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How much will Royal Mail pensions cost the taxpayer?

James Duddridge MP Thursday saw oral questions on Business, Enterprise and Regulatory Reform.

Rochford & Southend East MP James Duddridge (right) asked about the cost to taxpayers of assuming liability for the Royal Mail pension scheme:

"The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): We estimate that the Government will assume total liabilities of £29.5 billion and assets of £23.5 billion. That would mean the Government absorbing a deficit of £6 billion. This assessment of the liabilities in the scheme and the funding position is based on the most recent trustee valuation, from March 2008. However, we anticipate that the funding position of the scheme could well have worsened since that date, so when we have updated figures from the new valuation, beginning this month, we will finalise our assessment of the funding position of the scheme.

James Duddridge: Clause 20 of the Postal Services Bill will allow the Government to take the existing assets from the pension fund into the consolidated fund and spend it that very same year. Is it wise as part of addressing the pension funding crisis to take the existing inadequate assets and use them to rescue the Government’s current deficit, making the problem worse in the longer term?

Mr. McFadden: Our motivation is not about the public sector accounting impact. Our motivation is to give greater security to the hard-working men and women who work for Royal Mail, because the pension fund is an increasing burden for Royal Mail. At the same time, however, if we are to ask the taxpayer to take on those liabilities—I have set out what the scale of those liabilities is—it is equally right that we also give the taxpayer some confidence that the company can be transformed and modernised in the future. It is precisely those two things that are set out in the Postal Services Bill, which was published recently."

There may well be merit in the Government subsidising postal deliveries to far-flung parts of the UK, but I don't see why mail services as a whole should not be opened up to competition.

Shadow Corporate Governance Minister Jonathan Djanogly had a concern:

"The Minister has just said that the Government proposals would provide greater security for postal workers’ pensions, but can he confirm that clause 19(6)(b) of the Postal Services Bill provides that this or a future Government could waive the pension guarantee and vary the terms of the postal workers’ pensions without the approval of the trustees, who will lose their power to protect the pensions under the provisions of the Bill?

Mr. McFadden: The changes that we propose to the pension scheme will mean that the deficit is handled on the same basis as the pension schemes serving teachers, nurses and civil servants. That will indeed give Royal Mail staff far greater pension security than they get at the moment, when the deficit appears to be increasing year on year."

Shadow Business Minister Mark Prisk asked about lending:

"Three weeks ago, the Government proudly announced what they claimed was a unique agreement with Royal Bank of Scotland and Lloyds, which apparently guarantees that those banks will lend business a total of £27 billion this year. Given the evident and continuing problems for businesses, how will Ministers guarantee that sum this year and, given that they are part-owners of the banks, what penalties could they actually apply if the banks proceeded to default?

Ian Pearson: The hon. Gentleman has repeated the figures that I announced in my reply to the hon. Member for Enfield, Southgate (Mr. Burrowes). He is right about the commitment of £27 billion of additional lending—£16 billion from RBS and £11 billion from Lloyds Banking Group. We will monitor their delivery of that commitment, just as we are monitoring their progress in terms of lending under the enterprise finance guarantee.

I would like to think that the Conservative party welcomes the fact that we are introducing legally binding commitments as part of the asset protection scheme. We expect RBS and Lloyds Banking Group, as responsible companies, to deliver on those commitments, and I have no reason to doubt their genuineness in wanting to deliver for small businesses. Rather than carping and moaning, Conservative Members should welcome the fact that we have an active Government who are making commitments and ensuring that they are delivered."

Croydon South MP Richard Ottaway reminded us of one roadblock to postal reform - the union:

"In 2007, 637,000 days were lost at Royal Mail as a result of industrial action. That is 60 per cent. of the number of days lost to strikes in the entire United Kingdom. Does the Minister accept that the Communication Workers Union must become far more realistic about modernisation if industrial relations at Royal Mail are to improve?

Mr. McFadden: Richard Hooper identified industrial relations as a significant problem for the company, and it is not just the industrial action and the strikes that have taken place, but the regular threat of industrial action—such as, in recent months, over changes to the pension scheme and the closure of a number of mail centres. A fresh start for industrial relations is, therefore, needed in Royal Mail, and I would say to the CWU that the current relationship is not what it should be and that bringing in a new partner may present a possibility of improving industrial relations, given their current very poor state."

