Postal Services Bill

MEMORANDUM SUBMITTED BY THE COMMUNICATION WORKERS UNION (PS 17)

SUMMARY

· Richard Hooper’s analysis of Royal Mail is fundamentally flawed and is a false premise for privatisation. We call upon the committee to review Richard Hooper’s research and analysis and to commission a genuinely independent assessment of Royal Mail’s performance, modernisation and its future financial requirements.

· The government’s proposals undermine the shared vision of the Business Transformation agreement reached between Royal Mail and the CWU, which is central to the future success of the business. The committee must understand that the industry will not succeed without the successful deployment of this agreement.

· The government must gain a better understanding of the agreement, look at the evidence and recognise that working with the union is the only way a successful programme of employee engagement will be achieved.

· Modernisation is happening successfully in the public sector. Privatisation will hinder not help this process.

· The government’s claim that access to private capital is essential to allow Royal Mail to complete modernisation is incorrect. The committee must undertake an independent analysis of Royal Mail’s business plan.

· The government’s argument on access to capital rests on the false assumption that publicly-owned organisations cannot have access to private capital. Given the risks entailed by privatisation, the government has a duty to explore alternative mechanisms through which Royal Mail could have access to capital.

· The Postal Services Bill threatens the future of the universal postal service. The committee must carefully consider the threats posed to the long-term future of the universal service.

· The separation of the Post Office from Royal Mail fundamentally threatens the future of the Post Office network. The Bill does nothing to guarantee an inter-business agreement between the two companies.

· Royal Mail needs the freedom to compete fairly. Substantial deregulation of the postal market is essential.

· Action on the pension deficit is a welcome fulfilment of the government’s duty. The Bill must be carefully scrutinised to ensure members’ benefits are protected long term. The policy is not contingent on the privatisation of Royal Mail. The CWU must be fully consulted on changes to the pension scheme.

Part 1: Richard Hooper’s flawed analysis a false premise for privatisation

1. The government has relied heavily on the conclusions reached by Richard Hooper to justify its proposed privatisation of Royal Mail. However, this analysis is flawed and its conclusions have been shaped by the agendas of two successive governments.

2. Background: Prior to the commencement of the original Hooper review in 2007, the CWU had been calling for an independent review of the impact of liberalisation and competition on Royal Mail.

3. The 2005 Labour Party manifesto stated that: "We will review the impact on the Royal Mail of market liberalisation."

4. The first term of reference of the original Hooper report was to: "assess the impacts to date of liberalisation of the UK postal services market, including on the Royal Mail, alternative carriers and consumers". Hooper’s initial terms of reference did not call on him to consider alternative ownership models.

5. The interim Hooper report: Hooper’s interim report, published in May 2008 endorsed many of the arguments put forward by the CWU in our first submissions to the team. The report acknowledged that competition had worsened service provision for millions of small businesses and domestic customers, stifled product innovation and created financial problems for Royal Mail that threatened its long-term commercial viability.

6. Hooper’s Modernise or Decline report: Hooper’s second report, published in December 2008, changed tack dramatically. Along with recommending changes to regulation and recognition of government responsibility for the pension deficit, the report argued that the only way the company could modernise and survive was through part-privatisation. The change of emphasis in the report followed Lord Mandelson’s appointment as Secretary of State for Business and the pursuit of a part-privatisation agenda.

7. The analysis contained within the report, on international comparisons, prices and efficiency was based on the selective use of information whose conclusions do not stand up to robust analysis. Hooper’s arguments have been largely discredited in the paper "CWU Response to the Hooper Review" and Compass’s two papers "Case not Made" and "Modernisation by Consent".

8. Hooper’s position relied heavily on the argument that Royal Mail needed to modernise, to do this it needed foreign expertise from a company that had undertaken similar network change, and the only way to acquire this was through a strategic partner. Hooper argued that such expertise could not be ‘bought in’. Two years on and Royal Mail is modernising successfully in the public sector with expertise from a new foreign chief executive. A strategic partnership was not necessary.

