Written evidence from Royal Mail Group
1. INTRODUCTION
1.1 We are very proud at Royal Mail to be the universal
service provider in Scotland and the rest of the UK.The future
viability of the universal postal service, however, continues
to be under severe threat due to a rapid and continuing contraction
in the size of the mail market. The UK postal market, and other
postal markets, are forecast to decline by up to 40% over the
next five years according to Richard Hooper. Decline in the market,
along with increased use of email and texting by large mailers,
means that by 2015 Royal Mail's end-to-end delivery volumes are
forecast to have shrunk by 75% in just over a decade.
1.2 The Group faces a range of competitive pressures,
including a restrictive regulatory regime. It is expected that
7.1billion items of Wholesale "access" mail will be
delivered over the final mile by Royal Mail's postmen and postwomen
by the end of 2010/11 on behalf of our competitors. The current
headroom regulation on this mail guarantees upstream players a
margin; it also makes it difficult for Royal Mail to set access
prices which actually cover its costs. We are subsidising our
competitors when our own finances are severely challenged.
1.3 As the only company able to provide the Universal
Service. Royal Mail is managing a number of very significant challenges.
These include a very large pension deficit, which is disproportionate
to the company's size, the ongoing burden of the current regulatory
regime and a mails market in severe structural decline. To be
financially secure and to provide the Universal Service, we need
to:
¾ Accelerate
the modernisation programme,
¾ Identify
and meet the ever changing needs of our consumers
¾ Invest
in the future of our business, including a much stronger IT capability
and revenue substitution initiatives.
In short, Royal Mail requires urgent access to external
capital.
1.4 We need a sustainable business model. This is
in the best interests of Royal Mail's customers, stakeholders,
employees and the taxpayer. The Group therefore, very much supports
the Postal Services Bill, including the Government's proposals
to resolve the pension deficit, provide access to external capital
and a regulatory level playing field. Given the company's very
challenging financial position, action is required now.
2. ROYAL MAIL
IN SCOTLAND
2.1 Royal Mail Group is the only postal business
which reaches all 2.5 million addresses in Scotland. It is responsible
for collecting and delivering letters and provides a universal
service at uniform, affordable prices. Post Office Ltd provides
a network of approximately 1440 post offices. Parcelforce Worldwide
delivers and collects express parcels in an unregulated, commercial
marketplace that covers the whole of Scotland. Royal Mail Group
is also one of the country's main employers, employing around
13,700 in Scotland, most of who are employed as postmen and women.
2.2 Royal Mail provides exactly the same services
for businesses in Scotland as it does across the UK. Over 90
per cent of rural or small Scottish businesses will rely heavily
on the Universal Service for posting and receiving their mail.
Royal Mail is proud to play a part in helping the economic development
of Scotland and the highlands and is investing significantly in
Scotland over the next three years as part of the company's modernisation
programme.
2.3 Royal Mail operates World Class Mail in 10 mail
centres in the UK including at its Glasgow mail centre and at
the Edinburgh mail centre, which went live this month. It has
had a significant impact on safety, and has reduced costs inside
individual facilities. World Class Mail helps employees bring
skills and talents that they have amassed in other areas to their
jobs. Royal Mail believes that World Class Mail has been a very
successful tool in helping our people to understand what they
need to do to be successful in all aspects of handling and processing
of mail. Royal Mail needs to accelerate the modernisation programme
in Scotland and across the UK. The Group needs the ability to
secure the external capital required, however, to do this.
3. THE NEED
FOR REGULATORY
CHANGE
3.1 Royal Mail fully accepts the need for a regulatory
framework. The current regime has generated significant levels
of competition. However, as Richard Hooper pointed out, a balance
has to be struck between the generation of competition and the
provision of a stable universal service. Addressing the regulatory
regime is critical to the future of the Royal Mail and the universal
service obligation.
3.2 The regulatory regime within which Royal Mail
has to operate is very significant. For example, 86% of Royal
Mail revenues are regulated, whereas in many other developed countries
only universal service products are regulated. The regulatory
regime in the UK is more burdensome than in any other country
in a number of ways. Firstly, the requirement that there be mandated
access to any part of the Royal Mail infrastructure. Secondly,
the access headroom regime which provides a net margin between
the price Royal Mail charges its wholesale customers and its retail
equivalent. Thirdly, the extent of ex ante price control on 86%
of Royal Mail's revenue.
3.3 Royal Mail believes that unrestricted competition
undermines the ability for it to provide a viable universal service.
This is particularly the case where cherry picking by Royal Mail
competitors would leave the universal service provider with a
significant amount of unprofitable business. In short, Royal Mail
needs a clear regulatory direction that provides confidence to
stakeholders regarding the viability of the universal service
and the future of the business. While the Bill envisages future
regulatory change under Ofcom, it is not yet a reality.
4. PENSIONS
4.1 Royal Mail Group welcomes the Governments pension
proposal. It will protect the benefits earned by our current and
past employees and for our pensioners. It will give them the secure
pension they deserve and a stable company to work for.
