APPENDIX 12
Memorandum by Amicus-CMA
INTRODUCTION
1. The Communication Managers section of
Amicus represents the interests of over 15,000 managers and senior
managers working within the Royal Mail, of whom nearly 2,000 are
managers in, Post Office Limited. In addition Amicus represents
members in other postal operators such as Deutsche Post and over
1 million members of Amicus are themselves users of postal services
in the UK.
2. Post Office Ltd is part of Royal Mail
Group, which is a public limited company wholly owned by the Government.
The company operates 560 Directly Managed Branches, formerly known
as Crown Offices, with costs that currently run at an estimated
deficit of £70 million. Royal Mail is currently undertaking
a review of its Directly Managed Branches but it is rumoured that
the company is planning to close or sell at least half of its
offices in order to save on operational costs. It is this review
that has prompted the Select Committee Inquiry.
AMICUS POSITION
3. It is our view that any review of the
Post Office network, or any of its segments, must be undertaken
within the following context:
(a) The Post Office is a publicly owned organisation
providing a public and community service.
(b) Post Office Ltd is strengthened as an
integral part of Royal Mail Group and its ability to survive and
thrive in the future is intrinsic and inseparable from the future
of the UK letters market.
(c) The review of Directly Managed Branches
should not be undertaken in isolation to the urban network reinvention
programme, due for completion in April 2005.
4. It is a fact universally acknowledged
that the Post Office network fulfils a vital social function,
particularly within rural communities, where retail and financial
amenities are not widely available. Furthermore, the post office
is significantly more important to more vulnerable groups within
the community such as the elderly, unemployed, disabled and carers
who are reliant on local services. The social role is widely recognised
and valued by all parties. However, the main contributor towards
maintaining the social provision is Post Office Ltd itself, or
indirectly Royal Mail.
5. While Royal Mail until recently had a
monopoly in the letters business, the Post Office network has
not been a monopoly. All of the latter's services can be found
elsewhere. Post Office Ltd is an integral part of the Royal Mail
Group. As such, the company and its sole shareholder, the Government,
has previously allowed reserves that have been built as a result
of the letters monopoly to be used to finance essential investment
and modernisation processes within POL that could not be funded
elsewhere, such as the Horizon Platform. However, if funding for
the Horizon platform was required today, it could not be met from
central Royal Mail reserves, as Royal Mail priority need for investment
is to position itself to face competition and liberalisation in
the letters market.
6. We share Postcomm's concern about the
review of the Directly Managed network being undertaken separately
and at a different pace from the urban network reinvention programme
(Building a viable network: Postcomm's fourth annual report on
the network of post offices 2003-04.) We concur that the absence
of certainty over the future of a Directly Managed Branch in any
one area must, to some extent, undermine the credibility of decisions
taken over the neighbouring network of sub-post office branches
as such decisions will necessarily have been taken on the assumption
that the Directly Managed Branch was available to act as a receiving
branch. The review of the Directly Managed Branch network must
take account of any assumptions made about specific Directly Managed
Branches during the implementation of the urban reinvention programme.
EXTERNAL PRESSURES
ON THE
POST OFFICE
NETWORK
7. The Post Office's foundations are now
being undermined by a number of external forces;
(a) Effects of Competition,
EFFECTS OF
COMPETITION
8. The 2000 Postal Services Act provided
legislation to allow competition into the UK postal market and
to end Royal Mail's monopoly. It also established Postcomm as
the industry regulator and Postwatch as the industry's watchdog.
9. Postcomm's remit concerning the Post
Office network is purely advisory. It has no direct regulatory
role by comparison with the letters market and as such less leverage.
In our view, Postcomm's proposals concerning Market Opening and
competition have failed to take into account the potential effects
on the Post Office network. As stated previously, Royal Mail's
reserves are now concentrated on preparing for competition with
the possibility of full market opening as early as January 2006.
There is much less potential for the more profitable parts of
the business to subsidise the less profitable, even if the ultimate
aim is to improve the general infrastructure and level of service
to the public.
