The next item of business is a members’ business debate on motion S4M-10547, in the name of Hugh Henry, on end-to-end competition and the universal postal service. The debate will be concluded without any questions being put.
Motion debated,
That the Parliament notes with concern the expansion of end-to-end postal services by TNT Post UK in major UK cities; considers that the sustainability of the universal postal service depends on Royal Mail being able to use revenue from easier to serve, densely populated areas to cover the cost of a nationwide network; is concerned that the cherry-picking of urban and suburban areas by TNT Post UK could have a serious impact on the financial sustainability of the one-price-goes-anywhere, six-days-a-week universal postal service; expresses its support for the universal service that many people in Renfrewshire South and across Scotland, including rural communities and small businesses, rely on, and notes calls for Ofcom to undertake a full review of end-to-end postal competition as a matter of urgency and determine quickly any regulatory changes needed to protect the universal postal service.
12:34
The Royal Mail is truly a British institution that has embedded itself in British society and culture. It is one of the institutions that everyone loves. Sure, there will be times when we moan about late delivery, lost mail or the price of postage, but all of us, whether private individuals or businesses the length and breadth of Britain, have come to value its services.
We have always supported the standards that are imposed on our behalf on Royal Mail. Woe betide the politician who threatens to end the universal service obligation, which requires Royal Mail to deliver a letter anywhere in Britain for the same standard price and to do so six days per week. That is 29 million addresses that Royal Mail is required to serve.
The obligation is particularly important here in Scotland, given our geography and widely spread small communities. To some extent we take for granted the fact that, for example, my constituents can post a letter from Linwood to London or from Barrhead to Bristol for the same cost as posting a letter from Linwood to Barrhead. That benefit is even more valuable for people who live in Orkney, Shetland or the Western Isles.
We also take for granted the logistics and effort that are involved in next-day delivery for first-class mail and two-to-three-day delivery for second-class mail. It is not just householders who value the delivery of mail six days per week; it is an important service for businesses all over the country.
Stop to think for a moment about the economics of all this. It clearly makes no economic sense to charge the same price to post from Linwood to London as to post from Linwood to Barrhead, but it makes sense if we look at it as a social obligation that contributes to our quality of life and our sense of wellbeing. Of course, it does not take long to work out that the risks and costs of sending and receiving mail are spread over customers large and small all over the country. If it were left to an open market, Scotland would suffer.
It is important to remember that the Royal Mail relies not just on investment and organisation, but on tens of thousands of dedicated staff who take great pride in ensuring that our mail is delivered efficiently and economically. Many of those staff are out and about at the crack of dawn in all sorts of weather; in hail, rain or shine—that is just the summer—or, in the Scottish winters, in ice and snow, they make sure that we receive our mail.
It is important that those staff are fairly rewarded for their work. Thanks to the efforts of the Communications Workers Union, the pay, terms and conditions of staff have improved over the years. It has not always been easy, because the union has faced challenges about new technology and new working practices. However, what the CWU has achieved on pay, pensions, health and safety—which is important—and general conditions at work is the envy of many workers who do not have the protection of a strong campaigning trade union. The workforce and trade union have adapted to modern demands, but have never lost sight of fundamental values and purpose.
At the heart of the service that we know and value is the universal service obligation that I mentioned earlier. The Royal Mail has fulfilled its obligations by introducing new technology and working methods to cope with the challenge of increased competition. It has also done so by being able to cross-subsidise the costs of low-volume, high-distance uneconomic mail with the profits that are made from the high-volume profitable business and short-distance mail.
All that is under threat from the encroachment of TNT Post UK, or Whistl—without an “e”—as it is bizarrely branded. It beggars belief that some marketing agency somewhere will have been paid a fortune to come up with that, but forget the name: it is what they are doing that is the problem. Royal Mail and its staff are not complaining about competition. They have had to adapt and rise to the challenge, even though the challenge has not always been fair. Not only is what is now being done unfair in the extreme, but it brings dangers that threaten the very existence of the service that we all know and cherish.
