Select Committee on Constitution Minutes of Evidence

Memorandum by Postwatch

  The following are Postwatch's comments in response to the 11 questions set out in the call for evidence released on 9 January 2003. Postwatch's comments all relate to one regulator—Postcomm.


  1.  The Postal Services Act 2000 (the Act) established the Consumer Council for Postal Services (Postwatch), which came into existence on 1 January 2001. The same Act established the Postal Services Commission (Postcomm) as the economic regulator for postal services and sets out its duties and powers.

  2.  The need for sector specific regulation of the UK's postal market is closely related to the market power that can be exercised by the Royal Mail. Postcomm came forward in April 2002 with its strategy for opening up the letter market to competition (ie items weighing less than 350 grms or costing less than £1 in postage). That strategy was for a gradual opening in three phases; ending on 1 April 2007 with a competitive market. Whilst the regulator can "open the door" to competitors and do what it can to remove unfair barriers to entry, it has no influence on if, when and how companies will compete. These are commercial decisions for the companies concerned.

  3.  There is no overt procedure in place to review the need for a sector specific economic regulator. If effective competition becomes established Postwatch could recommend to Parliament that the need for a sector specific regulator has diminished and that "regulation as usual" should be undertaken by the Office of Fair Trading. If effective competition does not develop an economic regulator will be needed to control Royal Mail's prices for products in non-competitive markets.

  4.  The regulator's duties are as set out in the Act. No timescales were set by Parliament and the speed at which tasks are pursued is therefore a matter for Postcomm. Primary legislation is needed to change the duties.

  5.  Postcomm has seven Commissioners all appointed by the Secretary of State. Nolan principles do apply, although the Chairman Mr Corbett, was appointed before Postcomm was formally established and the principles were not applied in his case. The post of Chairman was not advertised. [1]

  6.  In broad terms Postcomm exists to:

    —  ensure the universal postal service continues to be provided;

    —  license postal operators;

    —  promote effective competition;

    —  promote efficiency amongst postal companies; and to

    —  ensure licensed postal operators can finance their licensed activities.

  7.  It is unrealistic to expect Postcomm to always propose the best possible solutions in optimum time. Nevertheless, poor decisions, and dithering are likely to have adverse effect. The consequences are difficult if not impossible to measure. For example, there are signs that determining the price that third parties should pay Royal Mail to access its delivery "pipeline" is taking much longer to determine than originally thought. This delay may well lead potential new entrants to believe that "reasonable access terms" are unlikely to be available in the short-term and that cash should therefore be invested in less risky ventures. This in turn may delay the arrival of effective competition. One new competitor, Deya, is already reported as having withdrawn from the market because of concerns over Postcomm's delay.

  8.  Postwatch strongly believes that competition will provide real benefits for postal customers in terms of innovation and improved performance. Competition is also likely to spur Royal Mail into improving its service performance. Consequently, the absence of competition is likely to leave customers with no choice and a poor balance between price and levels of service.

  9.  The primary assessors of Postcomm's effectiveness are the House of Commons' Trade and Industry and Public Accounts Committees. Postwatch, Royal Mail and the Communications Workers Union can also usually be relied upon to give views on all aspects of Postcomm's work but have no formal assessment role. Likewise, the media provide a valued commentary on Postcomm's plans.

  10.  Some of Postcomm's decisions, primarily those relating to modifying licences, can be rejected by licensees and then referred to the Competition Commission for its view about whether the proposed modification is in the public's interest. Other decisions and the process by which they were reached can be challenged in court through the judicial review process. In theory all decisions are challengeable. In practice, only important decisions, which are flawed, are likely to be challenged. Also, the "all or nothing" nature of judicial review may not provide a suitable remedy where complex decisions are involved, some parts of which may be acceptable, but others not.

  11.  The fact that references to the Competition Commission, as the independent appeals body for regulatory decisions, can only be made by Postcomm or Royal Mail is in our view too limited. Consumers are vitally affected by these decisions; where they are flawed there should be the right for Postwatch also to seek the views of the Competition Commission.


  12.  Parliament receives an Annual Report from both Postwatch and Postcomm. The Trade and Industry Committee of the House of Commons use these reports as the basis for hearings. In addition, both bodies are likely to be called to give evidence during the course of any Parliamentary year in relation to whatever the main areas of concern are (eg plans to introduce competition, level of price controls, worsening industrial relations). The National Audit Office also undertakes reviews on a regular basis, usually concentrating on a particular aspect of Postcomm's work. The subsequent report of the Comptroller and Auditor General forms the basis for a hearings and a report by the Public Accounts Committee of the House of Commons. There is also the likelihood that a Sub-Committee of the House of Lords will call for evidence on an aspect of Postcomm's work, undertake hearings and produce a report.

  13.  The Public Accounts Committee also has the right to review the annual accounts, although Postcomm has not yet published any accounts, despite being in existence for three years. [2]

  14.  There is no evidence to suggest that Postcomm would not accept recommendations from any Committee of Parliament. However, it is not obliged to do so. As a courtesy to the Committee concerned it would probably explain why it had decided to pursue a different course.

