Select Committee on Welsh Affairs Minutes of Evidence

Memorandum submitted by the Communication Workers Union




  The Communication Workers Union (CWU) represents almost 300,000 individuals working in the postal, telecommunications, financial services and related industries. It is the recognised trade union for all the non-management grades in Consignia (or the Post Office as we would prefer to call it). As such, the CWU has more than 150,000 members working in that organisation, in the collection, sortation and delivery of mail and parcels, as well as the operation of directly owned post offices.


  The affordable and reliable provision of postal services and easy access to post offices, represent extremely important public services for people throughout Britain. However, these services take on an even greater importance in parts of Wales, where a significantly higher proportion of post offices are based in rural areas (70 per cent compared with the UK average of 50 per cent),[1] and act as a focal point for whole communities. Many of these areas still depend heavily upon postal services as an essential line of communication, and as a crucial support for the main social and economic activity.

  In addition, the benefit of a system which supports the universal postal service, which delivers to every address in the UK for an affordable and uniform price, is immediately apparent in many parts of Wales. Only a public service supported by some kind of reserved area (or monopoly) would be willing and able to deliver first class letters to remote parts of the country at a cost to the customer of only 27p, when the true cost of delivering mail from just from North to West Wales is more likely to be around, 2 per letter[2].

  This publicly-owned operation has been able to serve the people of Wales in this way due to the hard work and dedication of its staff, but also because of the business model which has supported the universal service at a uniform price. This has allowed Royal Mail to make a profit from delivering mail within (and between) major cities and handling large amounts of business mail, but also to deliver more expensive loss making items of mail to more remote and expensive areas.

  While carrying out this service it has also proved to be successful in providing profits for the UK Government—contributing around 2.5 billion to HM Treasury over the last 20 years. It has a relatively high quality of service with on average, 9 out of 10 first class letters reaching their destination the next day. Furthermore, it has done this for a relatively low price—with the price of First Class mail being 6 per cent less than the annual increase inflation over the last five years, and the price Second Class mail almost 14 per cent less (relative to 1997). In Europe only Spain has significantly lower prices for first class mail less than 20g, and it is not required to provide the quality of service to the same level or specification. In addition the UK offers the cheapest first class service in Europe across the other main weight bands (20g to 50g and 50g to 60g). The public also acknowledges this relatively cheap service. In a recent National Opinion Poll (NOP) survey carried out for the CWU an overwhelming 89 per cent would support a 2 pence rise in the price of stamps to ensure a more reliable postal service and save jobs in the industry.

  However, the CWU is concerned that the success of the Post Office, and its ability to continue to provide these services to customers, is being severely undermined by a combination of factors. These include the structural changes within the industry, but also the mismanagement of the past, and a legacy of under-investment over the last 25 years, when the business was making large profits but most were going back to Government. On top of this there is an ill-judged and ill-timed attempt from the industry regulator, Postcomm, to proceed with an accelerated programme of liberalisation.


  After 23 years of consecutive profit the Post Office has reported a loss for the last two years. The current financial performance of the Post Office is undoubtedly poor, and this is unlikely to improve significantly in the short to medium term. The operating loss of 70 million reported for 2000-01 was followed by an operating loss of 100 million announced for the first six months of 2001-02—and it is expected that this loss will have accelerated further in the second half of this financial year. As a result of the businesses financial problems, it has embarked upon a restructuring programme to reduce its cost base by 15 per cent (or 1.2 billion). Chief Executive John Roberts translated this into a possible job reduction of 30,000 when appearing before the Trade and Industry Select Committee in December 2001. The first stage of this job reduction was announced in April 2002, with most of the reduction initially effecting the Parcelforce operation. While there is now a fuller picture about where the initial changes will be seen, it is still unclear exactly how many of the 10,000 or so Post Office staff in Wales will be directly effected.

  The CWU believes that there are a number of factors which have coincided and led to the current situation. In particular there has been a lower than expected growth in mail volumes (growth of around 3 per cent against a predicted level of 6 per cent). There is also the huge cost to the business of catching up on under-investment in preparation to face competition. The CWU has estimated that an extra 700 million would have been put aside for investment if the Post Office had not been required to pay such large sums to the Treasury and had paid dividends instead. Clearly, the impact of this under-investment on performance must also be considered at a time when Postcomm is licensing competitors to operate in some of the most profitable areas of the postal market.