9. Hooper’s 2010 report: The coalition government re-engaged Hooper to update his report in the summer of 2010. This slimmed-down report was produced by a reduced team - Richard Hooper alone without his previous review team colleagues. The report’s publication was preceded by the Minister Ed Davey making clear he intended to sell Royal Mail and separate it from the Post Office.

10. The report recommends privatisation, going further than two years previously to suggest a full share sale. The report reflects Liberal Democrat policy by also recommending an employee share scheme, which was absent from his original report.

Hooper’s flawed argument for privatisation

11. Hooper’s argument for privatisation runs as follows: (1) Royal Mail needs to modernise to survive; (2) the only way for Royal Mail to modernise is through access to private capital; (3) The only way Royal Mail can access private capital is by being privatised. Therefore, he concludes, Royal Mail must be privatised.

12. This argument is flawed; the evidence does not support this conclusion. Royal Mail does need to modernise to survive, that is why the CWU has worked hard to guarantee the success of modernisation through the Business Transformation Agreement. But it is not correct that Royal Mail needs access to capital to do this. Royal Mail is currently modernising successfully; the modernisation programme is fully funded and Royal Mail does not need additional capital to see it through this modernisation programme.

13. Richard Hooper has not been able to explain how much capital is needed or what it is needed for. In his evidence to the Postal Services Bill committee he admitted that

"I am not privy to Royal Mail’s confidential five-year plans".

14. He is not therefore able to verify the key premise to his argument. The CWU has been privy to this information and is clear that Royal Mail can successfully continue its modernisation programme without access to additional capital.

15. Royal Mail can does not need privatisation to access private capital. Royal Mail could be given access to private capital while remaining in the public sector. Canada Post was able to successfully grow because of its access to private capital. Public bodies such as Network Rail, the BBC, Welsh Water and potentially NHS Hospital Trusts are able to borrow private capital. There is also potential for capital to be raised by issuing bonds. The Minister has acknowledged that it is possible to access private capital while remaining in the public sector. He has provided no convincing argument as to why this should not happen.

16. Given the very real dangers of privatising Royal Mail and separating it from the Post Office, it is imperative that we have a better explanation of why private capital can only be accessed through privatisation. In the words of the Business and Enterprise Select Committee 2009 report on the Postal Services Bill:

"It is entirely unacceptable for Parliament to be asked to approve such fundamental changes to Royal Mail Group when there is no indication of how much money Royal Mail Group needs for investment and while the Government appears to have no business plan and has not indicated the use to which any private sector cash would be put."

17. We reject the notion that Richard Hooper’s report is independent and we believe the evidence he has provided and the analysis on which his conclusions are based is flawed. We do not believe Richard Hooper’s work stands up to robust independent analysis.

18. We call upon the committee to review Richard Hooper’s research and analysis and to commission a genuinely independent assessment of Royal Mail’s performance, modernisation and its future financial requirement.

Part 2: The Business Transformation Agreement underpins modernisation and the future of Royal Mail

19. The Business Transformation Agreement is fundamental to Royal Mail’s future. Its importance cannot be overstated. It is the result of months of painstaking negotiations and is an agreed plan to radically transform every aspect of Royal Mail’s operations in order for the business to survive and prosper in a changing market. It is the successful deployment of this agreement that will ensure Royal Mail has a future.

20. The relationship between the union and Royal Mail is fundamental to the future success of the business. Much time and energy has gone into shaping the agreement to reflect the importance of improving industrial relations and employee relations.

21. Both Royal Mail and the CWU agree that central to the success is the need to fundamentally transform relationships and to build a culture of mutual interest between managers, union and employees. These principles are defined in the ‘Relationships’ section of the agreement.

22. The agreement includes a shared vision for the future, for customers, employees and the business. That shared vision includes the following statement:

"A Royal Mail brand that is strong and successful commercially and is proud of its social responsibilities, retaining its public service ethos in a modern and dynamic setting."

23. The agreement goes on to state:

"Having agreed a shared vision of modernisation both parties will focus all our efforts on working together to deliver that vision in a way that continues to align the interests of customers, the workforce and the company as a whole."