The onward march of TNT/Whistl started off in London. It has steadily moved across the country and will shortly be operating in Edinburgh and Glasgow. It would not be so bad if legally Whistl had to provide the same standard of service as Royal Mail. However, Whistl has no interest in developing services in hard-to-reach, high-cost areas. Whistl will not have to bother with the cost of sending mail from London to the Western Isles, Orkney or Shetland. Whistl will not have to deliver mail six days per week. It can pick and choose the days on which it delivers, and by cherry picking the high-volume, low-cost, more profitable areas, Whistl will deprive Royal Mail of the revenues it needs to deliver to those remote areas, six days a week. Those are areas that Whistl will ignore.
That is not the only unfairness. The hard-won wages and conditions of Royal Mail staff are not available to Whistl employees. Until recently, Whistl operated zero-hours contracts, with pay below the living wage—no wonder its operations have a high staff turnover. By driving down wages and conditions, Whistl hopes to undercut Royal Mail in more lucrative markets, thereby denying Royal Mail the revenues that are needed to sustain the universal service obligation to provide a standard price six-day service. It will also deprive the Royal Mail of the revenue that it needs to sustain the wages and conditions that the CWU won for its members. The workers who work in mail delivery deserve decent pay and conditions and Whistl should not be allowed to undermine that.
When we talk about competition, we are talking about neither fair competition nor a level playing field. Whistl will not have to deliver six days per week, it will not have to collect from postboxes, there will be no redirection service and, of course, it will not have to bother with the cost of delivering mail to remote communities across Scotland.
This is the biggest threat we have ever seen to the postal service as we know it, and we need to take a stand. The Scottish Government and its agencies, councils and other public sector bodies need to consider carefully the implications of giving contracts to Whistl. Above all, the Scottish Government and the others I have mentioned, along with this Parliament, need to make it clear to the Office of Communications that action is needed to protect the Royal Mail. Ofcom needs to set aside its complacency and waken up to Whistl’s threat to the universal service obligation, it needs to undertake an urgent and full review of end-to-end postal competition, and it needs to consider regulatory changes to protect the universal postal system.
The British public will not thank us if we sit quietly and watch the salami slicing and destruction of our much valued postal service. It is time to tell TNT to go whistle—with an “e”.
Thank you very much. We now turn to the open debate, and I ask for four-minute speeches.
12:41
I congratulate my co-convener of the cross-party group on postal services, Hugh Henry, on securing the debate and bringing this important matter to the chamber. I also thank the CWU for its briefing.
There is a growing threat from businesses such as Whistl—formerly TNT Post UK—to Royal Mail’s postal services and the universal service obligation, specifically for poor and rural areas. For decades, we have enjoyed Royal Mail’s one-price-goes-anywhere, six-days-a-week postal service. The flat-rate universal service was economically possible because profits from wealthier and more densely populated areas helped to compensate for the costs of servicing poorer and more remote areas. That balance of working across the country is vital for the system to work and for everyone to have equal access to a high-quality, low-cost, six-days-a-week postal service.
In October 2011, Westminster passed the Postal Services Act 2011, which enabled the United Kingdom Government to sell shares in Royal Mail. That led to Royal Mail’s privatisation and opened it up to greater competition. Whistl, which is not beholden to the universal service obligation, utilised that unfair advantage and, in effect, undermined Royal Mail’s ability to do its job.
Whistl began its rival service in April 2012 in west London. Using downstream access competition, it collected and sorted mail from businesses before handing it to Royal Mail to deliver the final mile. Since 2013, it has expanded its business into delivery and has established an end-to-end postal service in direct competition with Royal Mail, and it now delivers three days a week to 1.2 million of Britain’s 29 million addresses through 23 delivery units. With a new co-investor to support its expansion to additional parts of the UK, the firm has expanded to north-west and south-west London, parts of central London, Manchester and Liverpool. As Hugh Henry has pointed out, it will soon be starting its service in Glasgow and Edinburgh.
Complaints are being made about the poor quality of Whistl’s services; indeed, in July, the London Assembly passed a motion calling for a review of its end-to-end services. Labour Party Assembly member Murad Qureshi, who proposed the motion, commented:
“Delivery companies ... repeatedly provide poor service and cherry-pick the most lucrative areas to deliver post, undermine the quality of universal postal services in the capital and”
raise
“questions of the standard of a privatised postal delivery service.”
