Written evidence from the Communication
Workers Union
SUMMARY
¾ Despite
declining mail volumes there remains strong demand for postal
services in Scotland which are highly valued by both businesses
and consumers.
¾ The
proposed privatisation of Royal Mail and its separation from the
Post Office jeopardises the future of the universal postal service
and the Post Office network.
¾ A privately-owned
mail operator will seek to reduce the financial burden upon it
by reducing the universal postal service. Rural areas - where
the universal service is most expensive to deliver - will suffer
disproportionately.
¾ Royal
Mail is modernising successfully in the public sector. Privatisation
will not help or speed up the modernisation process.
¾ Separation
from Royal Mail threatens the Post Office's main revenue stream
and puts the network at risk. Less economically viable branches
in urban-deprived and rural areas will be most likely to face
closure.
¾ Proposals
on the mutualisation of the Post Office are not well developed
and leave fundamental questions over the future of the network
unanswered.
¾ The
provision of Government and financial services at the Post Office
must be expanded. We are disappointed by the lack of detail and
ambition in the Government's recent policy document on the Post
Office.
OVERVIEW
1. The Communication Workers Union (CWU) represents
around 215,000 employees in the postal, telecoms and related industries.
We are the recognised union in Royal Mail Group for all non-management
grades including those responsible for the collection, sortation
and delivery of letters and parcels.
2. The Scottish Affairs Select Committee is seeking
views on the importance of postal services for individuals and
businesses throughout Scotland, in urban and rural areas, and
how these might change in the future.
DEMAND FOR
POSTAL SERVICES
IN SCOTLAND
3. While mail volumes have fallen steadily since
2005, it is important to recognise the continuing strong demand
for postal services in Scotland, as in the rest of the UK. Recent
research indicates that 49% of consumers in Scotland send mail
every week, with the same proportion of consumers visiting Post
Offices at least once a week; 80% of consumers in Scotland feel
the Post Office plays an important role in their local community.[1]
4. Further mail volume decline is expected; however,
we believe the importance of postal services for both businesses
and the public in Scotland will remain high. 46% of customers
in Scotland state that the amount of mail they receive is increasing
- compared to 35% of consumers in England - and that the balance
of mail volumes is shifting with parcel and packet volumes growing
and being forecast to continue increasing in the coming years.[2]
5. In line with this trend 43% of people in Scotland
surveyed by Consumer Focus thought they would do more of their
shopping online in the future and 34% of people in Scotland surveyed
in Postcomm's research stated that they would buy more goods online
or by telephone, if it was easier to get them delivered.[3]
6. Mail also clearly remains integral to businesses
- the Federation of Small Businesses report that 98% of their
members use mail services on a weekly basis and repeated research
from Postcomm has shown that businesses place a high value on
daily collections and deliveries and would resist changes to the
basic universal service provision.[4]
HOW THE
RANGE OF
SERVICES PROVIDED
BY ROYAL
MAIL GROUP
COULD BE
EXPANDED TO
INCLUDE GOVERNMENT,
LOCAL GOVERNMENT
AND FINANCIAL
SERVICES
7. There is clearly significant potential for
Royal Mail Group, in its current form, to expand its range of
services to include government, local government and financial
services in Scotland. The post office network in Scotland comprises
1,446 branches - almost 70% of which are in rural areas - which
far exceeds other networks such as RBS, with around 320 branches,
or the Citizens Advice Bureau, with around 200.[5]
8. Expanding the services available at the Post
Office is essential to safeguard the network going forward. Last
year Post Office Ltd (POL) made an operating loss of £80m
before a Government subsidy of £150m to compensate it for
maintaining unprofitable branches - this year POL expects to make
an operating loss of around £130m before subsidy - and the
Chief Executive of POL has stated that only 4,000 branches, from
a network of just under 12,000, are currently commercially viable.[6]
9. Post Office Ltd's financial position is a
particular issue for Scotland, given that 70% of branches are
in rural areas, where revenues are significantly lower than average.