24. Both parties have signed up to a shared vision of Royal Mail that includes the retention of Royal Mail’s public service ethos. Members voted overwhelmingly to ratify the agreement. The government’s privatisation proposals undermine this key element of the modernisation agreement.

25. The government clearly does not fully understand the content of the agreement and how it addresses the concerns of the 2008 Hooper report. The agreement allows for the deployment of new machinery, it recognises that jobs will be lost and puts in place mechanisms to allow the company and union to deal with this. It enables widespread operational change in deliveries and processing, including World Class Mail centres. It also includes a reward package to provide ongoing improvements to employees’ terms and conditions alongside changes in working practices.

26. The scale of change being undertaken at Royal Mail is huge, it must not be underestimated. The pace of change can only be dictated by that with which people can cope.

27. All parties need this agreement to succeed if we are to see a Royal Mail fit for the future. The government knows a new regulatory regime and access on the pension deficit is vital if they are to be able to sell Royal Mail. The successful deployment of the modernisation agreement is even more essential, regardless of the future ownership of Royal Mail.

28. The CWU has genuine and legitimate concerns that the government’s proposals could disrupt or stop modernisation in its tracks. Royal Mail employees agreed to major change through the Business Transformation Agreement. They signed up to a shared vision for the future that did not include privatisation. In pushing forward with these proposals the government is undermining the most important element on which Royal Mail’s future depends.

29. The government’s proposals undermine the shared vision of the Business Transformation Agreement, which is central to the future success of Royal Mail. The committee must understand that the industry will not succeed without the successful deployment of this agreement.

Part 3: Imposing a top-down employee-share scheme will not improve employee engagement

30. The government must look closely at what it is trying to achieve by offering staff 10% of the business in shares. If the government is trying to motivate and engage employees in the decisions of the company, it must recognise that this was the objective and the outcome of the Business Transformation Agreement.

31. Employee engagement cannot be achieved by bypassing employee representatives and imposing a top-down scheme that ignores the reality of employee engagement on the ground. To have any effect such a scheme has to be properly negotiated. The government is seeking to impose a ready-made policy while ignoring the solutions that have already been designed by industry experts.

32. A pseudo share scheme, ColleagueShare, worth an estimated 20% of the value of the company, has been in operation in Royal Mail since 2007. This was also imposed and while diverting in the region of £1bn in funding it achieved nothing in aligning the interests of employees with the company.

33. The government must gain a better understanding of the agreement, look at the evidence and recognise that working with the union is the only way a successful programme of employee engagement will be achieved.

Part 4: Royal Mail is modernising successfully in the public sector

34. Royal Mail has been undergoing a significant programme of modernization since 2008. Between 2008 and 2010 costs in Royal Mail Letters reduced by almost £400m and its profit margin, according to figures published in the 2008 and 2010 Hooper reports, increased from 0% in 2007 to 4.3% in 2009, an improvement delivered against a backdrop of falling mail volumes and recession.

35. This performance compares favourably with European competitors, notably TNT and Deutsche Post – held up as examples of efficient privatized postal operators by the original Hooper Report – whose profit margins fell from 14.8% to 8.0% and from 12.9% to -1.5% respectively over the same period, while experiencing lower declines in mail volumes and shorter recessions than Royal Mail faced in the UK.

36. Under its programme of modernization, the amount of mail being walk-sorted by Royal Mail has increased from 70% to 83%, acknowledged by Hooper to be ‘close to best in class’, and 100 walk-sequencing machines have been installed; the business is on course to walk-sequence 75% of mail by 2013, again close to leading European operators’ figures cited in the updated Hooper Review.

37. This next phase of modernization provides for major change to the mail centre network, the roll out of walk-sequencing machines and changes to working practices. Significant progress has been made on each of these fronts. The number of mail centres has been reduced from 69 at the time of the first Hooper report to 57 today.

38. Meanwhile half of all new machines have been installed and nearly a quarter of all delivery office revisions have been deployed. Revisions will continue over the next three years incorporating the impact of new walk-sequencing revisions.