He added:
“The increasing number of poor postal service cases, rising costs of delivery and unfair competition in the market has emphasised the need for government to bring the national postal service back into public ownership.”
At less than 0.4 per cent of the addressed mail market, Whistl’s delivery volumes remain small compared to those of Royal Mail. However, Royal Mail makes a strong case for such companies to be exposed to the same universal postal service obligation; after all, although Whistl is smaller in scope, its delivery rounds are in the most profitable areas.
Because they are not held to the same standard of service, companies such as Whistl are able to pick and choose the areas that they want to collect from and deliver to, so naturally they consume the profits that are generated from more densely populated regions, which damages the universal postal service’s financial sustainability.
Scotland, with its fair share of rural towns and small businesses, is especially vulnerable to the problem of compromised postal services due to the unfair competitive practices that result from privatisation. Much of my constituency comprises small towns and rural and island areas, which are more difficult to access and therefore more costly to collect from and deliver to.
However, although the problem would have a concentrated effect in many areas in Scotland, it is not just a localised concern. It is clear that Whistl is not prepared to offer staff the same terms and conditions as Royal Mail offers. There are low wages and zero-hours contracts. Whistl’s growth can only cost the jobs of Royal Mail workers and ensure a steady decline in Royal Mail employment and, ultimately, in the viability of the entire postal service, as the service inevitably looks to cut costs even more sharply in order to compete.
Last week, members of Parliament agreed to launch an inquiry into competition in the postal industry, to examine the universal service obligation and the unfair advantages that rival businesses have as they attempt to build direct delivery services.
Ofcom has committed to review the direct delivery market by the end of next year. However, in the light of the immediacy of the problem and the rate at which companies such as Whistl are expanding, and the negative impact on revenues to the universal service, I ask the Scottish Government to join in urging Ofcom to accelerate its timetable and to determine as soon as possible whether there is a need for regulatory changes, such as the freezing of end-to-end competition at its current level, in order to ensure that high-quality postal services are maintained and protected for every home in Scotland and throughout the UK.
12:46
I congratulate Hugh Henry on securing the debate and I thank all the organisations that submitted briefings to members in advance of the debate.
There are a number of areas on which I agree with Hugh Henry and there are a number on which I disagree with him, but ultimately I support his call for an urgent review. A case has been made for having a review sooner rather than later.
Hugh Henry rightly pointed out just how vital the universal service obligation is to all parts of the UK. It is a fundamental part of our economy and our society, on which people, families and businesses up and down the country rely. I do not think that any politician or political party would want to lose it, in any way. There is a UK Government commitment to it; there is also far broader and wider political commitment to it. It is right that there is a statutory duty to provide a universal six-days-a-week service, at uniform prices. I would be concerned by anything that could be proved to be putting that service at risk.
I disagree slightly with Hugh Henry—given what I think he was driving at—in that I do not see competition in itself as something of which we should be afraid or against which we need to push. There can be benefits to competition, although of course there are risks, too.
I think that I made the point that both the Royal Mail and the CWU have accepted and faced up to competition over the years. The complaint is about not competition, but about unfair competition.
That is a fair point. I just thought that Mr Henry’s remarks, particularly at the end of his speech, suggested that he was against competition, full stop. He might not be.
Competition can bring benefits. It can strengthen incentives on Royal Mail to improve efficiency and reduce costs, and it can benefit customers, through increased innovation and value-added services. However, when there are risks, and when a case is seriously made in that regard, as I think it has been, we must consider the issue carefully.
As Vince Cable pointed out some months ago:
“Ofcom’s primary duty is to secure the provision of the universal service. It also has duties to promote competition where that benefits consumers.”
He went on to say:
“should the two duties be in conflict, the universal service takes precedence.”—[Official Report, House of Commons, 10 July 2013; Vol 566, c 362.]
What we need is as clear as possible an analysis of how the current situation poses a risk to the universal service, to what extent it does so, and why that is the case. The Royal Mail formally requested a review from Ofcom in July and August this year, but although meetings have taken place I have been unable to find, and am unaware of, any official public response from Ofcom to the request.