4.2 Royal Mail agrees with Hooper's view that the
introduction of private capital in itself would not help guarantee
the sustainability of the Universal Service. He stated his view
that the pension deficit, timely access to external capital and
the need to transform postal regulation needed to be addressed
as well.
5. THE POST
OFFICE LTD
IN SCOTLAND
5.1 The economics of operating a large network are
challenging for both Post Office Ltd and sub postmasters in Scotland
and elsewhere in the UK. The recent Government funding and policy
announcements for POL are a real and tangible opportunity to modernise
the network. They will greatly assist in making the network more
sustainable and in maintaining its cherished accessibility in
local communities. The mutualisation model that the Minister has
outlined could help with the alignment, in the widest sense, between
those who are operating the post office and the owners. Government
has also stressed that there will be no programme of closures.
5.2 Post Office Limited and Royal Mail have a strong
commercial relationship and for this to continue is clearly in
the interests of both organisations. Royal Mail is committed to
obtaining a long term agreement with the Post Office. The Group
has its focus on a robust and long term relationship with Post
Office Limited.
5.3 The Post Office in Scotland will be looking to
Government Services to grow revenue through providing front-of-office
services for Government and also through financial services. With
the recent agreement with RBS, some 80% of current account customers
can now access bank accounts through the Post Office.
5.4 Recent talks have taken place with Scottish Government
officials seeking to build upon the success of the £1 million
Post Office Diversification Fund provided last year and encourage
the provision of government services through the Post Office network.
A Ministerial Working Group will look at how this can be developed
across Scottish Government departments and potentially to facilitate
similar discussions with local authorities in Scotland who are
responsible for the delivery of many government services. It is
hoped to build on the success of Post Office products in the area
of identity and document checking - which have saved considerable
sums for local authorities elsewhere in the UK. Previous Scottish
examples of joint working include the delivery of certain police
services through the Post Office network.
5.5 Separate discussions are due to take place with
Scottish Government officials to explore how Post Office Ltd might
be involved in the joint UK Government and Scottish Government
funded initiative to provide communities with better access to
better digital facilities across Scotland, particularly in the
Highlands and Islands. Post Office branches are at the heart of
their community. They are well placed to provide a hub for such
access, avoiding costly 'reinvention of the wheel' and presenting
a joined-up, locally supportive approach for those communities,
as well as helping provide much needed footfall to the branches
concerned
5.6 Despite these new positive developments, there
are a number of post office branches in Scotland which are struggling
to be viable because of changes in social habits and falling customer
numbers. Sometimes when an incumbent subpostmaster resigns, there
is no-one who comes forward to take over the business. However,
the business has been successful in Scotland in re-opening many
services using a wide-range of solutions. We welcome the Government's
statement that there will be no programme of closures.
6. POST OFFICE
OUTREACH SERVICES
AND HOW
THEY WORK
6.1 Post Office Ltd's has worked very hard to set
up outreach services tailored to rural communities. There are
currently over 700 of these outlets operating nationwide, serving
50,000 customers every week. Around 170 services operate in Scotland,
serving just over 9,000 customers a week. Post Office believes
these have been a success.
6.2 Outreach services link local communities to a
nearby 'core' Post Office which brings the necessary services
into the community on a regular basis. There are several variants
which include: partner services in local shops which operate at
retail tills and are open the hours the premises is open; hosted
services in community locations such as village halls, hotels,
cafes and pubs; mobile post office services and a home service
for very small communities and enables customers to order a reduced
range of Post Office® products and services over the telephone.
Outreach services receive much support in getting established
and they operate with at least the same level of support available
to other Post Offices.
7. POST OFFICE
ESSENTIALS/LOCAL
7.1 In April 2008, Post Office Ltd announced that
it would be piloting a new type of outreach service in urban areas,
"Post Office Essentials", now known as 'Post Office
Local'. Post Office Essentials/Local allows operators to offer
a core set of Post office services over their retail counter.
7.2 The model reduces the cost of operating a post
office, because it enables the integration of both space and staff
resource in store, between the Post office and retail business.
7.3 Extended opening hours are a key element of the
Post Office Essentials/Local model. Post office services can
be offered during the same opening hours as the retail store.
Where Post Office Essentials/Local has replaced a standard sub
post office in the pilots, the opening times have, on average,
increased by 45 hours per week. There are eight outlets of this
type being piloted in Scotland. They are in Fraserburgh, Harthill;
Greenock, Mussellburgh, Cumnock, Symington, Tillicoultry. Auchtermuchty.
8. GOVERNMENT SERVICES
8.1 The recent Government announcement and funding
package clearly recognised that the Post Office can become the
physical network and act as a 'front office' for national and
local Government. It can cater for those who are not online by
providing accessible service. It can cover those situations where,
even in an online process, a physical interaction is necessary
(for example checks of physical documents or those circumstances
when the physical presence of the citizen is needed). The Post
Office can then digitise the appropriate information - so that
the Government Department can handle its internal processes in
the most efficient manner. This whole 'front office' approach
is a potential win for the customer, Government and Post Office
Ltd.