39. The modernization of the business is progressing well. In the words of Chief Executive Moya Greene:

"the modernisation programme, which is well under way in Royal Mail and has generated significant change and improved the efficiency of our operation. It is a huge thing-this is a very large company. We are probably mounting a modernisation programme faster than anywhere else in the world."

40. Modernisation is happening successfully in the public sector. Privatisation will hinder not help this process.

Part 5: Access to private capital is not necessary to complete modernisation

41. The government’s argument for the privatisation of Royal Mail is entirely premised on the need for private capital.

42. There are three strands to the government’s policy for securing Royal Mail’s future: a new regulatory regime, action on the pension deficit, and privatisation.

43. The CWU has been consistently clear in its support for the fist two of these options. While we have concerns over the content of the Bill and how effectively it will secure these first two considerations, we are in no doubt as to the need to act.

44. The CWU opposes the third strand of the government’s proposals, privatisation, on the grounds that it will be damaging to the universal service and the post office network and that it is unnecessary to achieve the objectives the government purports to be aiming to achieve.

45. The government has repeatedly stated that the three policy strands must be taken together. That, in the words of Richard Hooper:

"You cannot go à la carte; this is a three-course meal and you have to consume it as such"

46. This is an unfounded assertion. There is no reason why action on the pension deficit and regulation should be contingent on privatisation. The sole reason given by Richard Hooper for this is that one cannot expect the taxpayer to take on the pension deficit without a guarantee that modernisation will accelerate.

47. Privatisation makes no guarantee that modernisation will accelerate. Privatisation will bring no additional capital to the current modernisation programme. Revenue from the sale of Royal Mail is earmarked for the Exchequer, it will not go towards Royal Mail’s modernisation. Should a private shareholder in Royal Mail see fit they may choose to invest in Royal Mail. There is no guarantee that they will do so. They may just as easily asset-strip the business, take the proceeds of sale from Royal Mail’s profit-making parcels businesses GLS and Parcelforce and then walk away. Moreover, privatisation will not take place until the current modernisation programme is all but complete.

48. The removal of the pension deficit and a new regulatory regime in the public sector provide a stronger guarantee of successful modernisation. Relieving Royal Mail of the annual pension deficit repayment will save the company close to £300m a year. Postcomm is minded to accept a set of regulatory changes that will bring Royal Mail additional revenue worth at least £75m and Royal Mail has recently requested further changes which would allow up to a further £100m a year. The combined effect of these changes will have a huge effect on improving Royal Mail’s finances.

49. The government cannot ignore these benefits. If it insists that this is insufficient additional capital it must explain why; it must explain Royal Mail’s specific capital requirements.

50. When asked by the Postal Services Bill Committee on 11 November to estimate the extent of Royal Mail’s private capital requirement Ed Davey responded that:

"The truth is that I do not know."

51. The government relies heavily on Richard Hooper’s evidence when arguing that Royal Mail needs access to private capital. The Department for Business Innovation and Skills (BIS) policy document accompanying the Bill states:

"Richard Hooper makes clear that Royal Mail needs access to private sector capital in order to modernise."

52. But as we know (see part one above) Richard Hooper does not have the information necessary to draw this conclusion. He has not seen Royal Mail’s five-year business plan. The government cannot rely on Richard Hooper’s claim to justify privatisation.

53. The government is basing its argument for privatisation on a loose assertion that Royal Mail needs swift access to additional private capital in order to modernise. This is not the case and neither the Minister for Postal Affairs nor Richard Hooper has reliably justified this assertion.

54. The CWU has seen Royal Mail’s five year business plan. We know Royal Mail’s business plan is fully funded. Royal Mail’s finances are tight, but nevertheless Royal Mail expects to complete modernisation and be making healthy profits - close to the maximum it would expect the regulator to allow - by the end of the business plan in 2012/13. Moreover, Royal Mail’s business plan takes account of declining mail volumes. A 5% year-on-year volume decline has been factored into the business plan and despite this market contraction Royal Mail expects to successfully complete modernisation and start making healthy profits.