One of the documents that were put before MSPs in advance of the debate came from the Community union, which is aligned with Whistl. The Community union stated that in August of this year, it too wrote to Ofcom
“calling for an early review of the USO on the grounds that such a review would clarify the future of the sector for workers, businesses and the general public.”
To some extent, I end up in the same place as Hugh Henry. I think that an official response is required. The review that is being sought should be given serious consideration and anything that could jeopardise the USO concerns me greatly. As a consequence, Ofcom ought to think about bringing the review forward. It is meant to begin by the end of next year; the evidence that I have seen so far suggests that it ought to happen far sooner than that.
12:51
I thank my colleague Hugh Henry and congratulate him on bringing this important debate to the chamber. I echo colleagues’ unstinting support for the universal service obligation. It is still, in our country, a delight and a cherished wonder that someone can pop a first-class stamp on a postcard in Ullapool and be confident that it will arrive in the thronging metropolis of London the very next morning, to be read over breakfast. Indeed, just this morning, I went to the post office to replenish the book of first-class stamps in my purse, and who knows where on these islands I will use those stamps and for what purpose?
Reflecting today on the wonder of the service, none of us can be in any doubt that it is one of the many important and emotional ties that bind us to the UK. It is an emotional and practical arrangement that is backed up by legislation at UK and European Union levels. Competition has become mandatory in postal services as a result of the EU postal services directive, which was transposed into UK law by the Labour Government. There was and is no opt-out from the directive as long as we are a member of the EU.
I think that all members across the chamber support our membership of the EU, so the challenge becomes one of finely balancing competition arrangements to protect and strengthen the USO while maintaining the quality of jobs across different employers in the sector. To that end, our trade unions—the Communication Workers Union, representing Royal Mail workers, representatives of whom are in the public gallery, and Community, representing Whistl workers—are doing a fine job of working with employers to enhance training and support the modernisation of working practices in the sector while securing an agreement to end Whistl workers’ zero-hours contracts, as well as securing pay increases and improvements in health and safety. Those are measures that workers across all postal services providers will support, I am sure, in order to maintain standards across their industry.
The job of finely balancing and making fair the competition arrangements in the UK falls to Ofcom, as Hugh Henry pointed out. I welcome and support his call for a review of competition in end-to-end postal services to determine the regulatory changes that are needed to protect the USO.
An arrangement as precious and fundamental as the USO needs to be constantly scrutinised so that we can strengthen, improve and sustain it in a constantly evolving postal market and so that standards in the industry for all workers can be maintained and strengthened by the arrangements that are put in place.
The industry has faced a marked decline in letter delivery, as online billing and emails are cheaper for consumers and for business, so we have to be innovative, within the rules of the EU postal services directive, if we are to strengthen and maintain the USO far into the future.
Royal Mail, as the legally designated provider of the USO, must be allowed a fair playing field in which to deliver its obligation and maintain standards in its practices. That is absolutely necessary and fair.
I understand that a review is scheduled to take place in 2015. However, if it is necessary to bring that forward, Ofcom should heed the call to do so. As Hugh Henry said, we must ensure that there is no unfair competition and that we finely balance the competition rules.
12:55
I, too, congratulate Hugh Henry on securing this debate.
Hugh Henry and Jenny Marra have rightly set the context of the special place that Royal Mail has in the affections of people across the UK. After two minutes of Hugh Henry’s speech, I thought that he was going to break the all-time record for references to Britain in a speech in the Scottish Parliament. However, that reflects the importance of Royal Mail to all our constituents. Hugh Henry was also fair to acknowledge the particular significance that the universal service obligation has for constituents, such as those whom I represent, in the islands and in rural areas—and not just individuals in households but small businesses. If I have time I will perhaps touch on the related issue of high delivery charges, which is a touchstone issue for my constituents.
The motion outlines very fairly the concerns that quite demonstrably exist, and the proposals are reasonable. As Kenny Gibson and Gavin Brown indicated, a review is planned for the end of next year. However, given what we are seeing in the development of the market and the aspirations of Whistl and possibly others, there is now a pretty compelling case for accelerating that review. That view seems to be shared by Community, whose briefing was very helpful, although I disagree with some aspects of it.