POL's figures show that less than 23% of rural branches generate
over £40,000 per annum in remuneration, compared to 69% of
urban and 65% of urban deprived branches.[7]
10. The National Federation of Subpostmasters
has also reported that in 2009 almost a fifth of Scottish subpostmasters
received nothing at all in wages from the Post Office.[8]
Therefore, while the Coalition Government has stated that there
will be no programme of post office closures, the Select Committee
should be conscious of the financial risk to many existing branches.
There is no guarantee in the Postal Services Bill to keep the
network at its current size or that there will be any duty to
sustain the network in the future. Post Office closures will continue
as subpostmasters leave and are not replaced.
11. The Government's recently-announced £1.3bn
funding package for the Post Office will not mean an increase
in the annual network subsidy payment which supports the unprofitable
parts of the network.[9]
12. Whether new services are provided through
the Post Office is largely dependent upon Government will. We
are seriously concerned over media reports which have suggested
that Post Office Ltd may lose out on the contract for "green
giro" benefit payments to PayPal.[10]
While the contract itself is worth around £70m over five
years, which may seem modest, it involves a potential 400,000
transactions a week and generates significant footfall for the
network. Given the extent of Government subsidy to POL and the
professed strategy to turn it into the "Front Office for
Government", we believe that removing this business from
the Post Office would make little sense and would further weaken
the network.
13. We are also concerned over plans to transform
2,000 sub-post offices into "essentials" or "local"
post offices by 2014, offering only a proportion of Post Office
services.[11]
In many instances this slimmed-down provision will be provided
through other shops and business premises. We do not believe that
this model of limited services and facilities will be able to
act as the "Front Office for Government" and we are
concerned that this shift is a blueprint for the future and heralds
a significant downgrading of the network.
14. We have also consistently campaigned as part
of the Post Bank Coalition for the expansion of financial services
available at the Post Office and for the Government to establish
a publicly owned Post Bank. We believe that the current joint
venture between the Post Office and the Bank of Ireland - the
vehicle through which current Post Office financial services are
provided on a 50:50 profit-sharing model - is now holding the
Post Office back and will not deliver the step change that is
necessary to help secure the future of the network; after almost
seven years the vast majority of subpostmasters in Scotland still
earn nothing at all from joint venture products[12].
15. As with Government services we are disappointed
that BIS has provided little detail regarding how the Post Office
will capitalise on the potential to expand its offering on financial
products and instead appear to have taken a step back.[13]
The Post Office network in Scotland and its role
16. In 2009/10 there were 1,446 branches in Scotland,
including around 90 Outreach services (which may be mobile or
home delivery services provided in conjunction with a subpostmaser).
Of these branches, 68% are in rural areas, 21% in urban and 11%
in urban deprived areas. The proportion of rural branches is significantly
above the UK average of 55% and the proportion of urban branches
making up the network is significantly below the UK average of
34%.[14]
17. The Scottish Government's Diversification
Fund is helping some post offices launch new business activities
with a view to improving their financial sustainability. 49 Post
Offices are reported to have so far received awards of up to £25,000.
Local authorities have also sought to support local post offices.
18. Nevertheless, the network in Scotland is
in a precarious position financially, with rural branches typically
being less well remunerated and less economically viable. It is
clear, however, the post office is a vital public institution
in Scotland. Just under half of those surveyed by Consumer Focus
(49%) in Scotland visited the post office at least once a week,
with 87% of respondents visiting it at least monthly.
19. It is important to note that potentially
vulnerable groups are more likely to use the Post Office regularly,
with over 60% of people aged 65 and over, disabled people and
those earning less than £15,000 per annum doing so on a weekly
basis, compared to the national average of 49%. The Post Office
remains an important public service playing an essential role
in the community.
THE POSTAL
SERVICES BILL
AND THE
UNIVERSAL SERVICE
OBLIGATION
20. The proposed privatisation of Royal Mail
and its separation from the Post Office jeopardises the future
of the universal postal service and the Post Office network.[15]
21. Privatisation is not necessary for the modernisation
of Royal Mail. The business is modernising successfully in the
public sector, underpinned by the Business Transformation Agreement
between the CWU and Royal Mail. The business's modernisation programme
is fully funded and any funds raised by the sale of Royal Mail
will not go to the business.