10. Furthermore, the current status of Royal
Mail as a public limited company with the Government as its only
shareholder adds to confusion about the fundamental role of the
Post Office network. On one hand, post offices are regarded as
providing an important social function, particularly in rural
areas. On the other hand, Royal Mail is expected to operate along
the same lines as a private company in terms of financial performance
and delivering a profit. To this end, Royal Mail has embarked
on an ambitious three-year renewal plan that has focussed on returning
a £400 million operating profit at the expense of service
delivery and quality. It has also resulted in job losses of around
30,000, including 3,000 managers with a wealth of experience and
expertise leaving the business.
11. This dual role cannot be sustained and
needs to be fundamentally addressed by the Government. If Post
Office Ltd is expected to maintain its social and community function,
which is never going to be commercial unless vast swathes of the
urban and rural networks were closed down, the government and
the public need to accept and continue to pay for it. It also
needs to take a long-term decision about the future funding of
Post Office Ltd. If it is decided that the Royal Mail monopoly
should no longer support the Post Office network, a strategy that
has worked for the last 200 years, alternative funding must be
provided.
12. This confusion about the role of the
Post Office is reflected by Postwatch's recent attention on queuing
times, and the use of these as a performance target. Directly
Managed Branches (DNBs) in particular are a victim of this scrutiny,
especially in some urban geographical areas where there are staff
shortages or where sub post offices have been closed. In our view
queuing times are not always a negative issue for customers, some
of who will perceive the post office queue as a point of social
contact. For others queuing times are no worse than in other comparable
organisations. DMBs are in a better position to sell the Post
Office's range of new products than sub post offices that will
also be pushing their sidelines—or those of other businesses—that
they find more lucrative.
13. In reality DMBs can more effectively
generate revenue by increasing their sales through direct communication
with their customers than by quickly rushing them through the
door. However, there is a danger that Post Office Ltd will invest
more time, money and energy in reducing queuing times than in
selling its products and establishing itself even more firmly
as a community resource. There is also the potential damage to
customer perception of the Post Office if it is constantly portrayed
in a negative light which will lead to a decrease in footfall.
GOVERNMENT POLICY
14. The Benefits Agency decision to move
to direct payment has had a severe impact on the Post Office network.
An estimated 40% of income has been lost as a result of direct
payment with the consequential drop in footfall leading to a reduction
in retail sales. The loss has been greatly aggravated by the convoluted
and over complicated method for customers to obtain Post Office
Card Accounts. The effects of direct payment have been well documented
and the subject of a previous Select Committee Inquiry last year.
It was therefore disappointing, to say the least, that the Government
chose to largely ignore the recommendations made in the Select
Committee's report following the inquiry. ("People, Pensions
and Post Offices: The impact of `Direct Payment' on post offices
and their customers")
15. The loss of income generated by direct
payment must be replaced by alternative revenue if the Post Office
network is to be sustained.
REDUCTIONS OF
DIRECTLY MANAGED
BRANCHES (DMBS)
16. Over the past decade, a considerable
number of directly managed branches have ceased to come under
Royal Mail's direct control, either through closure or conversion
(franchising). In 2003-04, there were eight closures and eight
franchises of DMBs. Some 560 DMBs remain and the possible outcome
of Royal Mail's current review of its directly managed network
could result in the loss of over half of that total. The closure
of a DMB should only be made following a thorough assessment of
the impact on the public and community it serves and the availability
of alternative provision. Closures of DMB's tend to controversial
due to their prominent geographical position and disproportionate
effect on vulnerable groups. Once a post office is closed, the
service is lost and there currently exists no means for it to
be reinstated. There is clearly no way that the network can afford
to lose half of its DMBs, responsible for over 15% of volume,
and alternative ways of addressing the current losses sustained
should be sought, as we set out below.
17. Previously conversion has been the preferred
option of the Post Office/Royal Mail. Conversion puts the number,
management and most crucially the reward structure of staff in
the hands of a franchisee. Post Office Ltd receives a payment
from the franchisee and transfers to the franchisee all the costs
associated with direct management. As a consequence, franchisees
recruit staff at lower pay and conditions than exist in the Directly
Managed network and then go on to take higher rewards than are
available to existing management.