I think that there is now evidence of direct delivery competition putting a strain on Royal Mail’s ability to honour the universal service obligation. Whistl argues that the agreements are subject to negotiations with the Royal Mail on the basis of cost, but I do not think that those costs reflect the costs of delivering to places such as Orkney and other rural communities across the UK. In addition, and as Hugh Henry indicated, Whistl is not bound by the requirements that Royal Mail is bound by as the universal service provider.
The universal service obligation is critically important as a principle in spreading and socialising costs across customers throughout the UK. However, it is more than just a principle for people in Orkney and other rural areas. For small businesses in my constituency, for example, it is vital and often leads to the levelling of the playing field in relation to competition from businesses in other parts of the country.
The issue goes beyond businesses. The recent Citizens Advice Scotland report on delivery charges highlighted the extent of the problem in that area. A third of the respondents from Orkney said that they had been subject to surcharges for goods sent to Orkney and a quarter found that some businesses refuse to deliver to Orkney at all—I think that the same applies to many other parts of the Highlands and Islands. I have taken up that issue with a number of the companies concerned and, to be fair, when confronted with the evidence, some are prepared to review their charging policies and delivery charges. Some have removed the delivery surcharges entirely and others will often reduce them, but some will just be more up-front about the costs at the outset. However, in too many cases there is still an unwillingness to look at alternatives.
That issue is distinct from that of the universal service obligation and the concerns that Hugh Henry highlighted in his motion, but I think that it is related. We need to avoid a similar situation emerging in the letters market.
Royal Mail has adapted to the challenges that it faces in terms of new technology, competition and even affordability of pensions. However, we cannot expect it to continue to do so while requiring it to undertake that fight with one hand tied behind its back.
I again congratulate Hugh Henry on bringing the debate to Parliament. The call for an urgent review by Ofcom is an entirely reasonable one that appears to be garnering support across the political spectrum and within the industry itself. I hope to see some progress made on that in the months ahead.
12:59
I welcome the opportunity to speak in this debate on our postal services, which are changing, which are now exposed to new competitive pressures and which are absolutely vital to businesses and communities the length and breadth of Scotland.
I congratulate Hugh Henry on bringing the motion to the chamber. He does so at a time when the future of postal services across the UK, including the preservation of the universal service obligation, is extremely topical. We have now learned that the Business, Innovation and Skills Select Committee has launched an inquiry into the sustainability of the universal service obligation, and we know that it has been a whole year since the botched privatisation of Royal Mail. The sale of Royal Mail was opposed by two thirds of the British public, and the National Audit Office has confirmed that the Government’s valuation of Royal Mail was “too cautious”. According to the select committee, the huge undervaluing of Royal Mail has cost taxpayers well over £1 billion.
The Communication Workers Union believes that even more consequences arise from the Royal Mail sell-off than the Government is prepared to admit. I will set out what I believe those consequences might be and explain why I believe that there is a need for swift action to guarantee a good, fair, affordable service for people and businesses at all 29 million UK addresses.
First, as expected, the privatisation of Royal Mail has led to competition for end-to-end services, but workers in the sector and those who depend on the services need to be sure that competition in the market is fair. The market share of a company such as TNT Post—or Whistl, as it is now known—might be small, but it is growing. Whereas Royal Mail must provide services in both profitable and non-profitable routes—services that are cross-subsidised—other operators can deliver services that are focused on specific routes.
Some people, although not everyone, would say that that effectively leads to cherry picking of the best routes and undermines Royal Mail’s capacity to deliver universally. Whether or not there is evidence of cherry picking, there is clearly a need for the regulator to step in and give clarity to those who work in Royal Mail, to Whistl, to customers and to the trade unions—both the CWU, which organises in Royal Mail, and Community, which organises in TNT.
Royal Mail’s chief executive, Moya Greene, is on the record as saying that the business model of new operators is
“striking at the economics of the universal service obligation.”
When Royal Mail was being sold off, we were told that the universal service obligation would remain. We were told that one stamp would still go anywhere, six days a week and at a price that is affordable to consumers and small businesses. The universal service obligation, which is up for review next year, must be sustained.
Ofcom must also exercise its power as the regulator to ensure that competition in this new market is fair for all. There is a statutory requirement on Ofcom to safeguard the universal postal service and so it must bring forward an immediate review of end-to-end competition.
