Training | 2009.06.18
Royal Mail on a cliff edge | Richard Hooper
The debate on reforms must not be lost in ideological warfare. I urge MPs to back my plans
In 1840 Britain gave the world the postage stamp and the universal postal service: the delivery of letters to all home and business addresses at uniform prices, irrespective of distance. That service still provides a vital social and economic glue. While reform of the postal service is fast becoming a political football, the underlying need remains and must be addressed. In the interest of protecting and sustaining the universal postal service, I urge parliament to implement in full the three main recommendations of my report Modernise or Decline: strategic partnership for Royal Mail, a new pension arrangement, and regulatory reform.
The communications world is changing fast. As people have greater access to mobile texting and email, the number of letters sent worldwide has been declining. This is an unprecedented change. It is permanent – not driven by the recession. Last year, the number of letters sent in the UK fell by 5.5%. This year, Royal Mail is forecasting a 10% decline.
But the digital revolution does bring good news for postal workers. There is significant growth in online shopping – 860m parcels were sent in 2007. And online spending looks like doubling between 2007 and 2010. If what is being sent can be digitised (such as my electricity bill), then cost pressures will mean it is sent digitally. If it is not digitisable – a screwdriver for example – then the future is bright.
Only Royal Mail can provide the universal service. Other postal companies play a vital role in collecting, sorting and transporting mail. But only Royal Mail has the infrastructure to deliver to each of our 28 million addresses six days a week. So it is vital that Royal Mail is able to respond to the rapid changes in the communications market. But it can\'t.
Why not? First the company is not efficient. It has not achieved the levels of automation, for example, seen in the leading postal companies across Europe. Second, it has a large and volatile pensions deficit. Third, it is constrained in putting up stamp prices. A big increase would hasten decline in the number of letters. While a first-class stamp costs 39p, an email effectively costs nothing. Fourth, labour relations are extremely poor. And fifth, there has been strong tension between the company\'s management and the regulator, Postcomm.
In May 2008, our initial report stated that there was an emerging consensus about the need for change, that Royal Mail\'s transformation still has a long way to go, and that the status quo was not tenable. Everyone including the unions agreed with our diagnosis.
Royal Mail has a plan for modernisation, and has made a start. But sustaining the universal postal service requires transforming the business much more quickly. To do that, Royal Mail has three requirements. It needs access to capital, without the constraints attached to government funding. It needs access to the practical corporate experience of a company which has modernised. And, perhaps most crucially, it needs the commercial confidence to make the right decisions and execute them promptly.
Commercial confidence means removing the spectre of political intervention and modernising labour relations. Management will need to engage the union about the long-term future of the business. The union will need to accept the scale of change required, and show that it can tackle the behaviour and internal processes which result in modernisation being obstructed.
In my final report, I recommended a strategic partnership between Royal Mail and private-sector companies with demonstrable experience of transforming a major business. I did so for one reason only: it meets the criteria I have set out. A strategic investor will insist on political separation so that commercial decisions can be made and followed through with confidence. A strategic partner will require and encourage engagement between the management and union. And it will provide a new source of more flexible capital. In short, it will have the necessary skin in the game to drive modernisation, drawing on its own corporate experience.
The CWU has agreed with my recommendations on pensions and regulation, but remains vehemently opposed to a strategic partnership. Partnership is also questioned by many MPs. I point them to the evidence of the last 12 years. Even with a fully supportive government in power, Royal Mail has simply not been able to change as quickly as necessary. It would require a great leap of faith to claim that Royal Mail could now accelerate the pace and regain the status of best in class with no change in policy. Sorting out the pension deficit and creating a new system of regulation are important, but will not do the job alone.
It is time for a new model: Royal Mail, working with a strategic partner, in public ownership.
Richard Hooper is chairman of the Independent Review of the Postal Services Sector and the former deputy chairman of Ofcom
For more information, please visit
http://www.guardian.co.uk/commentisfree/2009/jun/10/postal-service-reform