18. In the past, DMB employees, to assist
a conversion, have been provided with other work across Royal
Mail or have taken severance at terms they found acceptable. This
is no longer the case as a result of changes bought about by the
Royal Mail renewal plan. Finding alternative employment elsewhere
in Royal Mail is far more difficult than before and Royal Mail
has already signalled its intent to reduce severance terms, particularly
for employees over 50.
19. As a result of this, managers in Directly
Managed Branches now wish to exercise a choice between remaining
with the Royal Mail, severance and working for the new franchisee.
As a union, we believe that long serving and committed managers
should be offered that choice.The new franchisee will have to
offer those who wish to remain in the Branch the terms and conditions
protected by legislation, in particular the Transfer of Undertakings
(Protection of Employment) Regulations (TUPE) and the European
wide Acquired Rights Directive, pay and severance included. Moreover,
the Post Office is bound by the Cabinet Office Code of Practice
to offer broadly equivalent pensions. The failure to attract franchisees
has been blamed on perceived high wages of Post Office employees.
In fact, DMB managers are not excessively remunerated. Managers
have a remuneration package judged at%just above the median of
outside counterparts (Hay Benchmarking). In respect of pensions,
most managers and staff are members of the Royal Mail Pension
Plan. This scheme is judged to be below the upper quartile of
defined benefit schemes.
20. The new franchisee will have to offer
those who wish to remain in the Branch the terms and conditions
protected by legislation, in particular the Transfer of Undertakings
(Protection of Employment) Regulations (TUPE) and the European
wide Acquired Rights Directive, pay and severance included. Moreover,
the Post Office is bound by the Cabinet Office Code of Practice
to offer broadly equivalent pensions. The failure to attract franchisees
has been blamed on perceived high wages of Post Office employees.
In fact, DMB managers are not excessively remunerated. Managers
have a remuneration package judged at just above the median of
outside counterparts (Hay Benchmarking). In respect of pensions,
most managers and staff are members of the Royal Mail Pension
Plan. This scheme is judged to be below the upper quartile of
defined benefit schemes.
21. Furthermore, franchising also could
lead to longer waiting times for customers because of a reduction
in the number of counters, a point highlighted in the Postcomm
Fourth Annual Report on the Network of Post Offices published
in October 2004.
22. It is our view that for the above reasons,
conversions would not be a viable solution to resolving the financial
position in the directly managed segment.
REDUCING THE
DEFICIT
23. We believe the DMB deficit can be reduced
by a number of measures. These include:
(a) Increasing product range
We support and commend the efforts of David Mills,
Chief Executive of Post Office Ltd, to increase the range of products
available. We believe that these offers offer the opportunity
to generate new business and improve financial revenue. In overall
terms, sales revenue in Post Office Ltd increased by £78
million or 9% in 2003-04. A significant element of this improvement
is through new products such as E-top ups (where Post Office Ltd
is now second to Tesco), growth in the Bureau de Change business
(where Post Office Ltd is now number one in the provision of foreign
currency), other financial products and an enhanced marketing
strategy.We are disappointed however that some of the major Banks—HSBC,
HBOS, and RBS—continue to refuse to allow their customers
to draw cash from Post Office counters and play a full part in
helping to preserve the future of the Post Office network. We
would wish to see this highlighted and these banks positively
encouraged to enter into arrangements with Post Office Ltd as
have many other banks.
As a retail provider the Post Office must contribute
to its costs by increasing its sales. Issues such as queuing times
should not sidetrack it from this primary function which provides
essential revenue.
All staff must be provided with adequate training
to sell Post Office products and adequate training time should
be afforded to all managers to fully equip their staff.
(d) Improved Operational Efficiency
Opportunities for greater operational efficiency
need to be identified. Amicus has long contended that DMBs lack
managerial resource. Royal Mail remains a highly industrialised
environment in which to work and greater managerial presence is
needed to ensure effectiveness. However, last year Royal Mail
axed 3,000 manager jobs with the resultant loss of experienced
managers leaving the business. Furthermore, our own research reveals
the high level of stress related illness among Post Office managers
as a result of working excessive hours. POL needs to invest in
its staff to achieve greater operational efficiency and not strip
itself of a most important asset.
