Supplementary written evidence from the
Communication Workers Union
The Postal Services Bill can be strengthened to better
protect the universal service and the Post Office network by introducing
the following requirements:
1. There should be no review of minimum USO requirements
within five years.
2. The Post Office network should be maintained
at its current size.
3. Post Office access criteria should be enshrined
in the Bill.
4. Access criteria for "Main" Post
Offices to be developed and also enshrined in the Bill.
5. A 10-year inter-business agreement required
before the sale of Royal Mail.
6. There should be no procurement determination
within 10 years.
1) NO REVIEW
OF MINIMUM
USO REQUIREMENTS FOR
FIVE YEARS
The Bill should be strengthened to prevent pressure
to reduce the minimum universal service requirements.
The Bill sets out minimum conditions for the universal
service, which includes:
¾ Six
days a week collection and delivery of letters and five days a
week for postal packets;
¾ Service
at affordable prices in accordance with a uniform public tariff;
¾ A registered
items service;
¾ An insured
items service;
¾ Services
to the blind or partially sighted;
¾ Legislative
petitions and addresses.
This definition is a minimum. The range of services
currently classified as universal service products is more extensive.
There is therefore scope for the regulator to reduce this range
without recourse to the Secretary of State or to Parliament.
Vince Cable told MPs on 27 October 2010: "This
Bill will maintain the universal postal service at its current
level" and that "I have no intention of downgrading
this service." But the Bill requires Ofcom to review
the universal within 18 months.
The government should strengthen its commitment to
maintaining the minimum requirements contained in the Bill by
waiting five years before these minimum requirements are reviewed.
The Bill includes three routes through which Ofcom
can review the minimum universal service requirements and recommend
to the Secretary of State that they be reduced. A reduction would
then be subject to an affirmative resolution procedure.
¾ Clause
29 (4) requires Ofcom to carry out a review of the universal service
and whether it meets the reasonable needs of service users within
18 months of the Bill coming in to force.
¾ Clause
33 allows Ofcom to from time to time review the extent to which
the minimum universal service requirements meet the reasonable
needs of postal users. It can then make recommendations to the
Secretary of State for reductions to the minimum.
¾ Clause
42 allows Ofcom to review the extent of the financial burden of
the universal service on the universal service operator (Royal
Mail). If it is found to be a financial burden, under Clause 43,
Ofcom can carry again review the minimum requirements and again
make recommendations for their reduction.
The government should instead exclude the minimum
USO requirements from any review for at least five years. To do
so would provide greater protection to customers and would be
consistent with the government's position that the universal service
will not be downgraded.
2) MAINTAIN THE
CURRENT POST
OFFICE NETWORK
The Bill should be strengthened to guarantee the
Post Office network at its current size.
The government states that it wishes to retain a
network of 11,500 post offices. In his evidence to the Postal
Services Bill Committee Ed Davey stated that: "we have
made a legal agreement with Post Office Ltd and provided the funds
so that, over the next four years, there will be 11,500 post offices
in the United Kingdom".
Ed Davey said in evidence to the Scottish Affairs
Committee that a minimum number could not be included in the Bill
because the Post Office cannot stop individual subpostmasters
leaving the business and he would not want a position where the
Post Office broke the law through "no fault of their own".
However, as Mr Davey clarified, the Post Office has
entered into a legal contract with government to maintain a network
of 11,500 post offices for the next five years. It could therefore
already find itself breaking its legally-binding contract "through
no fault of its own" if it is unable to maintain the network
size.
The long-term future of the network would be better
serviced by a guarantee of network size in the Bill than by a
four-year contract with government that is subject to renewal.
The Bill should clearly state that the number of
Post Office in the UK should not be allowed to reduce beyond its
current level.
3) POST OFFICE
ACCESS CRITERIA
SHOULD BE
INCLUDED IN
THE BILL
There are two forms of access criteria to which the
Post Office and Royal Mail must have regard. The first are the
legally-binding access criteria that are laid out in Royal Mail's
licence that refer to "access points". These are the
ones to which Mr. Davey referred in evidence to the Committee
and do not relate specifically to post offices.
The second are access criteria that relate specifically
to Post Offices and were introduced by the government in 2007
at the time of the Network Change Programme. These are not included
in Royal Mail's licence and have until now been overseen by Consumer
Focus. These access criteria provide greater protection to the
Post Office network. It is these criteria that should be included
in the Bill.
Royal Mail's licence requires the following on access
points.