  There have also been a number of questionable management decisions, both over the strategic direction of the Parcelforce business (which has led to it continually being a loss making operation over the years culminating in much of the 221 million impairment charge in the 2001-02 half year accounts), and the expensive roll out of the Horizon computer system for the automation of the counters network (which led to the Post Office incurring an impairment cost of 571 million in 1999-2000).

  The CWU has also recognised the high level fixed costs and—while any reference to high wage costs in the business must be tempered by the reality that the basic wage of a postman or women is only 250.53 a week—the Union has engaged in constructive dialogue with the business in its attempt to reduce its cost base. The CWU has been involved in these negotiations on the basis that any reduction in employment across the business must be on the basis on voluntary redundancy or natural wastage/staff turnover. Dialogue is continuing to ensure better pay, conditions and job security based upon these principles, while attempting to manage sensibly the necessary restructuring of the business.


  At a time when the Post Office is undergoing such radical change it seems perverse that the industry regulator has chosen this moment to bring forward radical proposals to open up a hugely significant part of its core business to competitors. The timing and the nature of Postcomm's proposals for competition in the provision of letter services which were announced on 31 January 2002 could not be more inappropriate.

  In brief, when Postcomm's announced its proposals they were as follows:

1 April 2002

Granting of licences for operators wishing to provide large mailing services with a minimum of 4,000 items.

1 April 2004

Granting of licences for operators wishing to provide large mailing services with between 500 and 1,000 items.

1 April 2006

Complete liberalisation of all UK postal services.



  However, it was agreed that the deadline for consultation would be put back to 13 April 2002, and therefore the first stage would not go ahead on 1 April 2002 as planned.

  The impact of the proposals may also needed to be re-assessed. While we do not know how much market share will be lost by (since this will depend on the performance of the competitors and its response) the original estimates as to the proportion of the market open to competition, and therefore vulnerable to being lost, have been challenged. Originally it was estimated that the effect would be:

1 April 2002

Threat to 30 per cent of revenue and 40 per cent of volume
(now expected to open up more like 50 per cent of revenue)

1 April 2004

Threat to 60 per cent of revenue and 70 per cent of volume

1 April 2006

Threat to 100 per cent of revenue and 100 per cent of volume



  The proposals are likely to have a extremely negative impact on customers, and in particular are:

    —  A threat to the universal service—Postcomm is insisting that this will not be the case because the universal service is enshrined in legislation. However, the definition of the universal service in the Postal Services Act 2000 is much more limited than the service which customers currently enjoy. The law simply guarantees:

    —  A delivery every working day to the home or premises to everyone in the UK.

    —  A collection every working day from postboxes throughout the UK.

    —  A threat to the uniform tariff—again, Postcomm is insisting that there is no threat to the uniform tariff because again it is enshrined in the legislation. It is certainly true that the Postal Services Act 2000 provides a commitment to a uniform affordable tariff, but there is no definition of what is meant by affordable and it is perfectly permissible in law to have a uniformly higher price. Postcomm insists that it will combat any such tendency by imposing a price cap but, if the Post Office continues to sustain its recent losses, ultimately it will be impossible to deny it increases in prices.

    —  A threat to the rural Post Office network—Postcomm and the Government are insisting that the liberalisation proposals of the regulator have "no implications" for the network of physical post offices. In the immediate sense, this is true. However, if there is a significant reduction in revenues and profits in the core letters business, there is bound to be a re-evaluation of the physical post office network. Already, local post offices are closing at an unprecedented rate which is little more than a haemorrhaging of local services. Last financial year alone 68 offices closed in Wales—which represented 4.6 per cent of the total, and was a larger proportion than anywhere in the UK.[3]

  The CWU's specific objections to these extremely damaging proposals are as follows:

    —  The consultation period is too short—The proposed six weeks to decide the future of a 350-year-old service is simply cavalier. While we were pleased that the period was extended we would still warn against the hasty introduction of competition.

    —  The form of competition is totally wrong—Bulk mail is the most rapidly growing and is the most profitable part of the letter market and the European Commission specifically rejected this route to competition. It proposes a much more controlled, gradual and less rigid form of competition, by reducing the reserved area in terms of its price/weight threshold, and doing so consistently across Europe.

