Rt Hon Lord Lilley

    Post Office
    Mr. Peter Lilley (Hitchin and Harpenden): I congratulate my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) on securing a debate on an important matter and on effectively and forcefully drawing the attention of the House and the country to the risks that face our sub-post offices.

    It is unusual on Opposition days for Opposition Members to praise hon. Members on the other side of the Chamber, but I offer one cheer to the Secretary of State for Trade and Industry for his White Paper on the Post Office. I applaud the White Paper because I believe that it will inexorably lead to full privatisation of the Royal Mail. That would benefit the Post Office, customers, employees, the taxpayer and the whole country. I offer only one cheer, however, because the Government stop short of privatisation; they pretend that what they are doing will not lead there; and they disguise the full import of their changes.

    In his statement on the White Paper, the Secretary of State said:

    “There have been suggestions from some quarters that this is part of a plan to privatise the Post Office by stealth. There are no such plans.”–[Official Report, 8 July 1999; Vol. 334, c. 1176.]

    Those words seemed strangely familiar, and I remembered that when I was Secretary of State for Trade and Industry–or President of the Board of Trade as I now realise I then was–I had the task of weaning my party from a commitment to maintain the Royal Mail in public ownership. I used almost exactly the same words then to reassure those who were not in favour of moving rapidly in that direction. Labour Members should not be fooled; it is clear that Members on the Treasury Bench intend–probably before their pledge has expired–to move towards the sale of equity in the Post Office to the private sector. Conservative Members would welcome that, but Labour Members obviously would not relish it.

    Those Members who are not enthusiastic about the privatisation of the Post Office may put some faith in the fact that the Government will retain 100 per cent. of the shares of the new company. They may think that that retains the essential features of nationalisation–that the organisation does not have to operate as a purely commercial entity, pursuing such dreadful objectives as the maximisation of profits, but that it can pursue political and social ends. They would be mistaken. Under company law, a limited company of the type that is to be established will have to behave commercially–as is made clear in the small print of the White Paper. Directors would not be able to pursue political objectives, even if asked to do so by their principal shareholders–the Government.

    The Government can set social and political objectives through the regulator. It is right and proper that there should be a regulator governing the monopoly and the universal service obligation. However, it is not necessary to retain 100 per cent. ownership of the company for regulation to operate in that fashion. A private entity could be just as easily regulated as a publicly owned one. The only consequence of retaining 100 per cent. ownership is that the Government retain the conflict of interest between ownership and regulation. We would never allow the privately owned electricity companies to own the regulator; that would lead to a conflict of interest. Surely, it is sensible for the Government to get out of ownership and to stick to regulation. They should hand over ownership to the private sector in this case–as we did in other cases where there was a potential conflict between ownership and regulation.

    The decision to retain 100 per cent. of the shares of the company in Government hands means that the Government forgo the most attractive benefits of privatisation. Above all, the company is not free to raise extra risk equity capital; nor is it able to make its 200,000 staff into employee owners by giving them shares in the company–as I hope that we shall do, if we are able to complete the process that the Government have begun. I can think of nothing better than for every employee of the Post Office to have a stake in the success of the company that they serve–most of them to the great satisfaction of the British people.

    I have every confidence that the process unleashed by the Government will ultimately lead to the full privatisation of the publicly owned aspects of the Post Office–at least of the Royal Mail. However, an important part of the Post Office service is already in the private sector: the 18,000 sub-post offices are private businesses. They are privately managed, privately owned and privately run. Their future is in jeopardy as a result of the changes that the Government have made to the Horizon project.

    Those sub-post offices are crucial. They are crucial not just to the elderly, to disabled people or to young mothers, who have to collect their benefits from them, but to the whole community which they serve in the other ways that their function makes possible. They are now vulnerable; one third of their business comes directly from the contract with the Department of Social Security. In addition, a substantial chunk of their business comes from footfall–people who come in with no money, cash their benefit order, and then spend some of the money in the shop. That happens in few other shops or enterprises.

    Mr. Lindsay Hoyle (Chorley): The right hon. Gentleman seems to have a problem with his memory. Is he aware that most closures of rural post offices took place under the previous Government?

    Mr. Lilley: As far as I know, rural post offices have been closing at a rate of roughly 200 a year for as long records have been kept. The Conservatives wanted to prevent them from closing at a rate of thousands a year, which is clearly in prospect as a result of the changes the Government have now put in train–either that, or massive subsidies will be required to keep them open. I am not the only one who thinks that. The National Federation of Sub-Postmasters has said that the decision to make it compulsory to have payments of benefits made direct into a bank account

    “will have a disastrous effect”

    on the network of sub-post offices.

    The reason for the decision to cancel aspects of the Horizon project became apparent at yesterday?s hearings, when the current and two previous Chief Secretaries to the Treasury gave evidence together on the subject. The decision represents a Treasury victory: the Treasury has secured a long-desired goal, which is the sacrifice of the sub-post offices to achieve a short-term cut in the cost of delivering benefits.

    Mr. O?Neill: I am aware that the right hon. Gentleman attended yesterday?s hearing, and I hope that he can now answer a question that I should like to have asked him then. In what circumstances was the contract renegotiated in February 1997? Was he a party to that renegotiation? Was it exclusively his concern, or was the Treasury involved? I ask that, because there is a seamlessness about the Treasury?s attitude across the decades. Was the Treasury looking over the right hon. Gentleman?s shoulder and that of the Secretary of State for Trade and Industry when the contract was renegotiated?

