The Implications of Scottish Independence on Business: Higher Education and Research: and Postal Services - Business, Innovation and Skills Committee Contents

5  Postal Services

Scottish Government White Paper

61. The Scottish Government has said that if Scotland votes for independence, Royal Mail would be "brought back into public ownership in Scotland" and that the existing service levels would be maintained, including the Universal Service Obligation. In addition, it states that greater priority would be given to "improving geographic coverage, particularly in remote rural areas". According to the White Paper:

    The EU requires postal deliveries and collections to be made five days per week in a member state. In an independent Scotland, there will be a service to match, as a minimum, the level of service provision inherited from the UK on independence, which is currently a six days per week service for mail.[65]

62. The White Paper also addressed the question of ownership of Royal Mail. The ambition to retain the Royal Mail in public hands (the White Paper was written before Royal Mail was privatised) would be "considered in the light of circumstances at the point of independence". It went on to state that:

    Bringing the Royal Mail into public ownership will require negotiation with the UK on Scotland's share of the government stake, and establishing a new publicly-owned postal service in Scotland. Costs arising from this process will also require negotiations with Westminster, recognising that it proceeded with the sale of Royal Mail after the Scottish Government had made clear our intention to bring the mail service in an independent Scotland into public ownership.[66]

63. The renationalisation of the Royal Mail may well be an attractive campaigning tool. However, the Scottish Government has to set out in detail the costs of renationalisation and how they would be met. Included in that assessment must be an assessment of Scotland's proportion of the historic pension liabilities currently held by the UK Government. Without that detail, the policy of renationalisation is nothing more than an uncosted aspiration.

Sustainability of the Universal Postal Obligation

64. The EU minimum standard for the UPO is for a 5 day week delivery service. Should Scotland retain or regain membership of the EU it would have to meet that requirement. It should also be noted that the current service in the UK goes beyond that requirement.

65. The sustainability of meeting the UPO requirement was called into question by a number of our witnesses. In particular, it was noted that the rural nature of Scotland and the associated cost meant that the UPO would either need to be subsidised or that post would become substantially more expensive. In its evidence, Consumer Futures told us the Universal Service Obligation (USO) required Royal Mail, as the designated Universal Service Provider (USP), to provide "a mail delivery and collection service six days a week for letters, and five days a week for parcels, at a uniform affordable tariff across the UK".[67] It went on to state that the USO was of particular value in Scotland due to the high number of rural and remote areas contained within it:

    Almost one million people live in rural Scotland and 280,000 of those live in remote rural areas. Rural Scotland accounts for 98% of the land mass of Scotland. Scotland has approximately 96 inhabited Islands with a total population of around 100,000.[68]

66. Consumer Futures also noted that almost half (45%) of the 3000 addresses exempt from the USO, for health and safety or difficulty of access reasons, were in Scotland; and that the three postcode areas in the UK exempt from Royal Mail's quality of service standards are all in Scotland-HS (Outer Hebrides), KW (Kirkwall), and ZE (Lerwick).

67. Consumer Futures concluded that in Scotland there was "substantial evidence" of the difficulties faced by consumers in Scotland, due to "higher costs of delivery; no delivery to their location; longer delivery times; lack of transparency of delivery costs; and a lack of up-front information about delivery costs".[69]

68. The UK Government noted that:

    The current UK postal network created economies of scale which helped deliver a comprehensive provision of services which help support Scottish rural or small businesses that use or rely on the Royal Mail's provision of the universal postal service. It believed that should Scotland leave the UK "an independent Scottish state would have a higher proportion of rural areas than the UK as a whole and maintaining these services could result in higher costs being passed to consumers".[70]

69. The UK Government also pointed out that it was committed to a policy of maintaining "a national network of at least 11,500 Post Office branches" in which 99 per cent of the UK population were within 3 miles and 90 per cent within 1 mile of their nearest Post Office outlet. In respect of the rural population, the requirements were "95 per cent of the total rural population should be within 3 miles, and 95 per cent of the population in every postcode district should be within 6 miles of their nearest Post Office outlet". Not all of these outlets were commercially viable and therefore the Government provided a subsidy:

    This subsidy is paid to POL as a single annual sum (£210 million in 2012-13; £180 million in 2011-12; £150 million in 2010-11). There is currently no mechanism for allocating the subsidy down to individual non-commercial branches. In the last 5 years Scottish Government funding has been for two Post Office Diversification Schemes of around £1 million each.[71]

70. In evidence the Secretary of State confirmed that the costs to an independent Scotland would be "significantly costly" and that the result would be either an increase to the stamp price or a bigger state subsidy.[72]

71. We do not believe that the Scottish Government has set out a coherent body of evidence to show how it would maintain and pay for the Universal Postal Service in an independent Scotland. The risk to Scotland is that provision of the Universal Postal Service will come at significant additional cost, either to the taxpayer or to the consumer.

Cross-border mail

72. A number of witnesses raised concerns about cross-border mail in the event of Scottish independence and highlighted the experience of the postal trade between Northern Ireland and the Republic of Ireland. In particular, any price differential between post going to and from and independent Scotland would run the risk of placing further cost pressures on Scotland. Both the CWU and Consumer Futures highlighted the need to address cross-border postal services between and independent Scotland and the rest of the United Kingdom. Consumer Futures stated that a new pricing mechanism would be necessary and set out the following potential pricing scenarios:

    International rates could be charged. Royal Mail currently charges consumers EU rates for sending mail between Northern Ireland and the Republic of Ireland;

    A standard rate for post between the current UK nations, or between some of the nations, could be charged. An Post, the Republic of Ireland USP, operates an 'all-Ireland' rate for mail which distinguishes Northern Ireland from the rest of the UK; or

    A preferential rate for mail between Scotland and the rest of the UK could be negotiated and agreed. Preferential rates between neighbouring postal operators are commonly found in Europe.[73]

73. The CWU stated that the Government of an independent Scotland "may seek to negotiate a position similar to that of the Isle of Man and the Channel Isles, where postage rates are the same as to and from UK destinations".[74] However, it was concerned that there was a risk that "mail from Scotland to England would be classified as international post".[75]

74. Consumer Futures was also concerned with varying service standards between an independent Scotland and the rest of the United Kingdom. As an example, Consumer Focus set out the current position between Northern Ireland and the Republic of Ireland:

    Our research found that over a quarter of all consumers surveyed (which included businesses) had taken post destined for the Republic of Ireland across the border to use An Post postal services, mainly because of the lower cost and perceived faster delivery time. Anecdotal evidence from sub-postmasters in border communities would suggest that this level has increased since this research was undertaken in 2009. Postal competitors are also emerging who are offering competitive tariffs for posting from Northern Ireland to the Republic of Ireland. Similar behaviours emerging in the event of Scottish independence could potentially impact upon the Scottish USP's and/or Royal Mail's mail volumes and consequently the sustainability of the USO.[76]

75. The Scottish Government has not set out in any detail how it will mitigate against the financial pressures of cross border postage in the United Kingdom. Given that this will place further financial pressures on a Scottish Mail Service, the provision of this detail is a pressing matter.

65   The Scottish Government: Scotland's Future: Communications and Digital Back

66   The Scottish Government: Scotland's Future: Communications and Digital  Back

67   Ev57 Back

68   Ev58 Back

69   Ev58 Back

70   HM Government: Scotland analysis: Business and microeconomic framework Back

71   HM Government: Scotland analysis: Business and microeconomic framework Back

72   Q188-9 Back

73   Ev61 Back

74,Ev54 Back

75   Ev54 Back

76   Ev61 Back

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Prepared 8 August 2014