    —  The pace of competition is far too fast—The EU timetable, to which this Government has signed up, provides for full liberalisation by the beginning of 2009, but Postcomm wants to see total competition in the UK by early 2006.

    —  The proposals have no review mechanism—The European Commission will hold a review in 2006 to decide whether to move to full liberalisation in 2009, but Postcomm's proposals do not allow for any extension of its timetable regardless of the impact.

    —  The proposals come at the wrong time—It is foolhardy to embark on such an extensive competition and liberalisation programme during a period when the Post Office is undergoing a major process of restructuring (outlined above). The business already has to deal with a number of challenges facing the industry such as e-substitution, falling mail volumes and the impact of under investment, and is said to be losing 1.5 million a day at the current time.


  Despite the reduction in the number of post offices over the last few years the retail network it comprises is still the largest of its kind in Europe, with around nine out of ten of people in the UK living within one mile of a post office, and around 28 million people making 45 million visits to these offices every week.

  The number of offices has been declining throughout the UK for a number of years, although this has accelerated recently with 233 closures in 1999, 382 in 2000 and 547 in 2001. Similarly the number of closures in Wales has increased, reducing the size of the overall network from 1,501 in 1999, 1,470 in 2000 to 1,402 in 2001.

  Whilst the Union is only aware of a further 20 closures this year in Wales, there are a number of concerns as to why the closures are continuing, and the way in which the code of practice on consultation is operating before branches are closed or re-located.

  The most worrying aspect of these changes for communities in Wales is that the overwhelming number of office closures in the past few years have been in rural areas which often depend on post offices the most. Certainly it can be expected that those most effected by closures in these areas will be the elderly, disabled and those on low incomes.

  One of the main factors in the number of closures is the impending migration of benefit payments to Automatic Credit Transfer (ACT) from 2003—a decision which is expected to reduce the revenue of Post Office Ltd by 30 per cent or around 400 million in total. In some areas where benefits account for a larger proportion of income at present the impact will be even greater and perhaps lead to the majority of a branches income being lost. This has clearly had an impact on the confidence of sub-postmasters and led to more resignations.

  However, the huge levels of investment in computerising the network and installing the "Horizon" computer system means that the post office network is equipped with the infrastructure it needs to offer the sorts of services which will help to safeguard the future of the network. The Government acknowledged this when it commissioned the Cabinet Office Performance and Innovation Unit (PIU) to examine the potential of post offices, and provide options for exploiting this potential and proposing ways in which it could be used to help Government deliver its objectives.

  The key recommendations made by the PIU are necessarily the principal elements of any realistic strategy for supporting the network in future, and ensuring that post office branches are viable businesses which can make a positive contribution to the community.

Banking Services

  The PIU recommended the establishment of a Auniversal bank@ in order to offer basic banking services to the financially excluded and a method for individuals to continue to be able access their benefit over the counter at post offices even after the migration to ACT. Despite a protracted process of negotiation between the Government, Post Office Ltd, the High Street banks and the companies providing the necessary technological support, it would appear that this is now on track. The post office also acts as an agent to provide banking services on behalf of Alliance and Leicester, the Co-op Bank, Lloyds TSB and Barclays. These services should be especially valuable in Wales given that financial exclusion is higher than in England.[4]

Government Services ("Your Guide")

  The PIU report also introduced the concept of a Government General Practitioner (or GGP) in post offices. This was designed to exploit the potential of the network to build on the range of local and central government related services already provided. This has been taken up to a certain extent with a pilot project in Leicestershire known as "Your Guide", where information and advice is available in 267 offices. This project is being supported by the DTI and the Post Office with initial funding of 29 million.


  The accessibility of offices and the links they provide to the services offered by Royal Mail and Parcelforce, make post offices an ideal centre for the ordering and delivery of products generated through the expansion of electronic commerce, especially with the electronic services available through Horizon. There may also be scope to develop further relationships with e-commerce operators in order to facilitate this, and become the key point for the ordering, delivery and pick-up of goods ordered across the internet.

  The priority must be to implement and roll out these recommendations as quickly and effectively as possible, and without any further delays, such as those encountered regarding funding of the universal banking facilities.