    Mr. Lilley: Not only do contracts of that complexity need to be signed: they have to be managed. When I was in charge of the DSS, I told my officials that, in respect of that contract and everything else for which I was responsible, I did not want to hear the good news, but the bad news. In contrast to the current Administration?s attitude, mine was that I wanted to be the first to hear if something had gone wrong or if there were problems, not the last. Therefore, I heard that problems had been encountered soon after the contract had started. I took action: we altered the contract, and I announced that publicly and the reasons for it within weeks. The current Government have been in power for two years before telling us that they are aware that there are problems, but they have done nothing about those problems until now.

    In the statement to the House, the Government claimed that the principal reason for abandoning the benefit payment card, which I seem to recall they welcomed wholeheartedly when it was first announced to the sub-postmasters conference by the seaside–at Bournemouth, not Blackpool–was that it was now technologically outmoded, because it was now possible to move forward from the magnetic strip to the chip. I have to point out that the original contract specifically required the contractors to be ready to move to a chip, if ever that was beneficial, so the whole thing was designed to make that possible, even though none of those competing for the contract thought that the chip would add any value. However, a previous DSS Minister, the right hon. Member for Birkenhead (Mr. Field), had said:

    “The Payment Card is a magnetic stripe card and not a smart card. It holds very little personal data and . . . is therefore highly secure.”–[Official Report, 6 May 1998; Vol. 311, c. 428.]

    According to Ministers, that which was previously a benefit is now a disadvantage.

    Ministers then said that the contract was undeliverable and could not be brought to completion, but, as we heard yesterday, both the consultants? report and an internal report stated that it could be completed. Then, Ministers said that the contract was running three years behind schedule–indeed, the Secretary of State said today that he had known all along that the project was running late and could not be delivered in its entirety. However, in May 1998, when the hon. Member for Newbury (Mr. Rendel) asked the Secretary of State what date the smart cards were expected to be in operation, the then Minister responsible replied:

    “by the end of 2000.”–[Official Report, 6 May 1998; Vol. 311, c. 428.]

    Yesterday, en passant, Ministers told the Trade and Industry Committee that they knew that the contract was undeliverable. However, the previous Secretary of State for Trade and Industry, the right hon. Member for Hartlepool (Mr. Mandelson), had told the Committee:

    “The current plans provide for post offices to be automated by the end of the year 2000 . . . I feel confident that the project will be properly completed”.

    The Chairman asked him, “Will it be 2000 . . . ?” to which he replied:

    “That is still the objective . . . it is still on track.”

    In November 1998, therefore, the project was still on track.

    Ministers then said that in December they had many meetings because of developments of which they had previously been aware but about which they had not told Parliament. Indeed, they had been denying to Parliament that those developments had taken place. So they knew then that the project could not go ahead.

    In January, a DTI Minister was asked when the project would be ready, and he replied that it would be ready

    “by the end of 2000.”–[Official Report, 26 January 1999; Vol. 324, c. 174.]

    In February, a former Social Security Minister, who clearly would have been aware of any evidence of the project going wrong, asked when it would be ready, and he too was told that it would be ready by the end of 2000. I do not think that those who replied to him would have thought that they could pull the wool over his eyes.

    It is clear that the Government either have known all along that there are problems and have been deliberately misleading the House, or have not known because they have not been on top of their jobs and have not been competent. Perhaps when the Minister winds up, he will be able to explain the contradiction between what the Government are now telling the House and what they have said in written answers for the past two years.

    Far more worrying than the contradictions concerning the past is the lack of clarity about the future. Ministers simply have not thought through what the new arrangements will entail, because they have been forced on them by the Treasury. The new system will require everybody who is in receipt of benefits to have a bank account. However, 15 per cent. of those receiving benefits do not have a bank account. According to the Minister, 5 per cent. of them–the best part of 1 million people–cannot be expected to operate a bank account. Memorising a PIN number would not necessarily be easy for some frail and elderly people, and having to let other people know their PIN number obviously renders them extremely vulnerable. What will the Government do about that? Ministers are still thinking about it.

    Young mothers who want their child benefit to be paid in cash so that they can spend it on their children will in future have to have it paid into their bank account. If they have only a joint bank account, it must be paid into that and may not, therefore, be used in the way that was intended. Will they have to open a separate bank account? If they do so, will they have to pay bank charges out of their child benefit? Ministers have no answer. What will be done about bank charges generally? Ministers are thinking about it.

    Will banks be compelled to take as customers people who have no income other than benefit, even if they do not want those people as banking customers? Ministers are still thinking about it.

    What will be the impact on the revenues of sub-post offices? Ministers are unable to tell us. What will happen to the network, when sub-post offices lose a third of their revenues and the extra business that handling benefits brings in its train? Ministers are unable to tell us. How many offices throughout the country will be put at risk? Ministers will not say. If Ministers intend to keep all those offices open, how much will it cost to subsidise them when they are no longer generating profits from footfall and the extra trade from channelling benefits? Ministers have not yet thought that through and cannot tell the House.

    I have to tell the House that the policy is the resultof a Treasury victory and it is a defeat for the sub-postmasters and postmistresses of this country. It is a defeat for the customers, benefit claimants and communities that depend on those sub-post offices. Ultimately, it will prove to be a defeat for taxpayers, who will have to pick up the bill at the end of the day.