry Select
Committee for the timely publication on Monday of its
report following an evidence session on 9 December. The
memorandum summarising the main points that the
Committee expects to see in the White Paper is helpful in
itself. I hope that I can be as successful in meeting the
Committee’s expectations as we were in fulfilling the
recommendations of the report that it published this time
last year.
The Post Office is a great national institution, on which
we all rely. It delivers post to every address in the United
Kingdom each working day, handles more than 70 million
letters per day, is beaten only by Coca-Cola as the most
strongly recognised brand image, and has more than
19,000 post offices in the UK. Almost 60 per cent. of
villages have a post office; only 5 per cent. have a bank.
The Post Office is visited 28 million times a week on
average~--half the UK population. No wonder the Tories
wanted to privatise such a special asset, owned by the
British people.
We want the Post Office to remain one of the great
success stories of the UK, contributing to the commercial
success of other businesses, providing the modern
communications infrastructure that we need commercially
and socially, and contributing to the social cohesion of
our nation. J trust that Conservative Members share that
desire. Indeed, the hon. Member for South-West
Hertfordshire went out of his way to say that that was the
case. It is just that his policies in government failed to
meet those challenges. It has been up to this Government
27 Post Office
[Mr, lan McCartney]
to meet them effectively. We are keen to put in place as
quickly as possible the reform package that was
announced last month.
I want to put in place three main pillars of the reform
package by the lle of the year at the latest. First, we
shall publish a White Paper putting flesh on the bones of
the announcement on 7 December by my right hon, Friend
the Member for Hartlepool. The hon. Member for South--
West Hertfordshire is right; I will not pre-empt that in
the debate.
The White Paper will redefine the relationship between
the Government and the Post Office, as well as explain
our plans for implementing the comprehensive reform
package. I look forward to positive contributions in
response to the White Paper by anyone and everyone who
is interested in providing genuine commercial freedoms
to the Post Office.
Secondly, we will implement the European Union
postal services directive. We will introduce regulations
under section 2(2} of the European Communities Act
1972, enabling us to ensure early implementation of
significant parts of the reform package, especially the
establishment of an independent regulator. Thirdly, we
will agree with the Post Office the strategic plan, which
will form an essential part of the new arm's-length
relationship between the Government and the Post
Office Board.
The hon. Member for South-West Hertfordshire raised
the issue of the Horizon automation project. The
Government are committed totally to the project. The
deep-seated problems over the project» do not mean the
comment in a personal way--were inherited from the
previous Administration, who failed to deal adequately
with the introduction of such a complex programme.
We are absolutely committed to providing a modern,
secure, convenient and cost-effective means of paying
benefits to customers. That is what the benefit payment
card has been designed to do and it remains our objective.
However, we have been concemed at the substantial
delays that have been suffered by the Horizon project,
mainly due to the previous Administration. We continue
actively to monitor its progress.
The Benefits Agency and Post Office Counters Ltd.
continue to work closely with the supplier, ICL Pathway,
to resolve the problems. The Government remain
committed to a nationwide network of post offices and to
ensuring those benefit customers who wish to do so can
continue to draw their benefits in cash at post offices.
The hon. Member for South-West Hertfordshire also
talked about German Parcel. I will try to be as helpful as
I can in relation to that. We can all be proud about that
achievement. Within weeks of the Government giving
greater commercial freedoms to the Post Office, it was
able to acquire German Parcel. That signals a big step
forward in achieving the Post Office's strategic objective
to become one of the top global distribution companies.
As the hon. Gentleman said, German Parcel is the third
largest private carrier in Germany and a major shareholder
in General Parcel, an international company that operates
throughout thirty European countries. Therefore, it is
important that that exciting new venture is a success for
the Post Office. It provides an early demonstration that,
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13 JANUARY 1999
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Post Office 272
with the new freedoms of the reform package that we
have announced, our Post Office can respond much more
effectively to the opportunities of a changing and dynamic
international marketplace to provide wider and better
services to meet the growing demands and needs of its
customer base.
Many other European post offices have already
invested in substantial acquisitions and strategic alliances,
so the Post Office is coming from a long way back.
‘Therefore, we have to respond in a way that ensures that,
in that dynamic marketplace, the Post Office can secure
with some certainty acquisitions in which it has an
interest.
The Post Office has shown that it can do that by that
particular acquisition. That will become ever more vital
as the postal market becomes increasingly globalised and
competitive. That significant international acquisition
shows the commitment of both the Government and the
new Post Office Board to move quickly to implement the
agreed reforms, and gives the lie to those who questioned
the Government’s commitment to their new policy for a
public sector organisation.
I know that the Post Office has faced calls to disclose
how much it is paying for German Parcel; the hon.
Member for South-West Hertfordshire alluded to that in a
reasonable way. Of course, the public, as owners, should
be aware of Post Office investments and financial
commitments and the Government should be as
transparent as possible in their dealings, but not in ways
that might unduly damage the Post Office’s prospects for
commercial success, No owner would want that.
As I said, 1 hope that I can be helpful. The estimated
turnover of German Parcel for the current year is around
£265 million. A normal core price for such an acquisition
might be the annual turnover plus any special assets, so
that should give a good idea of the figure in question, but
I stress that other publicly and privately owned European
post offices are making acquisitions and, in most
instances, we do not know how much they are paying.
They do not say; nor do they intend to say.
For commercial reasons, our Post Office would dearly
like to know what the costs of those other acquisitions
are, so we are not going to hand on a plate to Deutsche
Post or other serious competitors the figure paid for
German Parcel; nor do I think that the hon. Gentleman
would wish us to do so.
‘The figures in question will properly be reflected in
both published Government and Post Office accounts and
any adjustments to the Post Office external financing
limits will be announced in the normal way, but such
publication will not necessarily reveal the details of any
particular commercially confidential deal. The Post Office
investment in German Parcel will stand on its own two
feet and we fully expect it to pay for itself.
I return to the reforms. The package is radical. It
presents the best way forward. Reviews under the
previous Government failed to give the Post Office
greater freedoms or disciplines. Instead they left it in
limbo and, as a result, starved it of investment. As I have
said, the hon. Gentleman played a major part in that
starving of investment. Our review gives the Post Office
the commercial freedom that it needs,
Pursuing wholesale privatisation, as set out by the hon.
Gentleman, was not an option; nor is it an option. It could
have put large parts of the network under threat.
vat
273 Post Office 13 JANUAR’
Because of the need for primary legislation, it would have H
created a long period of uncertainty, which would have
seen the Post Office’s market further undermined at home
and abroad.
‘The reform package has several essential elements. One
is the new arm's-length relationship. The Government's
role in the Post Office will be restricted to the strategic
level, both on matters of commercial direction and on
setting social objectives. The Post Office Board will
become clearly accountable for its success or failure in
running the business. We will require the Post Office to
present a rolling five-year strategic plan each year for
approval by Government. That is essential to protect
taxpayers’ interests.
Another is the new regulatory regime, which, as } have
said, will be substantially set out in the White Paper. In
setting that out, we will clearly show the direction the
Government will want taken in terms of greater resources
for investment.
My right hon. Friend the Member for Hartlepool has
already set out moves on the external financing limits. We
decided to change those for the Post Office for next
year---1999--2000—to £207 million from the provisional
figure of £335 million. That will be about 50 per cent.
of post-tax profits, down from the 91 per cent. that was
introduced by the hon. Member for South-West
Hertfordshire. In subsequent years, it will fall to 40 per
cent. of post-tax profits. That will give great incentive to
the Post Office to be even more successful than it has
been already under the present Administration.
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