The Wrekin's Mark Pritchard wanted to know about competition in the provision of broadband:

"If he will discuss with Ofcom measures to increase the number of providers of broadband to the wholesale telecommunications market. [264473]

The Minister for Trade, Development and Consumer Affairs (Mr. Gareth Thomas): Wholesale broadband is closely regulated, and the market is regularly reviewed by Ofcom. That ensures that the UK broadband market remains competitive at the retail level. I can tell the House that there are more than 400 suppliers of broadband services.

Mark Pritchard: I note the Minister’s reference to retail. Given that people up and down the land are facing great and real financial hardship, is it not time that the broadband telecoms market was opened up to true competition—not fake competition—so that the current pretty poor service levels can be driven up and customer prices can be driven down?

Mr. Thomas: The hon. Gentleman may know that a number of companies offer wholesale broadband products and a series of other companies that are in a position to do so are choosing not to do so for commercial reasons. That is one of the reasons why we have made sure that the industry is closely regulated. In those parts of the country where there is considerable competition some of the price controls that have been in place have been relaxed. In other areas, where competition is not as strong as we might like, we have kept that regulation in place. He will know from the work of Lord Carter that this issue is being closely examined in government, with industry and with a range of other players. An interim report has been published and further work is in hand. The hon. Gentleman will be able to judge, with the rest of the House, the fruits of that further work towards the summer."

Shadow Business Secretary Ken Clarke asked about the automobile industry:

"The Minister must realise that for tens of thousands of people in the automobile industry, the Department is all talk and spin, but no action. He says that Lord Davies is still studying the proposals on car finance that we put forward as a policy suggestion months ago, but when we will get a result? As Lord Mandelson has indicated his sympathy for that policy, is it being blocked by the Bank of England or the Treasury? When will a decision be taken on this important matter?

Ian Pearson: We all agree about the importance of ensuring that the car industry has support in these difficult times. Along with the construction sector, the automotive sector has borne the brunt of the recession, in addition to what has happened in the banking system. It is difficult to point to other sectors that have seen quite such dramatic falls, but a car is a big discretionary purchase.

The right hon. and learned Gentleman should not pretend that car finance assistance would be a panacea and that if funding is made available through the banks to car finance arms, everyone will go out and buy cars. We will continue to have discussions about whether we can do something that represents value for money for the UK taxpayer that will assist car finance arms. Some of those finance arms are already providing good deals, however, and he knows that."

Mr Clarke intervened again later on:

"Last week, the Minister held a seminar in his Department for businesses in the car industry and for banks to begin to explain how to apply for EIB loans that were first announced by the Government last September. Can he now tell us how many applications have been received and how many more weeks or months it will be before anybody receives any of that support?

Ian Pearson: Just to correct the right hon. and learned Gentleman, let me say that the purpose of the seminar was to explain the Government’s automotive assistance programme, which covers loan guarantees to companies that are accessing the EIB clean transport facility as well as the Government’s scheme more generally. He knows that, but he is just trying to make a debating point. DBERR has been supporting applications to the EIB. My understanding is that a number of companies are at an advanced stage in discussions with the EIB. I do not think that it would be appropriate for me to name those individual companies, because the negotiations are commercial in confidence, but he will be aware of reports that companies have been making those applications. We hope that next month the EIB will approve applications from a number of companies."

Assistant Chief Whip Alistair Burt raised an important point about the Government's communication skills:

"Are Ministers aware of just how angry businesses are at the Department’s failure to convey information to them? On 12 November, I wrote to the Secretary of State on behalf of a constituent company, asking for information about business loans. It is now 19 March and there has been no answer, despite three further letters, six phone calls to the Department, and a letter to Lord Mandelson last week saying that, if he did not answer, I would raise the issue in the House of Commons. This is the second time in three weeks that I have raised a similar matter. On one occasion, staff at DBERR were not even picking up the phone to answer inquiries because they were in such chaos.

When will something be done? If the Government cannot get information to companies out there, it is no wonder that absolutely nothing is being done. All we are getting is just a lot of talk, and no initiatives are working at all.

Mr. Thomas: With the greatest respect to the hon. Gentleman, I shall look into the specific case that he mentions and come back to him. However, I do not accept his broader point about help not getting through to businesses, and I shall use the region in which his constituency is based, the east of England, as an example. More than 8,000 businesses in that region have been able to defer their business taxes in the past four months, while across the UK as a whole almost 93,000 businesses have been able to have business taxes totalling some £1.6 billion deferred. That is just one example of the real help being given to businesses at the moment, but as I said, I shall look into the specific case that he has raised and come back to him."

Tom Greeves


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