APPENDIX 8
Memorandum by the Federation of Small
Businesses
1. INTRODUCTION
1.1 With over 190,000 members, the Federation
of Small Businesses (FSB) is the UK's largest lobby organisation
representing the interests of small businesses and the self-employed.
1.2 The FSB welcomes the opportunity to
submit written evidence to the Committee's inquiry into Royal
Mail after liberalisation. The FSB maintains a neutral stance
on liberalisation of the postal market. We understand that in
January 2006, the market will be working within the parameters
of liberalisation.
1.3 This evidence concentrates on the nature
of small business use of the postal market and the concerns that
the small business community has about opening up the postal service
market to competition.
2. THE IMPACT
OF LIBERALISATION
OF THE
POSTAL SERVICE
MARKET ON
THE QUALITY
OF POSTAL
SERVICES
2.1 The liberalisation of the postal service
market is a contentious issue amongst FSB members. Members tend
to fall into two camps on liberalisation—those who welcome
liberalisation and look forward to using other postal service
operators and those who are against liberalisation. This group
considers that liberalisation will be to the detriment of the
current postal service. It is likely that the latter group of
members will continue to use Royal Mail.
2.2 The FSB hopes that liberalisation will
impact favourably on the postal service market. The FSB welcomes
the maintenance of quality of service targets, which will be one
way of achieving the favourable impact mentioned above. Royal
Mail's service performance will be measured through targets and
this will also give newer companies a baseline on to which they
can measure their own services.
2.3 The FSB considers that liberalisation
of the market may improve the postal service that SMEs experience.
Historically, SMEs have not been able to benefit from Royal Mail's
best value business services because they are available only to
larger businesses. The majority of SMEs do not send enough mail
to benefit from a lot of the bulk mail schemes (eg: Mailsort,
Walksort, Presstream). SMEs have to pay to be able to collect
their post before 8 am. There is no evidence of mitigation benefits
for SMEs under the new pricing in proportion scheme.
2.4 The FSB believes that the New Zealand
model of liberalisation would be a positive way for the UK's postal
market to develop. Although only 7% of the market has opened up
to competition in New Zealand, this has led to specialist small
business suppliers and the creation of niche markets in certain
areas, meaning postal supplies to the highlands and islands has
not been compromised and the SME community is getting better deals
from their postal service.
3. THE THINKING
BEHIND POSTCOMM'S
DECISION TO
OPEN UP
THE UK MARKET
BEFORE THE
REST OF
EUROPE AND
THE ABILITY
OF ROYAL
MAIL TO
COMPETE IN
THE OPEN
MARKET
3.1 As mentioned above, the FSB understands
and accepts that all postal services in the EU area will eventually
be liberalised. Postcomm's decision to open up the market earlier
than other EU countries was taken after Royal Mail announced a
return to profit. In spite of a return to profit, Royal Mail still
has expensive infrastructure that it must maintain in order in
achieve business success. In comparison, newer or smaller postal
service businesses may not be exposed to such infrastructure.
3.2 However, the FSB notes that in spite
of liberalisation, Royal Mail will maintain an advantage over
other postal companies because it is exempt from VAT and is such
a long-established business, with nearly 400 years' service. It
is difficult to predict how liberalisation will affect the postal
market with such opposing factors on each business side.
4. POSTCOMM'S
PROPOSALS FOR
THE FUTURE
OF POSTAGE
PRICES IN
THE UK, INCLUDING
THE PROPOSED
METHODOLOGIES FOR
SETTING POSTAGE
PRICES
4.1 The FSB did not respond to the Postcomm
consultation about stamp prices. However, the main thrust of the
proposals to maintain average customer prices, with the prices
not rising above certain levels until 2010, is welcomed. The proposed
prices should enable Royal Mail to sustain profitability and offer
a better service, whilst remaining competitive—services
are changing and cross-subsidisation of services is ending with
the introduction of "Pricing in Proportion". Reasonable
but slightly higher prices for stamps should also force other
postal companies to remain competitive and offer good value for
the consumer, if they are to compete directly with Royal Mail.
4.2 The FSB should like to caveat the above,
however, by stating that prices should remain static until there
is an improvement in Royal Mail's service. Strong anecdotal evidence
suggests that a significant proportion of FSB members have experienced
problems with their postal services (please see below for comments
from FSB members). SMEs need a reliable postal system for three
main reasons:
— Cash flow: for payments to the business
and to pay others.
— Delivery times: to ensure that cash
flow operates smoothly.
— To retain a competitive edge: when
tendering for business contracts or sending items to customers
by post.
". . . there is evidence in this area (Bolton)
that businesses and households do not have a daily delivery. The
experience seems to be that in a particular area some roads can
be missed for a delivery because of shortage of people. This certainly
happens to me as I regularly do not have a delivery on a Monday."
"Daily deliveries are extremely important
for businesses—whatever their size. In fact, daily deliveries
are probably more important for micro/small businesses than for
larger ones—who often have personal collections as well.
And if you have a 1st class post—then checking daily deliveries
is the only way to monitor the effectiveness of 1st class versus
2nd class."
"One current issue that I think vexes small
businesses is the crazy price of the otherwise superb Royal Mail
Special Delivery Service [well it was superb when there was a
nearby Post Office to take the package to!!!]. We cannot understand
the jumps through 100g, 500g, 1kg, 2kg and then a whopping leap
to 10kg. At £250 compensation, that goes from £6.55
to £18.50 in one leap."
"The second point is of course, delivery
times which vary enormously, not necessarily according to where
one happens to live. This has become so inconsistent that the
problem has had a knock-on effect to small businesses that might
be tendering for business, for example and lose out through delay
to another company who just happens to enjoy a better service."
"Recently the service received in this
area (Rural Aberdeenshire) has deteriorated substantially—frequently
the post does not arrive until after lunch time (once recently
at 15.45)—as the last collection from the village is at
16.45 it does not give customers much time to reply on the same
day and too late to put any cheques received into the bank (bank
cheque clearing times are bad enough as it is without adding another
day to them). There are quite a number of small businesses who
work from home in this area (10 full- or part-time in my street
alone) who rely on the Post Offce."
"Why is there no commitment to deliver
post in the morning, next day? I tend to wait an average of four
to five days before post arrives from within UK. Why? Cash flow
is critical if receiving cheques, or awaiting important documentation
where any delay could mean losing competitive edge."
5. THE CONTINUANCE
OF ROYAL
MAIL'S
UNIVERSAL POSTAL
SERVICE OBLIGATIONS
5.1 It is imperative that the universal
service obligation (USO) is maintained in the long term. As mentioned
above, Royal Mail has VAT exemptions and a long-established business.
This leaves Royal Mail at an advantage, which other, newer postal
operators will not have. The FSB believes that newer companies
are more likely to set up in areas that have historically been
more profitable.
5.2 Maintaining the USO is also important
because RM hopes to be able to continue to supply the whole of
the UK, including the highlands and islands. The FSB believes
that liberalisation must protect the postal services for all users—particularly
those in rural areas and the more vulnerable members of society.
30 September 2005
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