8.2 Post Office Ltd, the Department for Business,
Innovation and Skills and the Local Government Association held
a joint conference in January 2010 for local councils. Following
this, Post Office Ltd and the Local Government Association published
a booklet with case studies, sent to all local councils' chief
executives. This aimed to promote greater awareness of Post Office
Ltd's services; Briefings have also taken place with the Scottish
Government on the potential in this area.
(For a full range of services provided in Post Office
branches please see Appendix 2).[42]
9. PARCELFORCE WORLDWIDE
IN SCOTLAND
9.1 Royal Mail is the only provider of a Universal
Parcel service, while Parcelforce Worldwide operates in a purely
commercial market place. Over 12 main parcel operators serve Scotland.
In many rural areas and on the Scottish islands, it will be Royal
Mail which delivers Parcelforce Worldwide parcels.
9.2 In 2005, Parcelforce Worldwide introduced a Scotland
Intra rate; this means that if you post from Glasgow to Inverness
only one charge applies. Extra charges do apply to the Islands
given the distances involved and the transport methods which need
to be used. Parcelforce believes that it offers competitive rates
for these parcels, given the distance they travel. Other Operators
use a zonal system across mainland Scotland. Parcelforce doesn't
charge a southbound charge for parcels from Scottish based locations,
assisting Scottish Businesses to trade with the rest of the UK.
10. CONCLUSIONS
10.1 Royal Mail believes it is best placed to provide
postal services throughout Scotland, as the only postal provider
that reaches every corner of the country. It also believes that
its network of post office branches can and will continue to provide
services to communities across Scotland.
10.2 The Postal Services Bill is a very positive
development for Royal Mail in Scotland and elsewhere in the UK.
The Group is strongly of the view that if the Bill does not go
through, there will be a continuation of what have been chronic
problems for Royal Mail. Given the rapid structural decline in
the postal markets, the group needs access to external capital
to accelerate the pace of modernisation.
10.3 Post Office warmly welcomes the Government announcement
of a £1.34 billion funding package for the next four years
to maintain and modernise the Post Office network. The economics
of operating a large network are challenging for both Post Office
Ltd and sub postmasters in Scotland and elsewhere in the UK. The
recent Government funding and policy announcements for POL are
a real and tangible opportunity to modernise the network. They
will greatly assist in making the network more sustainable and
in maintaining its cherished accessibility in local communities.
10.4 Royal Mail needs to be given a fair opportunity
to compete for the business that is there; otherwise it will further
erode the viability of the Group. The consequences for the universal
service in Scotland and the rest of the UK will be even greater.
Royal Mail believes that if the current bill is not passed, the
quality of the universal service throughout the UK, including
Scotland will be endangered. The Group needs clear regulatory
direction that will provide confidence to all the stakeholders,
regarding the viability and stability of the Universal service
and the business in the future.
APPENDIX 1
FACTS AND
FIGURES ON
ROYAL MAIL
GROUP IN
SCOTLAND
Royal Mail
¾ Royal
Mail employs around 12,500 people in Scotland, of which 11,600
are postmen/women.
¾ The
Universal Service Obligation delivers to 2.5 million Scottish
addresses.
¾ Royal
Mail delivers on average around five million items every working
day and around 30 million items every week. At Christmas, Royal
Mail in Scotland delivers 180 million items on mail across the
country.
¾ Collections
from over 10,000 posting boxes.
¾ In Scotland,
Royal Mail is spending a significant amount of money over the
next three years as part of the company's modernisation plans.
¾ There
are two world class mail centres in Scotland. One in Glasgow and
another in Edinburgh.
Post Office Ltd
¾ Around
800 direct employees in Scotland - Crown Office staff and managers
in the network.
¾ There
are over 446,000 Post Office Card Account holders in Scotland.
¾ POL
serves ~20 million customers a week, conducting ~60 million transactions
(including visits from over half of all SMEs every week). 92%
of the UK population visit a post office at least once a year.
¾ There
are approximately 1,440 Post Offices in Scotland, of which around
300 were designated as urban, 980 were designated as rural, and
160 as urban deprived.
¾ Approximately
1,213 sub post office branches and approximately 170 outreach
services.
¾ Eight
mobile post offices offer services in small rural communities
across the Borders, Dumfries and Galloway and the Highlands.
Parcelforce Worldwide
¾ Employs
352 people, of which 95% are depot staff.
¾ Delivers
4.3 million packages in Scotland in a year and collects around
2.5 million.
¾ Only
operator that delivers to each address in Scotland through its
partnership with Royal Mail.
¾ Parcelforce
Worldwide has depots in Glasgow, Edinburgh, Aberdeen, Inverness
and Perth.
¾ New
world-class depot opened in Glasgow in April 2008.
25 November 2010
42 Not printed. Back
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