55. The government’s claim that access to private capital is essential to allow Royal Mail to complete modernisation is incorrect. The committee must undertake an independent analysis of Royal Mail’s business plan.

Part 6: Long-term access to private capital is possible in the public sector

56. The CWU has consistently argued that access to additional capital in the medium term is desirable to allow Royal Mail to invest in growth and the innovation of new products and services.

57. Given that access to private capital is not necessary to complete the current modernisation programme, this longer term access to private capital becomes the government’s central argument for privatisation - the view that such access is only possible in the private sector.

58. This is not a sufficiently strong argument. Given the risk to the universal service and the post office network of privatisation and overwhelming opposition to it among voters - a YouGov poll for the CWU in August 2010 found that 60% favoured keeping Royal Mail as a wholly publicly-owned organisation, compared with 15% in favour of full privatisation and 13% in favour of selling a minority stake - the government has a duty to fully explore alternative options.

59. Moya Greene, Royal Mail’s new chief executive, has come to the business following the successful management of the publicly-owned Canada Post. When asked how Canada Post was able to undertake significant investment while remaining in the public sector her position was clear: Canada Post is free to borrow private capital.

60. As Moya Greene said in her evidence to the Committee on 9 November:

"It has always been my view that the source of the capital is not a determinant of whether a company is a good company".

61. The majority of incumbent postal operators in western economies remain publicly owned. The United States, Canada, Australia, France, Italy, Spain, Switzerland, Ireland, Finland, Israel, Japan, Norway have all retained fully publicly-owned postal services [1] .

62. The government’s argument on access to capital rests on the false assumption that publicly-owned organisations cannot have access to private sector capital. Given the risks entailed by privatisation, the government has a duty to explore alternative mechanisms through which Royal Mail could have access to capital.

Part 7: Privatisation will undermine the universal postal service

63. The government state that their core objective is the protection of the universal postal service. The answer to universal service protection is not privatisation.

64. The universal service is costly to provide, but it is a public service, and a vital infrastructure that supports the UK economy. While the postal market may be changing, the universal service remains central to business in the UK.

65. A private company will not want to maintain the costly burden of the universal service. It will necessarily seek to reduce the scope of the universal service. To do otherwise would be to act counter to its commercial interests. We cannot expect a private company to act altruistically.

66. Recognition of the importance of the USO and action to protect its future is directed by government acting on behalf of the public. The public’s interests are better protected by a Royal Mail serving the interest of a government shareholder than by one serving the interest of a shareholder seeking to maximise its dividends.

67. In the Netherlands, where the universal service provider TNT is privately owned, within a year of the mail market being fully opened to competition in April 2009, the Managing Director of TNT’s European Mails Network declared that the USO was "a kind of Jurassic Park and we should get rid of it" [2] . The company plans to move from six deliveries of business-to-business and business-to-consumer mail a week to three. [3] It will only retain daily consumer-to-consumer deliveries in line with legal USO constraints.

68. The Postal Services Bill purports to protect the universal service by setting out a minimum universal service; however there are a range of clauses in the Bill that will provide Ofcom with the opportunity to alter the terms of the universal service.

69. The definition of the universal service is a bare minimum. It does not cover all postal products currently contained in the universal service. For example, it excludes the current bulk mail products on which many small businesses depend. In seeking to reduce costs, these items will go from the universal service.

70. While the Bill requires that prices be "affordable" this leaves wide scope for price rises. The Hooper report stated that the average weekly spend on postal services by residential households was 50p. There is arguably significant scope for price rises. While these may be deemed affordable they would be deeply unpopular and run counter to public perception of what it is to protect the universal service.

71. The Bill itself reflects the likelihood that privatisation will lead to reductions in the universal service by providing Ofcom with powers to review minimum requirements and to make recommendations for reduction to the Secretary of State - a power not previously provided to Postcomm - and for the Secretary of State to remove services from Ofcom’s first specification of the USO.

