Supplementary written evidence from the
Royal Mail Group
1. THE ACCESS
REGIME
As a result of European Union postal directives,
the UK postal market is now fully liberalised. The regulator,
Postcomm, introduced competition in a number of stages from 2001
leading to full liberalisation of the UK market in January 2006.
This was much earlier than most EU countries. Some of them have
still not fully introduced competition into their domestic markets.
The regulator established a regulatory framework
allowing competitors access to the Royal Mail network. As part
of that framework, the access price was set through the first
contract negotiated between Royal Mail and a downstream access
applicant (UK Mail). That first contract established a groundbreaking
access agreement, not seen before in the UK or elsewhere. Had
the two parties not reached an agreement, the regulator would
have exercised its powers to determine the price and non-price
terms under which access would have been provided by Royal Mail.
The access price has increased annually within the
constraints (i.e. below inflation) allowed within Royal Mail's
Licence. There will no doubt be different views as to whether
the price established was appropriate at the time or not. We note
that Postcomm in their evidence to the committee said that they
felt that the price agreed was higher than they thought appropriate.
The key point is that the price set then was based
on a number of assumptions and market conditions at that time,
including views by both parties and industry experts that the
mails market would grow. Things have changed considerably since
2006. In his report, Richard Hooper acknowledged that the UK letters
market is now in major structural decline: the volume of letters
in the UK is falling year on year and average daily letter volumes
have reduced by 16m items in the last four years. The Hooper report
indicates that letter volumes may decline by up to a further 40%
over the next five years.
In addition, there is now significant competition
in the UK letters market with some 10 significant operators in
the downstream market alone. Over 60% of bulk mail and over 45%
of all mails is now handled by Royal Mail's rivals.
Royal Mail now faces a situation where, on average,
the access price has increased below inflation. Also, Royal Mail
volumes overall have fallen sharply since full liberalisation
in 2006, to an extent not envisaged at the time and not adequately
reflected in the Price Control settlement. The current situation
is that Royal Mail loses on average 2.5p on every item that it
carries for its competitors. This in effect means that it subsidises
access to the tune of some £160 million p.a. Moreover, the
current regulatory regime leaves Royal Mail in the position where
it is not only loss making on access, it cannot compete upstream
on price because of the headroom guarantees provided to its competitors
within its Licence.
2. GOVERNMENT
FUNDING AND
THE SPEND
IN SCOTLAND
In November Government announced that it had committed
funding of £1.34 billion over the next four years to refresh
and modernise the Post Office network. It has laid out the Post
Office policy approach that this funding will support in its document
"Securing the Post Office in the Digital Age". Given
that these funds have only just been allocated, and that there
are still to follow through processes underway—such as seeking
the necessary State Aid approval from the European Commission—we
are not in a position to provide a breakdown of how much of the
Government funding will be spent in Scotland.
However, given that the funding and associated policy
approaches of modernisation and maintaining network sized / accessibility
levels will apply across the UK, clearly an appropriate proportion
of the funding will be used to achieve the desired policy aims
in Scotland.
3. POST OFFICES
FOR SALE
IN SCOTLAND
There has always been a commercial market involving
post offices where an incumbent puts their current business on
the market (and might also include the residential property attached
to it within the sale) and will sell the business to an incoming
business person who will apply to Post Office Ltd to take over
the role of subpostmaster.
The decision to put his or her business on the market
is a private one for the subpostmaster and Post Office Ltd may
only become aware of this, if the incumbent subpostmaster resigns
in anticipation of completing a sale of his / her business. There
may well be subpostmasters who put their business on the market
to test price conditions, and then decide to withdraw the business
from the market, but we would not have information on this. A
market in businesses containing Post Offices has always been in
place and can be a healthy indicator. Historically up to 10% of
post offices may change hands within this marketplace each year.
Although we cannot therefore gain information for
all sub post offices in Scotland that may be considered to be
"on the market", we can identify the number of resignations
that have occurred and the number of current cases where we are
advertising / recruiting a subpostmaster. This indicates about
100 cases in Scotland currently at various stages - which is broadly
consistent with the historical levels at which Post Office change
hands.
4. MUTUALISATION
AND THE
STAKEHOLDERS
The Government has proposed that, "in time,
Post Office Ltd could be converted into a mutual structure, with
the ownership and running of the Post Office handed over to employees,
subpostmasters and communities". It believes that "a
mutually owned Post Office Ltd could be ideally suited for the
economic and social role that the Post Office network provides
in communities up and down the country".
In taking this forward it has said that "any
move to mutual ownership must put the views of subpostmasters,
employees, business partners and customers first". It has
therefore asked Co-operatives UK—the national trade body
for co-operatives—to look at the proposal, seek the views
of the Post Office's major stakeholders, as well as those of a
range of experts, and report back to Ministers in spring 2011.
This process has now started. We will therefore be clearer as
to the kinds of options that are identified and how they related
to the various stakeholders when that work is concluded.
Government has made clear that "before making
any final decision on whether to move to a mutual structure, we
will conduct a public consultation so that the British public
can have their say, as both customers and taxpayers."
We believe that mutualisation can provide a positive
way forward for Post Office but, as the Government points out,
"for a mutual to be successful it must be able to build on
solid foundations". We see our role in the next few years
as working with subpostmasters and other stakeholders to build
those solid foundations through maintaining and modernising the
network and ensuring we are a successful, sustainable business
focused on serving our customers well.
20 December 2010
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