Six-day pledge for 'public' Royal Mail

(Reuters)

The Government today pressed ahead with its controversial plans to part-privatise the Royal Mail but tried to head off growing criticism by pledging to enshrine in law that the organisation would remain publicly owned.

Business Secretary Lord Mandelson published the Postal Services Bill, which confirms moves for a partial sell-off of the postal group.

The move has sparked a huge revolt by Labour MPs, threatening Gordon Brown with the biggest rebellion since he became Prime Minister.

The Bill said the Royal Mail will be enshrined in legislation as a publicly-owned company. No Government will be able to change this status without further primary legislation in the future.

Post Office Ltd will be entirely owned by the Government, and this status will not be changed without further primary legislation in the future.

The universal service - letters collected and delivered anywhere in the UK, six days a week, for a single, affordable price - will be written into the legislation.

The Bill confirmed that postal regulator Postcomm will be abolished and its responsibilities switched to Ofcom, which regulates the communications industry.

Ofcom will have as its primary duty the maintenance of the universal service and will also have the power to clarify the Royal Mail's costs.

Unlike the current regulatory system, it is written into the Bill that Ofcom must give precedence to maintaining the universal service if there is a tension with any of its other functions, such as promotion of competition.

Ofcom will have powers to clarify Royal Mail's costs and ensure other companies' access to Royal Mail's network is regulated on a fair basis.

The Bill also paves the way for a compensation fund so that the Royal Mail's competitors would have to pay towards maintenance of the universal service if it put an unfair burden on the company after modernisation has taken place.

In a policy statement published with the Bill, Lord Mandelson said: "The Royal Mail is part of the fabric of the country and the lives of the millions of people who use it every day.

"Uniquely it has the network of people and sorting offices spanning the country that can deliver to every household and business at one price, six days a week.

"But the future of this network is under threat as people increasingly switch to digital technology as their preferred way of communicating.

"In the face of this challenge, I am determined to protect the universal service by ensuring we have a world class Royal Mail. That requires us to act today to secure the Royal Mail's future.

"The policy we are proposing will keep the Royal Mail in the public sector, while equipping it for modernisation.

"It spells out in legislation the primacy of the universal service. We will place the universal service as the overriding objective of a new regulatory system for postal services.

"And by tackling the pension deficit we will protect services and pensions. The Government believes this plan represents the best way forward for Royal Mail, the universal service and the whole country.

"The proposals are a coherent package of measures. They include new support for the universal service.

"No single action will resolve the challenges facing Royal Mail. Some will object to individual parts of the package or will suggest delay. But we firmly believe that all of the reform proposals, acted on now are what is needed if we are to ensure the future of the universal service and to fully restore a publicly owned Royal Mail to good health."

Around 125 Labour MPs, including several ministerial aides - Parliamentary Private Secretaries - and former ministers have signed a Commons motion opposing the Government's plans.

A letter signed by leaders of eight trade unions today warned that part-privatisation of the Royal Mail was "electorally unpopular, politically unwise and damaging to the concept of universal service provision".

The union leaders, including Billy Hayes of the Communication Workers Union, Tony Woodley and Derek Simpson of Unite, Dave Prentis of Unison and Paul Kenny of the GMB, maintained that the Government's plans broke a Labour Party pledge to keep the Royal Mail "wholly" publicly owned.

"To break a pledge so recently made undermines the legitimacy of our policy process and raises questions about the validity of other agreements reached.

"We are unanimous in our opposition to the proposed privatisation of Royal Mail and ask that the Government reconsiders its response before it becomes a dividing line within our movement," said the letter, published in today's Guardian newspaper.

The Government said it was "firmly committed" to the universal service, but noted that the volume of mail being sent is falling as people and businesses switch to other forms of communication such as emails and texts.

On the pensions deficit, the policy statement said last year's estimate of £5.9 billion was expected to grow, placing a "significant financial burden" on the Royal Mail and inhibiting investment in its core business.

"The company currently has to pay £280 million a year towards recovering the deficit. Without action, this number can be expected to grow significantly and swallow any profits the company might make in the future."

The Government also called for an improvement in industrial relations, adding that in 2007, 60 per cent of all the days lost in the whole economy through industrial action were accounted for by Royal Mail.

Since then, further strikes have been threatened over pension reforms and mail centre closures.

Having accepted recommendations in last year's Hooper review, the Government said it was proposing to put in place a new regulatory framework, tackle the pension fund deficit and invite other postal or network operators to come forward with proposals for developing a "strategic partnership" with the Royal Mail, including taking a minority stake in the company's letter and parcels business.

"We accept these recommendations as a package in the way they were proposed. We are not going to select one to the exclusion of another. Tackling pensions on their own would not be a panacea for Royal Mail's difficulties.