"1. Except as Postcomm, after consultation with
the Licensee and the Council, may have directed otherwise, the
Licensee shall provide, or procure the provision of, post office
letter boxes and other access points for the purpose of providing
the universal postal service referred to in condition 2 in a manner
which meets the reasonable needs of users having regard to the
costs of providing and servicing such access points.
2. The Licensee shall be regarded as having met its
obligations under paragraph 1 if:
(a) in each postcode area where the delivery
point density is not less than 200 delivery points per square
kilometre not less than 99% of users or potential users of postal
services are within 500 metres of a post office letter box, and
(b) the distribution of access points capable
of receiving the largest relevant postal packets and registered
mail is such that:
(i) in the authorised area as a whole the premises
of not less than 95% of users or potential users of postal services
are within 5 kilometres of such an access point, and
(ii) in all postcode areas the premises of not
less than 95% of users or potential users of postal services are
within 10 kilometres of such an access point, and such access
points are available to the public in accordance with conveniently
published schedules."
The access criteria set up in 2007 that are not enshrined
in the licence are as follows:
¾ 99%
of the UK population will be within three miles of their nearest
post office outlet;
¾ 90%
of the population to be within one mile of their nearest post
office outlet;
¾ 99%
of the total population in deprived urban areas across the UK
will be within one mile of their nearest post office outlet;
¾ 95%
of the total urban population across the UK to be within one mile
of their nearest post office outlet;
¾ 95%
of the total rural population across the UK to be within three
miles of their nearest post office outlet.
¾ 95%
of the population of every postcode district to be within six
miles of their nearest post office outlet.
Royal Mail's licence conditions are clearly weaker
than those applied to post offices from 2007.
The Bill should be strengthened to enshrine the 2007
Post Office access criteria in law.
4) ACCESS CRITERIA
FOR "MAIN"
POST OFFICES
SHOULD BE
DEVELOPED AND
ENSHRINED IN
THE BILL
Access criteria for "Main" post offices
should be developed and included in the Postal Services Bill.
The government's proposals for the redesign of the
Post Office network will see 4,000 "Main" post offices
developed and remaining post offices developed into "Essentials"
or "Locals".
"Essentials" or "Locals" will
not provide the full range of post office services. They provide
post office services via the counter of a shop rather than at
a dedicated post office counter. They provide limited access to
financial services, the range of government services available
is limited to the Post Office Card Account and giros. Paula Vennels,
in evidence to the Committee, stated that they provide access
to only 85% of post office services.
Consumer Focus have said: "Problems people have
experienced with pilot 'post office locals' also known as 'Essentials'
include benefit capping, where branches limit the amount of money
that people who are collecting benefits, such as a pension, can
withdraw in a single day. Other examples include not being able
to access counters, for example if in a wheelchair, staff with
inadequate knowledge of services and a lack of privacy when carrying
out transactions." Consumers will not be able to send larger
parcels or heavy international items, pay traditional paper bills,
pay by cheque or apply for passports or driving licences.
In order to ensure that all areas of the UK have
access to the full range of postal services the Post Office access
criteria should be extended to ensure an equal spread of "Main"
Post Offices across the UK. Without such access criteria it would
be possible for there to be no "Main" Post Offices located
in Scotland and therefore no access to the full range of government
and post office services.
4) THE RELATIONSHIP
BETWEEN THE
POST OFFICE
AND ROYAL
MAIL SHOULD
BE SECURED
THROUGH A
10-YEAR INTER-BUSINESS
AGREEMENT ENSHRINED
IN THE
BILL
The future of the Post Office network is dependent
on its ability to provide postal services on behalf of Royal Mail.
Left to a purely commercial arrangement between the two businesses,
this arrangement is insecure. A 10-year inter-business agreement
(IBA) should be a necessary condition for the sale of Royal Mail
and enshrined in the Bill.
In evidence to the Postal Services Bill Committee
Ed Davey stated that: "No previous government have though
to put it on different footing". But no other government
has needed to intervene on the inter-business agreement because
no other government has separated the Post Office from Royal Mail.
The Minister has tried to reassure stakeholders by
arguing that both Royal Mail and the Post Office want an extended
inter-business agreement. As he said again in evidence to the
Committee: "I refer the Committee to what the chief executive
of Royal Mail, Moya Greene, and Donald Brydon, the chairman, said.
Moya Greene said it was unthinkable that there would not be a
long-term relationship between Royal Mail and Post Office Ltd.
Donald Brydon said that he wanted to have the longest possible
legally permissible agreement"
The stated aims of the current management of Royal
Mail are insufficient reassurance. The relationship between the
two companies is one of imbalance: the Post Office cannot survive
without Royal Mail; Royal Mail can succeed without the Post Office.