22. On completion of the modernisation programme
in 2012/13, Royal Mail expects to be making close to the maximum
level of profit it would be permitted by the regulator. By the
end of this process the Hooper review recognises that in terms
of automation Royal Mail will be close to leading European operators.
23. Alongside privatisation the Government is
proposing to remove Royal Mail's pension deficit, which will save
the company close to £300m per year. Further change to the
regulatory regime is needed to enable Royal Mail to compete.
Such changes would have a significant effect on Royal Mail's financial
position and the sustainability of the universal service; neither
proposal requires privatisation.
UNIVERSAL SERVICE
24. Royal Mail has consistently argued that universal
service obligation (USO) imposes a significant financial burden
on the company and restricts its ability to compete. The cost
of providing the USO is likely to increase as mail volumes decline
as these lower volumes are not matched by falling costs.
25. A privately owned Royal Mail will necessarily
seek to reduce the scope of the USO in line with its commercial
interests; this trend has been seen in the Netherlands where,
a year after full liberalisation of the mail market took place,
the private USO provider TNT - which has been discussed as a potential
investor for Royal Mail - labelled the obligation "a kind
of Jurassic Park [which] we should get rid of".[16]
TNT now plans to move from six deliveries of business-to-business
and business-to-consumer mail a week to three and will deliver
only the legal minimum and we would anticipate similar moves in
the UK after privatisation.[17]
26. The Postal Services Bill purports to protect
the universal service by setting out a minimum universal service
obligation in line with the current requirements for six deliveries
and collections a week at an affordable and uniform tariff. We
have serious concerns over the range of clauses contained in the
Bill that provide opportunities to reduce the scope of the USO.
27. Firstly, the definition of the universal
service is a bare minimum and does not cover all postal products
currently contained in the universal service under Royal Mail's
licence. Current USO products such as bulk mail - which many small
businesses depend upon - may be dropped by the regulator without
any form of Parliamentary approval and are likely to come under
pressure from a private operator.
28. We believe that the removal of products from
the USO could have a particular impact on areas in Scotland. As
Royal Mail's failed attempt to move to zonal pricing for retail
bulk mail products indicates, there is pressure to align costs
to pricing and, with greater distances to cover and lower population
density than the rest of the UK, Scotland could suffer from similar
moves by Royal Mail on products which are free from USO restrictions
in the future.
29. Secondly, with regard to prices, while the
Bill requires services to be "affordable" and in line
with a "uniform tariff" the potential for significant
changes to the current service remains. The Hooper report stated
that the average weekly spend on postal services by residential
households was 50p which arguably leaves significant scope for
price rises
30. With each possible reduction to the USO we
believe that mail services in Scotland are at particular risk.
We note that Parcelforce and other parcel providers feed parcels
into Royal Mail's network for delivery to the Highlands and Islands
given the additional financial burden that accessing these areas
presents. Any reductions in the service based on cost are likely
to hit these regions first and hardest.
31. We are also concerned that the Bill allows
for the universal service to be split up among different mail
operators, opening up the possibility of the sort of "cream-skimming"
which has been seen with the loss of bulk mail contracts by Royal
Mail to downstream access operators. With competitors able to
take the more attractive areas of the universal service - deliveries
in densely populated urban areas - Royal Mail may be left with
the more expensive rural delivery routes reducing the business's
ability to recoup the cost of the universal service. Again, despite
the purported safeguards to the USO, this opens up the possibility
of provision varying across the country with rural and less accessible
areas likely to suffer.
32. Finally, the Bill imposes no restrictions
on ownership of Royal Mail in the future and there has been significant
speculation in the financial press that the more profitable parts
of the business such as GLS and Parcelforce, which are relatively
discrete units, will be sold off to make a quick return for an
investor, mirroring the asset-stripping seen in private equity
deals.
IMPACT UPON
THE POST
OFFICE NETWORK
33. The proposed 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:
in 2009/10 the Post Office received £343m in revenue directly
from Royal Mail businesses and mails account for just under 37%
of turnover and generate around 50% of business conducted in branches.
