Kramer on the Royal Mail

• [May 17] Baroness Kramer (Liberal Democrat): MY Lords, I want to come in now on this conversation. The noble Lord, Lord Whitty, talked about an elephant in the room and then dismissed the EU state aid issue. Many Members of this House have been following the debate from the beginning-some have come in perhaps a little later, but many have been engaged from the beginning-and have heard directly from Moya Greene, the current chief executive of Royal Mail, that she would wish for the longest possible agreement that she could achieve within the law for an inter-business relationship with the Post Office. Many will also have heard the same from Paula Vennells, the managing director of the Post Office part of the current Royal Mail Group whom I think we may regard as the chief executive presumptive of the Post Office when it becomes a completely separate entity. They have also heard the Government say, on many occasions, that they would wish for, and would try to achieve, the longest possible agreement that could be done legally.

The issue of European state aid rules is absolutely critical. The noble Lord, Lord Whitty, will have looked at the financial condition of Royal Mail Group and will understand that it is urgent that new investment comes in, in a very timely manner, if the group is to be preserved. The Post Office side also needs the injection of £1.34 billion that the Government are committed to putting into it, which would come through this legislation and the new structures. That is what will guarantee its future.

However, all of that would be jeopardised when-one could say "if", but I suspect that if we go back to the lawyers and ask the Government it would be "when"-the state aid rules were tripped by one of these two amendments. I am rather under the impression that the Government have done everything they can to find language that would not trigger European state aid rules and cannot find it. The language proposed today by the noble Lords, Lord Stevenson and Lord Rogan, trips the European state aid rules. That would mean 24 months of constant wrangling, in which it is impossible to go out and bring in a new investor. All investors require some degree of certainty about what is happening to the organisation they are meant to examine and on which they are meant then to make an offer. It would also mean 24 months of uncertainty for the public. If this was two or three years ago, the luxury of including a clause like this and being resigned to spending two years fighting through state aid issues might have been possible. I suggest that we do not have that luxury at the moment.

We have two key organisations which matter to all our communities. We have people who work for Royal Mail-the regular staff who do incredibly hard work and need certainty about their jobs-and we have communities that rely on the Post Office. If we inject something like 24 months of further uncertainty, and who knows what comes out of the state aid negotiations, we jeopardise everything we have been trying to achieve-for weeks now in this House and in the other place-which is to make sure there is a secure future for the Royal Mail Group and that both the Royal Mail and Post Office parts of it can thrive. I understand that people have suspicions and concerns and will not take government assurances because they do not like to take them and perhaps do not quite believe Moya Greene or do not quite take the word of Paula Vennells. I understand all that, but there is an overriding issue and it has not been addressed by those who moved this amendment. The language triggers state aid provisions-we cannot afford the consequences of having that in the Bill.

• . . Baroness Kramer (Liberal Democrat): My Lords, I want to make a couple of quick comments and ask a couple of questions of the Minister. I do not have the scope to get clarity myself.

Is it possible to constrain Ofcom's powers to review by setting a clear period of time in which a review may not take place? We have a problem with the European postal services directive, which requires that the regulator responds to the needs of users. In other words, it has five years in which it cannot provide the response required under the directive. We have a possible problem with that.

I also looked quickly at the Communications Act 2003, which sits alongside this new legislation. Most of its content is about Ofcom's regulation of television and radio, and so on. However, it also has a series of general obligations for Ofcom, which presumably apply to every activity in which Ofcom participates. These again require-as I read them; others may have a different view, but I think probably not-an ongoing process of review, so we have a potential conflict between two pieces of legislation. Does that exist? It would obviously add to the complication.

Having been in the other place, which I know is not always a good thing to say about oneself when in your Lordships' House, I know that the chances that any Member of the House of Commons would allow an affirmative resolution to reduce the universal service obligation have got to be pretty close to zero. Frankly, I could think of nothing more suicidal in whatever election that individual has to face next. Some people may not consider that to be the strongest possible lock but, frankly, I find it hard to think of a stronger one. Far stronger, as far as I can see, than any legislation is the power of realpolitik that would apply under these circumstances.

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Baroness Kramer (Liberal Democrat): My Lords, I very much appreciate the thrust of the amendment. Obviously it is crucial to everybody in your Lordships' House that whoever becomes the private partner or investor in the Royal Mail should have the resources to be able to continue the modernisation programme and make sure that it becomes a very successful company. From my guilty experiences of years as a corporate banker, I know it is extremely difficult to write a financial test that will do this. I understand that the noble Baroness, Lady Dean, has made a good thrust at it. However, the reality is that, unless there are also tests on cash flow and the income statement, and a variety of different tests looking at the balance sheet, there is not a hope of getting a grip. In the days of modern financial structuring, and with the range of options that are allowed under various accounting procedures, the chances that a financial test-even a carefully drawn one-would provide the ability for Ofcom to identify and winnow out a provider would be extremely limited. It will be a much more complex task that requires understanding the businesses and the broader scope of the work that they do. It requires ongoing monitoring; it requires a much more complex approach.

One of the comforts that perhaps some of us have in this House is that Ofcom is at least doing this with the media industries, and that it has that kind of business and financial understanding which ought to allow it to recognise if the private partners in the universal service provider have the appropriate financial structure and strength to be able to provide capital in the future. It seems to me that the thrust of the amendment is a very important one. However, in practice, this is not something that can be devised in a House like this and put in the Bill. There is comfort within the broader role that Ofcom plays. Its experience and expertise means that we should have every expectation that it would exercise real prudence in financial oversight of a universal service provider.

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