Ed Davey went on to argue in his evidence to the
committee that: "If you actually wrote that there should
be a contract between two companies that are going to be separate
companies into law, I think that it would be subject to serious
legal challenge." He has provided no evidence to support
this position. Given the importance of retaining the relationship
between the two businesses and the risk of leaving its maintenance
to the discretion of Royal Mail, the government should instead
require a 10-year IBA as part of the Bill and respond to any legal
challenges as they arise. To do so could only strengthen the Post
Office's position.
The National Federation for Subpostmasters believe
that a minimum 10-year IBA is essential: "The NFSP believes
that in order to avoid further post office closures, existing
levels of Royal Mail work at post offices must be maintained with
a minimum 10-year IBA between the two companies following separation."
(NFSP written evidence to PSB Bill committee).
The Post Office is seeking a renewal of the IBA post
separation, but expects this to be for only five years (as stated
at their recent Quarterly Business Update to staff). This is insufficient
to protect the network from further post office closures.
5) NO PROCUREMENT
DETERMINATION WITHIN
10 YEARS
The Bill should not allow the universal service to
be provided by a third party for a period of 10 years.
As the Bill currently stands, Ofcom can review the
burden of providing the USO to Royal Mail within three years.
If it is found to be a financial burden upon the company the regulator
has three options it can choose from. It can: review the minimum
requirements of the USO; require all postal operators to contribute
financially to the maintenance of the USO; or make a procurement
determination (determining that another operator should provide
all or some of the universal service).
The uncertainty created by the lack of long-term
guarantee of universal service provider status is potentially
very damaging to Royal Mail. The company is in the middle of a
£2 billion investment programme. If elements of the service
it provides will be open to competitive tender in as little as
three years time, the company will have limited incentive to continue
investing.
A procurement determination is a very real possibility.
An enquiry into whether the universal service is a financial burden
on Royal Mail is very likely to find that it is a burden. Royal
Mail has consistently argued that it is a financial burden. In
evidence to the Scottish Affairs Committee, Tim Brown Chief Executive
of Postcomm stated that Royal Mail had made a £350 million
loss on universal service products a number of years ago. Universal
service products continue to be loss making for Royal Mail.
Royal Mail stated clearly in their evidence to the
committee that it believes three years as the guaranteed universal
service provider was not nearly long enough.
The postal industry has suffered from a lack of stability
in recent years. The potential break up of the universal service
will exacerbate this problem. The most important element in the
future of the postal service in the UK is the successful investment
programme and modernisation of Royal Mail. Long-term investment
in postal infrastructure should not be compromised in order to
make short-term savings via what would essentially be the franchising
of elements of the universal service.
ROYAL MAIL: PROTECTING THE UNIVERSAL SERVICE
IN THE PUBLIC SECTOR
¾ Royal
Mail can be a success story. The company has come a long way in
the last year. The Business Transformation plan agreed with the
CWU has put in place the necessary steps to complete the modernisation
of the company.
¾ The
debate over whether to privatise Royal Mail is about what kind
of postal service the public want. A strong universal service—six
deliveries a week; a one-price-goes-anywhere; a network of post
offices at the heart of our communities—will be lost through
privatisation.
¾ The
universal postal service is a public service; a vital infrastructure
that supports the UK economy. While the postal market may be changing
it remains central to business in the UK. The development of new
technologies and the growing dependence on the internet for commerce
is underpinned by postal services and a universal service that
ensures all households can participate in the economy.
¾ A private
company will not want to invest in a business burdened by a costly
universal service. Private shareholders will seek to unpick the
universal service. They will argue it is too costly, that it is
unsustainable. This will undermine the universality of the service.
Rural areas which are costly to reach will see their service decline
with fewer deliveries each week. We have already seen Richard
Hooper recommending a review of the universal service, alongside
the privatisation of Royal Mail, in his most recent report.
¾ The
government's proposals also put the future of the Post Office
network in danger. The Post Office and Royal Mail both depend
on each other to provide the universal service. Post Office Ltd
depends on Royal Mail for a third of its revenue. Despite this,
the government is seeking to separate the post office network
from the rest of Royal Mail. This will undermine Royal Mail's
ability to provide the USO—post offices being the key point
of access to mails services—and threatens the Post Office
network. Post offices will become more dependent on government
subsidy and in these austere times, closures will be inevitable.