34. With POL making an operating loss of around
£100m a year before Government subsidy, it is clearly essential
for the Post Office to retain this business in the future; however,
this will inevitably be more difficult as a separate business,
rather than a subsidiary of the Group.
35. In private ownership Royal Mail will inevitably
look to reduce its costs and the inter-business agreement with
the Post Office would be no exception. Given its financial position,
it is difficult to see how POL could compete should Royal Mail
seek to reduce costs on the current agreement; the relationship
will therefore come under immediate threat from the Government's
plans.
36. 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.
37. The rural branch network is likely to be
at particular risk should the relationship with Royal Mail weaken.
There is nothing in the Postal Services Bill to guard against
this, either by ensuring the continuation of the inter-business
agreement or by requiring the maintenance of the post office network.
38. Given the heightened risk to post offices
in Scotland, and while we clearly oppose the Bill, we believe
the Bill must be amended to increase the role of the devolved
parliaments, for instance by extending the requirement for an
annual report on the Post Office and Royal Mail to be laid before
them.
MUTUALISATION OF
THE POST
OFFICE
39. The Postal Services Bill includes provision
to transfer the Government's holding in the Post Office to a mutual
organisation. The provision in the Bill does little to specify
what form a mutualised Post Office would take, making it difficult
to assess the impact a mutualised Post Office may have.
40. The Bill leaves important questions on basic
issues unanswered - from structure and membership, to the role
of any mutual body - and we are concerned that the Bill includes
wide-ranging provisions for the disposal of the public's holding
in such a valued institution, with almost no detail or requirements
for parliamentary approval.
41. The most important area of uncertainty, however,
is how the post office is to be made sustainable - an issue which
is necessarily prior to any proposed mutualisation. As outlined
above, we believe that the separation of Royal Mail and the Post
Office seriously jeopardises the achievement of this goal.
42. The Government has also acknowledged that
there is likely to be a need for a continuing subsidy to the Post
Office to keep open certain unprofitable branches in the future.
It is unclear how this, or the statements that the Post Office
will become the "front office for Government", fit with
the proposal to end Government ownership of the network.
18 November 2010
1 Scottish Postal Services:
Consumer Survey 2010, Consumer Focus Back
2
In its evidence to the BIS Select Committee Report into Post Offices
in 2009 Postcomm reported that Royal Mail was forecasting packet
volumes to grow by around 20% from 2007-2017. Back
3
Residential Customer Needs from a Universal Postal Service in
the UK, Postcomm, November 2010. Back
4
Business Customer Needs from a Universal Postal Service in the
UK, Postcomm, November 2010. Back
5
Scottish Postal Services: Consumer Survey 2010, Consumer Focus. Back
6
Paula Vennells, Chief Executive of Post Office Ltd, stated this
in her evidence to the Postal Services Bill Committee on 9/11/2010.
Back
7
Postcomm's Tenth Annual Report on the Network of Post Offices
in the UK, 2009-10. Table 8, p 24. Back
8
National Federation of SubPostmasters Income Survey, November
2009. Back
9
The network subsidy payment has been £150m per annum in each
of the past five years and will be £180m, as announced by
the previous Government, in 2011/12. Following this, based on
figures in the BIS Policy statement 'Securing the Post Office
in the Digital Age', it will be around £155m per year. Back
10
'Post Office Close to Losing Benefits Contract', The Guardian,
5th November 2010; Back
11
Securing the Post Office Network in the Digital Age, BIS, November
2010. Back
12
National Federation of SubPostmasters Income Survey November 2009. Back
13
The recent policy statement from BIS makes no mention of the range
of products identified in the previous Government's response to
its consultation on banking at the Post Office, published on 29/3/2010,
as possible ways for the joint venture to expand. Additionally,
discussions with Santander which were then said to be at an advanced
stage are not discussed at all. Back
14
The Scottish Government Urban Rural Classification 2009-10 Back
15
The CWU's detailed submission to the Postal Services Bill is available
through the Bill Committee website. Back
16
International Post Corporation, Market Flash, April 2010 Back
17
'TNT Post to cut deliveries as well as jobs',Dutch News.nl,
June 2010 Back
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