72. The Bill allows for Ofcom to make an assessment of the financial burden of the universal service on Royal Mail and to make recommendations for how to alleviate this burden. In such a situation Ofcom can again recommend to the Secretary of State that the minimum requirements of the universal service be reduced. We would expect to see a privately-owned Royal Mail exploit this option.

73. Alternatively, the Bill allows for the universal service to be split up among other privately-owned mail operators. This will have the same impact of ‘cream-skimming’ that we have seen with the loss of bulk mail to downstream access operators. Royal Mail’s competitors will take the more attractive areas of the universal service - deliveries in densely populated urban areas - leaving Royal Mail with the more expensive rural delivery routes and thus reducing the business’s ability to recoup the cost of the universal service.

74. Finally, the Bill refers to the "need for the provision of a universal postal service to be financially stable…[and] efficient". It will be for Ofcom to judge this efficiency. Postcomm has previously argued that Royal Mail is inefficient because its employees enjoy terms and conditions above the lowest it believes the market can bear - above the minimum wage. It is of major concern that Ofcom is being given the power to strip Royal Mail of its right to provide the universal service if it concludes the business pays its staff more than the minimum wage found at alternative postal operators.

75. The Postal Services Bill threatens the future of the universal postal service. The committee must carefully consider the threats posed to the long-term future of the universal service.

Part 8: Separation of the Post Office from Royal Mail will result in Post Office closures

76. The separation of the Post Office from Royal Mail fundamentally threatens the future of the Post Office network. The survival of the Post Office, in anything like its current state, is dependent on its relationship with Royal Mail. Mail products, and the customer footfall they generate, are the Post Office’s largest and most important revenue stream. Separation inevitably weakens the relationship between the two companies and makes future post office closures more likely.

77. In 2009/10 the Post Office received £343m in revenue directly from Royal Mail businesses; it has become increasingly reliant on its mails business, which accounts for just under 37% of its revenue.

78. It is essential that the Post Office retains Royal Mail’s business. There is no doubt that this is more difficult as a distinct business rather than a subsidiary. The Bill gives no guarantee of a long-term inter-business agreement. As the Minister Ed Davey said in his evidence to the committee:

"it is for the two companies, which will be separate and not in the same group, to reach that agreement"

79. This is a poor substitute for the current arrangements. When the agreement comes to be renegotiated there is no guarantee that Royal Mail will continue to use the Post Office as the primary retail outlet for some or all of its products. It will be a commercial negotiation out of which the Post Office is unlikely to fair well.

80. In private ownership Royal Mail would inevitably look to reduce its costs and the inter-business agreement with the Post Office would be no exception. In the debate over the second reading of the Bill the Secretary of State Vice Cable argued that:

"a privately owned Royal Mail will not act against its own commercial interests. It will not give up valued retail space in the heart of communities the length and breadth of Britain."

81. He is correct that a privatized Royal Mail will not act against its own commercial interests, but incorrect in supposing that its commercial interests will necessarily lie with the Post Office. Despite assurances the government is reported to be looking to award contracts for the provision of government services (the contract to pay out 400,000 "green giros" a week) [4] to the private sector. It looks to be turning away from this "valued retail space in the heart of communities". A privatized Royal Mail would do the same.

82. The Bill does nothing to guarantee the number of Post Offices in the UK. We know that a network of only 4,000 Post Offices would be economically viable [5] . The pressure on the Post Office’s finances as a consequence of separation will increase the likelihood of further closures, particularly in rural areas where Post Offices are particularly struggling.

83. There will also be significant costs arising from splitting the businesses and undermining the current natural synergies that exist in Royal Mail Group. Royal Mail’s Chief Executive, Moya Green, has stated that Royal Mail currently undertakes a number of central functions on the Post Office’s behalf worth around £150m per year for which no payment is made.

84. It is also important to note that no other postal operator has separated its retail business from its mails business. The government previously tried to introduce a model for postal services unique to the UK, in the form of downstream access. This has been spectacularly unsuccessful. It risks replicating this failure with the separation of the Post Office from Royal Mail.