¾ Royal
Mail can flourish in the public sector. Its position is already
improving. Its modernisation programme is funded and it expects
to be making normal profit levels within the next few years. It
will benefit from the government's proposed action on pensions
and from changes to regulation which will provide a more substantial
buffer during the current difficult economic climate. The company
could benefit from access to additional capital in the medium
term to grow the business. This is perfectly possible within the
public sector.
¾ Royal
Mail is not failing. The solutions are there for the company to
be great once more. Financial solutions are available to allow
this to happen in the public sector, to maintain an integrated
Royal Mail, a strong universal service, and a network of post
offices across the UK.
1) ACCESS TO
CAPITAL
¾ The
government's proposals will not give Royal Mail access to private
capital in the short term. Nor does the company need such access
immediately. Its modernisation programme is fully funded and changes
to the regulatory regime and removal of the burden of the pension
deficit (as proposed by the government) will give Royal Mail a
more than sufficient financial buffer to see it through the current
modernisation process.
¾ Royal
Mail is operating under constrained financial conditions. This
is not new. The company has been drained of resources over the
years by an aggressive regulatory regime and large pension deficit
repayments. However, the company's modernisation programme, underpinned
by the Business Transformation agreement with the CWU, though
sensitive to the current economic climate, is fully funded. The
company does not need significant additional capital to pay for
this process.
¾ While
the current economic crisis is making Royal Mail's constrained
financial position more difficult and is putting pressure on the
business plan, conditions are not hugely different than a year
ago.
¾ Royal
Mail needs additional revenue to allow a greater buffer in its
current operations. This can and will be achieved by changes to
the regulatory regime and by the removal of the pension deficit.
¾ Royal
Mail currently pays almost £300 million a year in pension
deficit repayments. Postcomm is currently consulting on proposals
that would bring the company an additional £75 million in
revenue next year. Royal Mail is calling for regulatory changes
that would bring the company an additional £120 million a
year.
¾ Removal
of the pension deficit and minimal changes to the regulatory regime
could bring the company over £400 million in additional revenue
each year. This is close to the annual level of investment spend
the company has been making each year while drawing down on the
government's loan facility as part of the current modernisation
process.
¾ Access
to private capital is not crucial to the current modernisation
process. This is underlined by the fact that the government's
proposals would not bring access to capital until the current
modernisation programme is complete. Legislation is unlikely to
be passed until the summer at the earliest and the government
has indicated that it will wait for economic conditions to allow
them to find an appropriate buyer. Moreover, a pension settlement
will need to be reached and an appropriate regulatory regime settled
upon before there is sufficient stability for a buyer to be attracted.
Access to private capital cannot, therefore, be about financing
the current modernisation process.
¾ The
coalition government insist that Royal Mail needs access to private
capital, but they have never been specific as to how much is needed
and for what. If it is not necessary for the current modernisation
plan, what is it necessary for and how much does the company really
need?
¾ Access
to further capital is desirable in the medium term to enable the
company to invest in new products and services and to allow the
company to grow more quickly. Equally essential to this process
is an end to the regulatory regime which stifles innovation by
requiring Royal Mail to notify of new products and product changes
three months in advance.
¾ Access
to capital is an ongoing issue for Royal Mail, not one of short
term crisis. There is no reason that Royal Mail should not be
able to borrow private capital while remaining in the public sector.
The government needs to be innovative in how it allows public
entities to raise finance. For example, the Department of Health
is now consulting on how NHS Foundation Trust hospitals can raise
capital from the banks to improve NHS service. There is no reason
Royal Mail should not be able to do the same.
¾ It is
also worth noting that the privatisation of Royal Mail does not
guarantee an injection of private capital into the company. The
sale of Royal Mail will bring in revenue for the Exchequer, not
Royal Mail. Whether a buyer of Royal Mail chooses to invest in
the company will be a commercial decision based on the position
of the company at the time of any sale. Privatisation is no guarantee
of investment.
2) SEPARATION
OF THE
POST OFFICE
NETWORK FROM
ROYAL MAIL
¾ Royal
Mail and Post Office Ltd (POL) are two parts of one business.
They depend on one another to provide a universal service. Separating
POL from Royal Mail risks irreparably damaging the rural Post
Office network.
¾ Post
Office Ltd depends for its survival on revenue from Royal Mail.
One-third of its revenue is derived from providing services on
Royal Mail's behalf. Separating the two businesses puts this revenue
stream in jeopardy and threatens the survival of the Post Office
network.
