Competition in the postal services sector and the Universal Service Obligation - Business, Innovation and Skills Contents

1  Introduction

Post matters. It is important for the productivity of the economy and for social cohesion. [Richard Hooper][1]

1. The universal postal service has its genesis in the Penny Post—a stamp costing a penny, which assured the postage of a letter anywhere in the United Kingdom—which was introduced in the Postal Act of 1840. Today, the minimum requirements of the Universal Postal Service—set out in the 2011 Postal Services Act—include the following:

·  At least one delivery of letters every Monday to Saturday, and at least one delivery of other postal packets every Monday to Friday;

·  At least one collection of letters every Monday to Saturday;

·  At least one collection of other postal packets every Monday to Friday;

·  And a service of delivering postal packets and registered items from one address to another by affordable and geographically-uniform prices throughout the United Kingdom.[2]

2. The Universal Postal Service is vital to many people living in the United Kingdom. The majority of our evidence highlighted the benefits of the Universal Service to many people, including older people, people living in rural and remote communities (where internet connections can also be sporadic or non-existent), and those less able to travel.[3] The Universal Postal Service also provides a free postal service to blind and partially-sighted people.[4] The National Federation of Occupational Pensioners (NFOP) wrote of the benefits of the Universal Service to its members:

    The members of the NFOP rely on postal communications to remain in touch with relatives and friends and it provides a vital lifeline and contributes to avoiding loneliness. Although there is an increased use and accessibility to electronic communications the elderly and most vulnerable are often excluded from access either through cost or disability.[5]

3. The Citizens Advice Service also described the essential role that the Universal Service provides to wide numbers of groups:

    Consumers still rely on and value the universal service as a communications tool and the USO acts as a critical safety net to avoid social exclusion and the potential lack of services due to market failure. Traditionally, rural consumers value and appear to have a greater reliance on postal services than users in other geographical locations and recent research published by Ofcom in their user needs review, also showed that other categories of users such as older, disabled or housebound users, are more likely to use post and to feel cut off from society if they could not send or receive post. Access for vulnerable and rural consumers (at affordable rates) must be maintained as this is becoming increasingly important for their effective participation in the economy.[6]

4. Royal Mail is the only postal company currently designated to provide the Universal Service. However, the postal sector as a whole covers more than the Universal Service, and Royal Mail is working within an increasingly competitive postal industry, with competition from many rival companies. We received evidence which argued that such competition is driving down standards, driving down terms and conditions of staff, and driving down the quality of service to customers.[7] Indeed, during the course of this inquiry, the effects of this competition were clearly demonstrated, when the postal operator City Link was placed into administration on 24 December 2014. This resulted in up to 5,000 of City Link's employees, employed drivers and third-party workers losing their jobs and contracts with City Link.[8] We have held joint evidence sessions on this with the Scottish Affairs Committee.[9]

The Social Market Foundation wrote about the current state of the postal services market:

    The postal services market has seen substantial change over the past decade. It has become more competitive. The regulatory regime has changed, and with it, Royal Mail has been given more flexibility to set its own prices. And, most recently, Royal Mail has been privatised. In many ways, these changes are similar to those experienced in other sectors such as telecommunications, gas and electricity, although there are important differences too. So the postal services market has started to look much more like a private sector market. But in common with many other sectors that have followed the same path, regulatory intervention has been needed to ensure that wider social objectives continue to remain at the heart of the market.[10]

5. There has been a decline in the volume of letters in the United Kingdom for several years, with volumes falling by 6.3% per year from 2008 to 2013, at the same time as a burgeoning parcels market, largely in response to the growth of e-trading, which according to Ofcom increased by 3.7% per year over the same time period.[11] Ofcom has been the regulator of the postal market, including the Universal Service, since 2012, and Ed Richards, the Chief Executive of Ofcom until December 2014, highlighted uncertainties in the postal sector:

    It is an unusual case. In some of the other areas we work, the story has been just of growth and growth and more growth. This is an unusual and difficult case, because you have obviously a decline of our propensity to send letters, but you also, on the other hand, have the revolution of e-commerce and the delivery of parcels, so it is a complicated beast with a very subtle balancing act.[12]

6. This balancing act—ensuring that the minimum standards of the Universal Service are maintained, while encouraging a competitive market—is the main issue that will be explored in this inquiry. It should also be noted that since privatisation, Royal Mail is a private sector company.

7. On 24 September 2014, the Committee asked for written evidence on the following terms of reference:

    The BIS Committee will conduct an inquiry into Competition in the UK postal sector and the Universal Service Obligation.

    The inquiry will consider:

·  access and end to end delivery of mail;

·  Parcel delivery services and the impact of competition in these services on the Universal Service Obligation.

We received 59 written submissions, and two oral evidence sessions were held on 26 November 2014 and 10 December 2014, where we heard representatives from: Royal Mail; Whistl; UK Mail; TNT UK; Amazon; the Communication and Workers Union; Community; the Mail Users Association; Citizens Advice; and Ofcom. We would like to thank everybody who gave written and oral evidence, and who informed this inquiry.

1   Richard Hooper (USO 06) para 2 Back

2   Section 31, Postal Services Act 2011 Back

3   Written evidence highlighting the benefits of the Universal Service included: Cornwall Chamber; the Farmers' Union of Wales; the Scottish Chambers of Commerce; the Consumer Council; the National Federation of SubPostmasters; the Welsh Local Government Association; the Scottish Council for Development and Industry; the South Wales Chamber of Commerce; the National Federation of Occupational Pensioners; the Civil Service Pensioners' Alliance; the Institute of Directors Wales; the Countryside Alliance; the Rural Services Network; the Royal National Institute of Blind People; the Campaign for the Protection of Rural Wales; the Council of the Isles of Scilly. Back

4   The Postal Services Act 2011, Section 31 Back

5   The National Federation of Occupational Pensioners (USO 11) para 3 Back

6   The Citizens Advice Service (USO 18) para 5.1 Back

7   For example Unite the Union (USO 17) CWU (USO 18) Royal Mail (USO 37) Back

8   Scottish Affairs Committee oral evidence session, Impact of Closure of City Link on Employment in Scotland, 13 January 2015, Q67 Back

9   Scottish Affairs Committee, inquiry into the impact of the closure of City Link on Employment, accessed 5 March 2015 Back

10   The Social Market Foundation (USO 19) page 1 Back

11   Ofcom, Royal Mail access pricing review, 2 December 2014, para 3.3 Back

12   Q204 Back

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Prepared 12 March 2015