85. The government’s proposals on mutualisation contained in the Bill are very vague. They give no guarantee of the form mutualisation will take. They do not guarantee direct employee involvement and instead allow the Secretary of State to decide on persons to represent or act on behalf of persons considered to have an interest in the use of the Post Office. This is too loose a definition and allows for a very watered-down interpretation of a mutual.

86. The separation of the Post Office from Royal Mail fundamentally threatens the future of the Post Office network. The Bill does nothing to guarantee an inter-business agreement between Royal Mail and the Post Office.

Part 9: Regulation has starved Royal Mail of the finances needed for investment and stifled its ability to compete

87. The majority of stakeholders now recognise the crippling impact of regulation on Royal Mail. The disastrous downstream access regime has seen Royal Mail lose 60% of its upstream bulk mail and has resulted in a £157m loss on access products in 2009/10 alone through access prices being held artificially low. The over-regulation of competitive markets has also limited Royal Mail’s ability to innovate and compete. Its new chief executive Moya Greene recently stated:

"it is simply wrong that a suffocating regulatory approach should apply at all in a competitive market – and that it applies only to Royal Mail, which is the only company able to provide the Universal Service on which so many people depend." [6]

88. Royal Mail urgently needs a less restrictive regulatory regime that will allow the company to compete fairly in competitive markets. We need to see an end to the disastrous downstream access headroom regulation that has been so damaging to Royal Mail. Likewise we would like to see widespread deregulation, with Royal Mail regulated only where it clearly faces no competition. Further, conditions which restrict Royal Mail’s ability to swiftly bring new products to market must be removed.

89. The Postal Services Bill does little to facilitate the process of regulatory change that is so vital to the future of Royal Mail. The Bill transfers regulatory powers from Postcomm to Ofcom. The new regulator’s primary duty will be to secure the future of the universal service. This was also the primary duty of Postcomm. Despite this duty Postcomm took the regulatory decisions that have led the postal industry to its current position. We therefore find little reassurance from the reassertion of this duty.

90. The Bill does little to guarantee substantive change to the current access regime, nor to ensure change to the over-regulation of competitive markets and the stifling regulations that discourage Royal Mail from innovating and swiftly bringing new products to the market. Such decisions remain at the discretion of the regulator. We would hope to see Ofcom act quickly to address these problems. Our experience tells us they are unlikely to do so.

91. Royal Mail needs the freedom to compete fairly. Substantial deregulation of the postal market is essential. The Bill does little to guarantee such change. The committee must consider in detail the change necessary to ensure Royal Mail’s competitive future.

Part 10: Action on the pension deficit will help secure Royal Mail’s future

92. The CWU welcomes action on the pension deficit that will protect the pension entitlement of scheme members and will improve Royal Mail’s financial position by sparing it the current £291m annual payment to service the pension deficit.

93. The government’s proposed policy paves the way for the sale of Royal Mail; it would be impossible to find a buyer for the business if the pension deficit were to remain with Royal Mail. It is also a policy for which the government has its own significant incentive. By taking on the pension the government will gain the assets of the scheme, which currently stand at £26bn. While it will become responsible for the liabilities, this is a long-term commitment. In the short-term it is a major gain for the Exchequer.

94. Our concerns centre on the detail of the Bill, the subsequent pension arrangements and ensuring that members’ benefits are genuinely protected. The Bill requires that members’ benefits be at least as good before the new scheme is established as immediately after. Our concern is that they remain protected long-term and that the establishment of one or more new scheme does not erode their entitlements. Further, we are concerned that appropriate governance structures be introduced to ensure member-oversight of the schemes. Careful scrutiny of pension arrangements contained in the Bill is essential.

95. Full consultation on changes to the pension scheme must take place with the union, not only with the pension scheme trustees. While the trustees have legal responsibilities for the scheme the union represents members’ interests.

96. Action on the pension deficit is a welcome fulfilment of the government’s duty. The Bill must be carefully scrutinised to ensure members’ benefits are protected long term. The policy is not contingent on the privatisation of Royal Mail. The CWU must be fully consulted on changes to the pension scheme.

November 2010