Now that Royal Mail has been privatised, there must be a concerted effort from Government and from regulators to ensure that the universal service obligation remains intact. The message from this Parliament today must be that our postal services are essential, so the new market that is emerging must be fair and must work for consumers, for workers and for businesses across the country.
13:03
Members will be aware that I am not the lead minister for this subject, but I know that Fergus Ewing, who apologises for not being able to make the debate, takes a particular interest in it.
The debate has been largely consensual. I am slightly surprised that the most controversial speech was from Margaret McCulloch—we of course concur with her comments on privatisation and the conduct of the sale of Royal Mail. I will finish with a recommendation that I believe that the Scottish Government can take forward, but I will first focus on the consequences of that sale and the other matters that have been raised.
I, too, congratulate Hugh Henry on securing the debate and ensuring that the issue is raised. We all take the availability of postal services for granted and it is therefore important that those services are scrutinised by Parliament, even if we do not have direct control of them.
As we have heard, postal services are, of course, a vital lifeline for many of Scotland’s communities, individuals and businesses, who rely on a prompt and efficient service. The universal service obligation is particularly important to remote and rural communities, as it ensures the uniformity of the cost of deliveries and uplifts throughout the country, irrespective of location. Royal Mail has a statutory obligation to provide that universal service and it is therefore important to ensure that its ability to provide it is maintained.
The debate reflects the widespread concern about Royal Mail’s belief that its ability to continue to provide a universal service is under threat. Ofcom has a statutory responsibility in this area; it has the power to regulate postal services, even before the review mechanism is put in place. It must continue to act to ensure that the universal service obligation is safeguarded.
The debate has allowed MSPs from all parties to discuss concerns about the current regulatory regime. On Hugh Henry’s key point, this is not necessarily about being against competition—that debate has largely been had—but about the need for a level playing field on which to maintain that safeguarding commitment. Kenny Gibson spoke about equality of service across the country, the impact of privatisation and the nature of cherry picking, on which a number of members picked up.
Several members also raised the idea of a parliamentary review and Ofcom’s monitoring regime. Kenny Gibson and Hugh Henry called for us to accelerate that monitoring and all members agreed on an early review of the situation. I suppose that I was particularly surprised and glad to hear Gavin Brown and Liam McArthur also call for that work to be done. We should therefore take it forward.
However, that commitment and duty could be undermined by the reality on the ground. We can have the commitment and the duty, but if they are undermined by unfair competition, that must be studied.
Given that this is a members’ business debate, there will not be a vote on the motion. However, I am sure that Ofcom is watching our proceedings with great interest. Perhaps there could be a cross-party approach to Ofcom with the Scottish Government to make the case for accelerating the review. That would reflect the sentiments that we have heard.
I am a consensual kind of guy, and although I was going to commit Mr Ewing to writing to the UK Government again, I am more than happy if members want to do that on a cross-party basis. That would add strength to the point that has been made in this members’ business debate, and I see no reason not to do it. I was going to commit the Scottish Government to writing to the UK Government in light of the debate, and what Mr McArthur has suggested reinforces the point.
Jenny Marra helpfully covered maintenance of wider standards in postal services and the Royal Mail, and Mr McArthur covered the crucial island and rural perspective.
It is the Scottish Government’s position to pursue the matter. Mr Ewing wrote to the UK Government, which, at the time, felt that Ofcom was carrying out its duties effectively. Measures could be taken to challenge that but, as I said, when Mr Ewing wrote earlier this year, the UK Government felt that there was no reason to intervene. However, some of the evidence that we have heard today could inform our response and follow-up to that inquiry and accelerate the monitoring and review, using the experience that we have had and taking into account what the trade unions have said.
Postal services are reserved so the UK Government is responsible, but that does not mean that we should not take action, and we will do so in the way that has been suggested by members across the chamber today. We expect the UK Government and Ofcom to act in the interests of Scotland and our services, and we will take the issue forward in the consensual way that has been suggested. The debate has highlighted our concerns, which must be taken seriously so that we can effectively guarantee the universal service.
I have found the debate very constructive and helpful.
13:10 Meeting suspended.Previous
First Minister’s Question Time