"Indeed, it would be irresponsible for the Government to tackle the pensions alone without the policies in place to ensure that Royal Mail can transform quickly to compete in a fast-changing market.

"Modernisation is at the heart of what the Hooper review highlighted is needed and Government agrees with Hooper that modernisation at the pace and level required for Royal Mail will only be achieved by partnering with a third party.

"The Royal Mail and its people can only be expected to take responsibility for improving the company's performance, if they are confident that there is a fair regulatory framework," said the policy paper.

The Government proposes to create a new pension scheme comparable to the NHS, teachers and civil service schemes.

The historic liabilities transferred to Government from the Royal Mail pension plan will be met from this scheme, and the Government will pay members the accrued benefits they would have received from the current Royal Mail scheme.

"We anticipate that the new scheme will have around 450,000 members, of whom 175,000 will be pensioners, and 275,000 will yet to have reached their retirement age. We estimate that the total liabilities of the scheme will be approximately £29.5 billion calculated on the basis of the scheme's existing assumptions."

The Government said Royal Mail was meeting or exceeding most of its existing quality of service targets, bit it still "lagged" significantly behind some of its main European counterparts and competitors.

"For example, the leading postal operators in Europe use automation to sort 85 per cent of mail in the order that the postman makes his deliveries, whereas in the UK all sorting of this kind is done by hand.

"As importantly, the rapid change in the postal market requires Royal Mail to improve its performance at a much faster pace than it has achieved over the past decade. We believe that a strategic partner is required to achieve that.

"We will expect the new partner to be actively involved in the management of the business. It will inject new capital but, just as important, new ideas, skills and business opportunities.

"The Government believes that Royal Mail entering into a partnership with an experienced postal or network operator is a necessary ingredient for successful modernisation.

"A partner will deliver corporate experience of major transformation of a network business.

"This is needed at all levels of Royal Mail's business, enabling the rapid adoption of best practice based on proven experience, and increased access to the skills required to manage the transformation process.

"This will not only reduce the current risks to successful modernisation, it will enable it to accelerate to help the company respond faster in rapidly-changing markets. A partner will also open up opportunities to introduce new capital into the company."

Labour MP Geraldine Smith (Morecambe and Lunesdale) said her Commons motion was attracting growing support, adding: "The fact that so many junior members of the Government are prepared to put their name to the motion, putting their careers at risk, shows the strength of feeling. The rebellion is gaining strength."

Ms Smith said an ex-minister told her the plan was "political suicide" and she warned the Government it was planning to "give away" part of the Royal Mail.

Lord Mandelson said the Government's plan was the only credible option to save the Royal Mail.

He said: "Our policy will keep Royal Mail in the public sector and this legislation makes this clear. The Royal Mail will run out of money to sustain its current universal, six-day service unless its pension fund deficit is solved and its business transformed.

"Faced with this challenge, I am determined to protect the universal service and secure Royal Mail's future.

"The public deserves the best possible mail service, and if we are asking the taxpayer to take on Royal Mail's huge pension deficit, it must deliver a full, improved letters service in return.

"Royal Mail is lagging behind its international counterparts and this needs to change.

"A partnership must not just bring access to capital, it must bring expertise. A partner experienced in driving forward change in postal companies will help transform it."

Clive Davenport, of the Federation of Small Businesses, said: "Small businesses cannot afford to see any more Post Office closures. Figures from a poll of more than 5,000 FSB members show that 80 per cent of small firms are dependent on Post Office services.

"However, the current system is not operating efficiently, with nearly 20 per cent waiting in longer queues and a similar number travelling further now their local branch has been closed.

"The FSB is urging the Government to ensure we have a fully operational postal service to serve the needs of our 4.7 million small businesses."

Mr Hayes said: "This Bill is rightly being called controversial. There are no surprises and no new concessions at all in the draft Bill published this morning.

"There is still no convincing argument for privatisation. Any private stake in Royal Mail will take money out of the business for private profits and lead to a reduction in services and rise in consumer prices.

"Privatisation will also trigger thousands more jobs losses at a time when the Government should be leading on job retention.

"The British public does not want its postal service to be flogged off. It's also clear that there's no support among Labour MPs for this move, which is why Lord Mandelson introduced it in the House of Lords. We welcome investment and pension security but privatisation is not a necessary part of the equation."

Liberal Democrat business spokesman John Thurso said: "Reform of the Royal Mail and the Post Office has been necessary for some time.

"That is why three years ago the Liberal Democrats published detailed plans to modernise Royal Mail and safeguard post offices up and down the country.

"While the Government has listened to some of our ideas, these plans are by no means perfect.

"The Government must commit to reinvesting money from any share sale back into maintaining the Post Office network.

"Ministers should also agree to an employee shared ownership trust, which would give staff a real stake, creating the trust between staff and management that is vital for the future."