  With around 10,000 employees the Post Office is one of the top five employers in Wales, and its services and institutions are at the heart of many communities. However, the CWU has been increasingly concerned at the way in which Wales has been sidelined in the decision making process regarding the future of the business, and the impact that this will have on the businesses ability to meet the needs of the customers and communities which are reliant upon postal services.

  The problems faced nationally by the Post Office have inevitably led to a great deal of uncertainty about the future, but this has been exacerbated in Wales, and not only in reference to the ability to access services at post offices as outlined above. For example much of the automated processing of mail—or "coding" work—throughout the UK has been centralised and will be largely carried out through links with new Manual Data Entry Centres (or MDECs). However none of these new centres are based in Wales despite the fact that a number of suitable sites were considered and the fact that this will mean fewer coding jobs in the last two mail centres in Wales, at Cardiff and Swansea.

  In addition recent announcements by Royal Mail have confirmed that weekend work is also to be transferred to mail centres outside the area, most notably from Cardiff and Swansea to Bristol, as well as from the regional centres at Shrewsbury and Chester to Wolverhampton and Manchester respectively. Support services such as personnel and wages functions have also been centralised, and the cash handling depot at Swansea is due to close, with this work going to Bristol. The recent announcement in relation to the future of the Parcelforce business also revealed that two of the five parcel depots in Wales are set to close, at Pontypridd in the south and Wrexham in the north.

  Such business centralisation and restructuring is inevitable up to a point, particularly given the current financial situation. However the CWU is concerned that the business is failing to recognise the impact of its decisions upon customers, communities and the workforce, and that there is little or no evidence of investment in its operations coming into Wales as much of the current work is centralised and taken out.

  This trend may be partly due to the way in which operations are managed in Wales. In particular, the territorial structure of Royal Mail means that Wales is considered to be part of the Western Territory, which includes the whole of South West England, the West Midlands and parts of the North up to (but not including) Liverpool. As far as the sorting and processing of mail is concerned, all of the mail from North Wales is conveyed to Chester for processing, whereas all mail from Mid Wales and Aberystwyth is conveyed to Shrewsbury.


  The separate but related services operated by the Post Office in Wales through the Royal Mail, Post Office Ltd and Parcelforce, are all at a crucial stage of restructuring and reinvention at this time. The CWU is playing a full part in this process and is committed to ensuring the best terms and conditions for its members, but also to ensuring that the business is ready to face the challenges it will face over the next few years and into the future.

  The Union has already shown its willingness to work in partnership to address some of the underlying problems, and has successfully implemented a suspension of unofficial industrial action as a result of the Sawyer Report into industrial relations in August 2001. Since then there has been no incidents of unofficial action, and the number of days lost in the last quarter of 2001 was down by 90 per cent on the same time the previous year.

  It would be unfortunate if all of the work that has been done to improve the industrial relations situation, and the wider financial situation of the Post Office in Wales and throughout the UK, was undermined by the actions of the Regulator. The future of the universal postal service for customers is in jeopardy if Postcomm=s current proposals are carried through in the form which they take at present. The post office network is also likely to be effected. The Welsh Assembly recognised the danger inherent in the Postcomm proposals and AMs agreed two Amendments on 12 March 2002 to that effect, whilst many MPs from all parties at Westminster also recognise this, given the large number of signatories to EDMs 293, 797, 820, 937 and 974 (the last of which refers specifically to Wales). Some 213 MPs have signed at least one of these EDMs which represents a very substantial body of Parliamentary opinion that should not be ignored.

  Similar reservations have been expressed by the Scottish Parliament, the Welsh Assembly, the Greater London Assembly, and are likely in the Northern Ireland Assembly.

  The CWU calls for the support of the Welsh Affairs Select Committee in opposing Postcomm's measures on the basis that the difficulties already faced in Wales which we have outlined in this document will only be exacerbated by the large scale introduction of competition in this way, at this time.

Billy Hayes

General Secretary

25 April 2002



1   Postcomm Annual Report on Network of Post Office 2000-01. Back

2   Consignia Advisory Board for Wales. Back

3   Postcomm Annual Report on Network of Post Office 2000-01. Back

4   Financial Service Authority, July 2000. Back

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