¾ A privatised
Royal Mail will seek alternative channels for the sale of its
goods and the Post Office will be dependent on commercial arrangements
with Royal Mail. A privately owned Royal Mail will have no duty
towards the maintenance of the Post Office network. Arrangements
between the two companies will be subject to continual review
and will make the Post Office's current difficult financial position
even more precarious.
¾ Separation
of the Post Office network will increase the pressure for subsidy
from government, which is already running at £180 million
pa. It also means that the Post Office will not share in the future
success of Royal Mail. In future years, once modernisation is
complete and a more acceptable regulatory regime has been reached,
Royal Mail will start to thrive again. The company has the potential
to be a major success story and to generate significant profits.
Under the government's proposals, a separate Post Office Ltd,
whose revenue generation potential is limited, will not share
in this success. Support for the post office network will no longer
be able to come from Royal Mail. Its only port of call for support
will be the government.
¾ The
separation of Post Office Ltd from Royal Mail will also be costly
and inefficient. The two parts of the business currently share
a range of central functions. Duplicating these processes means
an unnecessary duplication of costs.
¾ No other
postal operator separates its retail business from its mails businesses.
It is not a logical business model. The government has previously
attempted to introduce a model for postal services unique to the
UK. It failed spectacularly with downstream access. It risks doing
so again by separating Post Office Ltd from Royal Mail.
3) MAIL VOLUME
DECLINE
¾ There
has been a decline in mail volumes. This is not in dispute. The
decline is in part due to the current economic conditions in the
UK. There has also clearly been a structural decline in the size
of the mail market.
¾ But
the postal market is changing. It is not in inevitable decline.
Fewer letters are being sent, but more parcels and packets are
being posted every day due to growth in internet shopping and
e-fulfilment.
¾ We accept
that the market is changing and we have the processes in place,
through the Business Transformation agreement, to change with
it.
¾ Market
change is not an argument for privatisation. Whatever the ownership
structures of Royal Mail, the business will need to adapt. The
government has not explained why a privately owned Royal Mail
would be better placed to do this.
¾ A publicly
owned Royal Mail with a strong public service ethos will be better
placed to protect the universal service in these challenging times.
A smaller mail market means the universal service becomes more
not less central to the business's work. A private company will
be less inclined to focus on this work and will seek to erode
rather than strengthen the USO.
¾ Royal
Mail has anticipated the mail volume decline we are currently
seeing. Their current business plan takes account of this decline
and will bring Royal Mail into a cash-flow positive position with
acceptable profit margins by the end of the process.
4) THE GOVERNMENT
HAS NO
MONEY TO
INVEST
¾ Royal
Mail does not need further direct investment from the government.
¾ The
current modernisation plan is fully funded, but under pressure
from the current poor economic climate. The government is proposing
to take responsibility for the pension deficit; in 2009-10 Royal
Mail paid £291 million to service its pension deficit. Being
freed of this burden will significantly help the company. Royal
Mail is calling for regulatory changes worth £120 million.
The combined impact of these changes will give the company an
additional £400 million pa to invest as it sees fit, a more
than ample buffer to see through the current modernisation programme
and beyond.
¾ Royal
Mail may need access to additional capital in the medium term
to help grow the company. This does not mean investment from government.
As discussed above, there is no reason Royal Mail should not be
able to borrow private capital while remaining in the public sector.
5) THE PENSION
SCHEME IS
IN DEFICIT
¾ The
pension scheme is in deficit. The pension scheme trustees have
reached an agreement with Royal Mail that would allow them to
pay off the deficit at the current rate for an extended period.
¾ As an
alternative the government has proposed taking on Royal Mail's
historical pension assets and liabilities. Doing this will improve
Royal Mail's financial position.
¾ The
government stands to gain significantly from this proposal in
the short term. The Royal Mail pension scheme has assets worth
£26 billion. By taking on the pension scheme, the government
can take on the assets and potentially reduce its budget deficit.
It will also be subject to the long term liabilities of the scheme,
but these will not become due until many years into the future.
6) POLITICAL
INTERVENTION IN
COMMERCIAL DECISIONS
¾ Hooper
argued in his most recent report that privatisation was necessary
to reduce the potential for political intervention in commercial
decisions. Political intervention in Royal Mail's decisions happens
because of the nature Royal Mail's work. There will be political
interest in Royal Mail's decisions whatever the ownership structure
of the business. Royal Mail provides a public service and is and
will remain a monopoly provider of the final mile. How it provides
this service will always be important to the public and, just
like utility companies and the railways, it carries inevitable
political sensitivities.
20 December 2010
| 
