Secretary of State for Business, John Hutton, has announced a comprehensive review of developments in the postal services market since its liberalisation two years ago.

John Hutton said: “We are committed to maintaining a universal postal service that meets the changing needs of consumers and businesses”.

“We believe that opening the market has brought considerable benefits for users of postal services but there can be no doubt that the market has evolved, with new technologies such as email and text messaging having a huge effect on the way we communicate”.

“In the light of these market developments we are launching a review to examine the impacts of liberalisation of the UK postal services, trends in future market development and the likely impact of this on Royal Mail, alternative carriers and consumers”.
Richard Hooper, who will chair the Review said: “I welcome the opportunity to lead this Review. Postal services in the UK are steeped in history and remain an important part of our national infrastructure”.

The Review will consider how the universal postal service can be maintained in an increasingly competitive market. The independent panel will undertake a thorough analysis of the effects of all the changes in the sector, and identify future likely trends and implications.

The provision of a universal postal service at affordable prices, which was enshrined in legislation in 2000, remains the top priority for the Government.

The Review will take evidence from all interested parties including Royal Mail, Postcomm, Postwatch, the CWU, UNITE, other licensed postal operators, the National Federation of SubPostmasters and customer representatives such as the Federation of Small Businesses.

Billy Hayes, general secretary, said: “This is a crucial review which will help shape the future of the postal sector in the UK”.

“The CWU pressed for a commitment to a review of the effects of liberalisation as part of the Labour Party manifesto and we are delighted that the government are honouring that commitment.

"High on our list of issues are the effect of Downstream Access, the Universal Service Obligation (USO) which currently disproportionately burdens Royal Mail, and the role of Postcomm which has proved disappointing”.

“This review must address the needs of customers, workers and mail businesses to ensure that the UK has an effective and successful publicly owned postal service and efficient postal sector”.

CWU Submission to Government Review of Liberalisation

In response to the government announcement, the Union has submitted its own review of Liberalisation which contains essential arguments on the future of the industry.

9 The Union campaigned for a review because we recognised from the outset the problems liberalisation and the system of regulation would bring to Royal Mail and the Universal Service Obligation (USO).

11 The CWU believe that the introduction of competition should remain subordinate to the Regulators primary legal duty to protect the USO. 13Instead Postcomm has first introduced full competition and is now trying to adapt the USO to suit the market it’s created.
The Nature of Competition

21 Postcomm overestimated the overall growth in the market and the likely increase in end to end competition and hugely underestimated the rapid growth in Downstream Access.

22 In September 2007 there were 18 licensed operators in addition to Royal Mail. Most of these have entered the market via Downstream Access (DSA) and use Royal Mail’s ‘final mile’ delivery network. This artificial form of competition has created a ‘cherry pickers’ charter where licensed operators target Royal Mail’s most profitable bulk business mail.

23 Downstream Access volumes have risen much faster than Postcomm forecast. Since liberalisation Royal Mail has lost a string of business contracts to rival operators including: BT, British Gas, Department of Work & Pensions, Carphone Warehouse and TV Licensing. Access volumes have doubled over the last year rising to 2.4 billion items in 2006/2007, up from 1.2 billion the previous year.

24 Postcomm has placed a heavy burden on Royal Mail. In 2006/2007 Royal Mail made a loss of £12 million on its price control products against a predicted profit of £779 million.

33 While the UK has seen full liberalisation since January 2006 (three years ahead of the EU’s timetable) other European countries have still to set a date for full liberalisation.

Lack of Investment

39 Despite decades of profitable operation, the Treasury prevented Royal Mail from investing sufficiently in its network and employees. Until 2000 Royal Mail recorded 23 years of consecutive profit. Over that period the Government took out £2.5 billion in payments.

44 The Regulator approved a 1p increase in 1st & 2nd class stamps in 2003, the price of a 1st class stamp had fallen 11% since 1992, while a 2nd class stamp had fallen 20%. This directly contributed in Royal Mail loosing £500m in revenue.

45 The historic underinvestment in the industry remains to be tackled. 46In the long term, there is no reason why a sensible pricing policy cannot raise sufficient revenue to sustain Royal Mail, and allow for new investment in the industry.

Future Growth

54 Evidence suggests that mail is not simply being replaced; it is growing alongside new technologies and has been part of the wider comms revolution.

Impact on Royal Mail

60 In the main, Royal Mail’s reaction to competition and its worsening financial position has been to cut costs at every area of the business. Instead of embracing their strengths Royal Mail has reacted to its weaknesses.

61 Simple cost cutting, a ‘slash and burn’ approach, does not work; it damages the service and the company’s reputation and creates major industrial relations problems.

CWU Members

62 We recognise that Royal Mail must modernise its operations and improve efficiency, but we do not accept that solutions to competition ultimately lie in continued attacks on our members’ terms and conditions.

64 Royal Mail and the Regulator say our members are 25% overpaid, though we have never seen any proper pay comparability data to support these assertions. Basic weekly pay of CWU members is £342.47 for a 40 hour gross week. This is 20% below UK average pay.

65 Pensions in payment are members deferred wages and form an integral part of the remuneration package. 67The CWU has not agreed to any pension changes. Without changes to Royal Mail’s proposals the company is heading for an industrial dispute with the CWU.

Domestic Customers

82 For the public at large, the term liberalisation probably means little, but the impact of competition has translated into a later single daily delivery, fewer collections and massive closures of vital Post Offices.

86 Dangers facing customers arise from the likelihood Royal Mail will be pressing to reduce or withdraw services.

Postcomm’s Strategy

87 In 2007 Postcomm published a consultation which is looking at the postal market after 2010. The CWU believe that Postcomm’s review has been superseded by the Govern-ment’s own review. We do not believe the question of Royal Mail’s ownership is a matter for either the Regulator or the Review Team; it should be for the government to decide.

90 Franchasing and outsourcing parts of Royal Mail’s operations will serve to undermine any wider improvements the company is trying to make.

95 Postcomm argue that the USO remains profitable in Royal Mail, though the profit of £27m in 2006/07 was down by 50% compared to 2005/06.

CWU Policy Proposals

101 In light of the serious problems with the current regulatory and competitive regime the CWU is calling for a series of policy reforms designed to secure the future of Royal Mail and safeguard the USO.

106 We want to see more robust regulation over collection and delivery times included in the USO with a guaranteed early delivery for small firms. The working practices being introduced as part of Delivery Best Practice are likely to see delivery times worsen.

110 Other countries in Europe are also looking into ways to protect their USO. In France, for example, La Poste has argued that full liberalisation would undermine its universal service obligation. It has called for a ‘pay or play’ system forcing new market entrants either to spread their operations evenly between profitable urban areas and costly rural areas, or to pay a fee to the incumbent operator.

111 Postcomm’s overall approach to market opening has been flawed from the beginning. The regulator has misinterpreted its primary legal duty to defend the USO, misjudged market trends and created an unfair form of competition which has hit Royal Mail, its workforce and its customers.