Part of the cost of the DMB segment relates to
accommodation. Many of the sites now charge greater rent than
previously and lease renewals constantly increase costs. The location
of DMBs is critical to the service provided yet at the same time
can add to the burden of costs. Many offices occupy large spaces
that are now unwarranted, for example from the days when the sorting
office was also on the premises. Opportunities for resiting or
relocation of DMBs should be vigorously and actively pursued.
As stated above, DMBs are a neglected area. The
accommodation in very many instances could be made more inviting
and more comfortable for the customer. The "Next Generation"
offices such as the pilot office at North Finchley have proved
successful in increasing customer footfall and resultant sales.
Refurbishment of these post offices would require substantial
investment. However, the urban reinvention programme earmarked
£30 million for the refurbishment of sub post offices and
in our view similar investment should be provided for the Directly
Managed Branches.
The correct focus on a new product range and
increased sales requires Post Office Ltd to re-examine how it
can best provide incentives to staff to sell more of its offers.
A fresh approach to incentive arrangements will improve sales
possibly by quite a significant amount.
There is spare space in a number of DMBs, perhaps
about 50. This space should be exploited from a commercial point
of view, for example to sub-let to other businesses or to develop
as internet cafes, Government and local community information
kiosks and so on.
The post office provides an important social
role within the community. There is value in exploring whether
contributions should be sought from other avenues to maintain
this role, eg local authorities and whether a greater obligation
should be placed on banks and other financial providers to extend
their services to Post Office Ltd.
The Government has committed £450 million
to maintain the rural post office network and established a fund
to maintain deprived urban post offices. Post Office Ltd does
not receive funds to support its Directly Managed Network, a segment
that has suffered much under funding in almost all aspects in
the past decade. We would wish to see direct support by the Government,
on similar lines to the rural network, to maintain the Directly
Managed Branches where appropriate and necessary to maintain the
community and social service.
CONCLUSION
24. The Post Office is the nation's most
loved and most trusted network. All parties tend to agree that
it is a welcome part of the social fabric of the nation.
25. Its positioning within Royal Mail has
helped it achieve such status and provided the necessary finance
for its public service to continue. Its work on behalf of the
Benefits Agency provided it with a very substantial part of its
income. However, external changes as the result of competition
and government policy in other departments have led to a loss
of income for the Post Office and alternative revenue needs to
be sought.
26. The Government now has to subsidise
the rural network and substantial amounts of money are required
to regenerate the urban network. No government monies have been
made available to the directly managed sector. This sector has,
in any event, been neglected over the years. Major refurbishment
is required to accommodation, and a fresh and clear focus on sales
is required with the necessary back-up resources.
27. Conversions are no longer a sustainable
method of transferring post offices away from the direct management
of Royal Mail. Greater incentives would need to be offered to
franchisees in order to protect the employment rights of Post
Office Ltd employees who transfer through conversion.
RECOMMENDATIONS
28. Amicus invites the Select Committee
to consider the following recommendations:
(a) A complete review of strategy should
take place in respect of the future for Royal Mail as a whole
to embrace the hitherto neglected issue of the impact of Postcomm
regulation of the Royal Mail Letters business on the Post Office
network.
(b) The review of Directly Managed Branches
by Post Office Ltd should not be separated from the network reinvention
programme. The future of such post offices should be assessed
by local need for postal services as part of a strategy for the
whole of the Post Office network. It should not be solely financially
driven nor by the ease of property sale, conversion to franchised
operation or closure.
(c) The social role of the Post Office network
needs to be defined and a commitment made to fund it. Contributions
from organisations who benefit from the Post Office, such as other
retailers, banks, local authorities could be sought.
(d) Post Office Ltd and the unions (Amicus/CMA
and CWU) should be urged to conduct a thorough review with the
aim of improving efficiency and productivity in the directly managed
sector.
(e) The Government should consider whether
an Urban Network Payment would be appropriate to meet the costs
of the directly managed sector as a whole and/or for specific
offices, as an interim or ongoing measure.
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