  15.  The role of the DTI in postal regulation is to say the least, complex. The Department appoints the Commissioners of Postcomm, the Councillors of Postwatch and the Chairman of the Royal Mail Group. It acts as the sole shareholder of the Royal Mail Group plc and sponsor to the UK's postal service industry. It is responsible for funding Postwatch. The DTI negotiates for the UK within the European Union on postal liberalisation. It also sees itself as the "guardian" of the postal regulatory regime and uses its offices to broker agreements between disagreeing groups. It is responsible for changes to the Act. The interests of the Royal Mail Group, the UK postal industry and postal users are not always (if ever) the same. It is unclear how much weight DTI gives to each interest group when reaching its decisions; conflicts of interest inevitably arise.

  16.  It should also be noted, in this context, that Mr Stanley, a Postcomm Commissioner is a secondee from the DTI.

  17.  Postcomm is not accountable to postal users. Postwatch represents all postal users and believes Postcomm does not give its views or those of other consumers adequate consideration. Postcomm has developed a close working relationship with Royal Mail. It regularly negotiates with Royal Mail in private, for example in setting prices, and then appears reluctant to change what has been agreed bilaterally during public consultation. Royal Mail thus enjoys an inside track with Postcomm to the exclusion of other interested stakeholders. A prime example of this was the development of the first licence for Consignia, where significant changes were agreed bilaterally, in private, just a few days before the licence was issued. Postwatch were presented with a fait accompli, which unduly benefited Royal Mail and its shareholder.

  18.  Postcomm's consultation processes are not soundly based. They veer from the painfully slow to the unreasonably rushed. For example, Postcomm has yet to consult on a definition of the universal postal service, which is its primary statutory duty to protect; and in setting a new price control consumers were given just six weeks out of a two-year process to comment on highly complex proposals.

  19.  Postwatch commissioned economic consultants NERA to provide estimates of the total costs of delays and other service quality problems to Royal Mail's business users. Their report[3] estimated that the total cost of delays was in excess of £450 million in 2001-02. The effect on domestic users is very difficult to measure and cost. The consequences are likely to be across the range from mildly annoying (bank statement arrives late), through irksome (birth certificate lost) to emotionally distressing (loss of irreplaceable photographs or missed hospital appointments).

  20.  Postcomm publish a number of documents which explain what they intend doing and how they will go about their work (eg a forward work plan and their consultation procedure). Such documents are intended to help third parties gain an insight into how Postcomm does its job. In addition, Postcomm consults widely before taking decisions and to a limited extent discusses in decision documents how representations have affected the decision making process. However, despite all the efforts made it remains unclear to Postwatch how some decisions have been arrived at. There seems to be reluctance on the part of Postcomm to publish as much as they can to help all stakeholders understand the whole picture. For example, Postcomm have not published the Financial Model that helped them develop their current price control proposals. Grounds of commercial confidentiality are deployed all too often.

  21.  The Act requires that Postwatch and Postcomm agree a Memorandum of Understanding[4] Postcomm are obliged by the Act to seek Postwatch's views on all important proposals. Even if it was not obliged, it would undoubtedly do so. However, the two bodies are independent of each other and do have different priorities. They should not be expected to agree on issues. Postwatch is concerned that Postcomm does not always comply with its own published consultation procedures or announced timetables.

  22.  Both Postcomm and Postwatch are relatively new statutory bodies and neither has much of a public profile. Nevertheless, the steadily growing number of complaints that Postwatch receives about the Royal Mail, Post Office Counters Ltd and Parcelforce helps it determine its position on a number of issues. Such feedback from customers is extremely important.

  23.  Postwatch, in accordance with the Act has a regional organisation (Postcomm does not and is based in London only), which covers the whole of the UK. Postwatch's regional committees are networked into their areas and able to give feedback from individuals as well as groups. Postwatch has also established good working relations with a number of organisations[5] that have joined its Counters Advisory Group and with relevant Trade Associations [6] These links enable Postwatch to understand what different types of customers want from their postal services.

Andy Frewin

Senior Director, External Relations

28 March 2003

1   Note by the witness, 2 June 2003: In our written evidence to you of 28 March we said we were not aware that the post of Chairman of Postcomm had been advertised. DTI have since let us know that the post was advertised when it was established in shadow form a year before Postcomm was set up under the Postal Services Act 2000.


2   Note by the witness, 15 May 2003: We now understand that Accounts for 2001-02 were available as from 30 January 2003. These Accounts (HC 354) were not copied to Postwatch nor were they, until very recently, placed on Postcomm's web site. The report of the Comptroller and Auditor General shows there was an excess vote.


3   The Costs to Business from Postal Delays: September 2002 available from Postwatch's website


4   Available on


5   List of organisations at Annex 1.


6   List of Trade Associations at Annex 2. Back

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