LORD
MANDELSON - HOUSE OF LORDS STATEMENT
THE FUTURE
OF ROYAL
MAIL
Introduction
My Lords,
I wish to make a statement about the Royal Mail.
This
Government is firmly committed to a universal postal service: that is,
the ability of the 28 million homes and businesses across the country
to receive mail six days a week, with the promise that one price goes
anywhere.
The
universal service helps to bind us together as a country. And, as
well as its social importance, it is the means by which many companies
build and operate their businesses, but it doesn’t come free.
Last
December, John Hutton invited Richard Hooper to lead a full,
independent review of the postal services market. Its purpose was to
look ahead to the future and to recommend the steps needed to sustain
the universal service, in a world where technology, consumer behaviour
and the communications market are all rapidly changing. The review
did not cover the Post Office network.
I have now
received Richard Hooper’s final report. It is a serious, wide-ranging
study, and makes sober reading. We are publishing it this afternoon.
I am very grateful to Richard Hooper, and to Dame Deirdre Hutton and
Ian Smith, for their work on it.
Hooper’s
conclusions
Let me
set out Hooper’s analysis of the challenges facing the Royal Mail.
First,
there has been a revolution in communications technology
over the past decade as consumers turn to emails, the internet and
text messages. In this country 60 billion text messages were sent last
year. And we now send five million fewer letters than two years ago.
Hooper is
absolutely clear that the main challenge to the Royal Mail is from the
impact of changes in technology and consumer choices. His estimate is
that, last year, the shift of mail to these new technologies cost the
company £500 million in lost profits. That is five times the impact of
business lost to other postal companies in our liberalised market. The
message is therefore clear. Making these other companies go away is
not the answer to the Royal Mail succeeding.
Royal
Mail’s success matters because it is the only company capable of
delivering mail to every address in the UK, six days a week. And as
Hooper makes clear that will be the case for the foreseeable future.
So a
healthy Royal Mail is vital to sustaining the universal service.
The
second challenge is efficiency. Hooper reports that Royal Mail is
less automated and less efficient than its Western European
counterparts. In modern European postal companies, 85% of mail is put
in walk-order by machine for delivery to the individual home or
business. By contrast, in Britain, in local delivery offices it is
still done entirely by hand. The Royal Mail urgently needs to catch up
and modernise.
The third
challenge is the Pension Fund.
Hooper warns that Royal Mail has a large, growing and volatile pension
fund deficit. This is near impossible for the business to manage and
is a huge demand on its revenues. Each year on top of its regular
£500 million contribution to the pension fund, the company is having
to find an extra “top up” of £280 million to plug the deficit. These
payments look set to rise substantially when the fund is re-valued
next year.
Fourth,
Hooper says labour relations in the company need to improve.
Levels of trust and co-operation are low. Industrial action takes
place too often. A fresh start in industrial relations is badly
needed.
Fifth,
regulation.
Hooper also reports a lack of trust in the relationship between the
company and the regulator. There are disagreements about basic
information and these tensions divert energy from the chief challenge
of modernising the business.
So
overall, Hooper’s conclusions are crystal clear. The status quo is
untenable. The universal service is under threat. The choice we face
is either downgrading the universal service as we manage decline or
acting now to turn things round and secure the Royal Mail’s future.
Hooper’s
Recommendations
At the
heart of the Hooper report are three linked recommendations.
Pension
deficit
First, the
pension fund deficit. Hooper recognises that this represents a
significant challenge for the company.
The Report
recommends that as part of a package of changes, the government should
take over responsibility for reducing substantially the pension
deficit. I would stress that Hooper says this would only be justified
as part of a coherent package to secure the Royal Mail’s long term
viability.
Partnership
Secondly
and closely related, to improve the Royal Mail’s performance it should
forge a strategic minority partnership with a postal operator with a
proven record in transforming its business, working closely with the
workforce. This, Hooper believes, would give Royal Mail the
confidence, the experience and the capital to make the changes needed
to improve performance and face the future. In other words, save the
Royal Mail by investing in its future.
Regulation
Finally,
regulation. Hooper proposes Ofcom should take over responsibility
from Postcomm for regulating the postal market. Its primary
responsibility would be to maintain the universal service in the wider
context of the other changes taking place in communication markets.
Government
response
My
Department will want to study the report in detail. I intend to
respond with a full statement of our policy in the early part of next
year.
With
backing from the Government, the Royal Mail has been improving
performance in recent years. But progress has been too slow and Hooper
is clear that, in the face of the challenges confronting the company,
transformation must be faster and more far reaching.
I can say
now that the Government agrees with Hooper’s analysis and the
recommendations. As he does, we reject cutting back the universal
service. Indeed, we share his ambition for a strong universal service
and strong Royal Mail. And we intend to take forward the
recommendations as a coherent package of measures.
We will
fulfil our manifesto commitment to “a publicly owned Royal Mail
fully restored to good health, providing customers with an excellent
service and its employees with rewarding employment”. Bringing in
a partner through a minority stake in the Royal Mail’s postal business
will help us deliver that goal. It will bring the Royal Mail fresh
investment, new opportunities to grow in Europe and internationally,
and to offer new services. It will provide a fresh new impetus to
modernising the Royal Mail and securing the universal service.
We and the
Royal Mail have already received one expression of interest from the
Dutch postal company, TNT, to build such a partnership. I very much
welcome this approach from an experienced postal company, just as I
will welcome other expressions of interest from credible partners
should they come forward. My Department will pursue this in the
coming weeks.
Post
Office
Finally, I
should comment on the Post Office, which was not part of the review’s
terms of reference.
The
network of local Post Offices combines a unique set of commercial,
public and social roles. In recognition of this a partnership would
not include the Post Office network.
But a
healthier Royal Mail letters business will be good for the Post
Office. Today’s announcement will help underpin our existing
commitment to the Post Office network. We are providing £1.7 billion
to 2011 to support a network of around 11,500 branches. We will
continue to support the non-commercial network beyond that time.
Noble Lords will recall the recent announcement that the Post Office
Card Account will stay with the Post Office. We will now build on
that decision to ensure a stable and sustainable network for the
future.
We are
determined to have a Post Office network offering a broad range of
services throughout the country, supporting both social and financial
inclusion. I am delighted that the House of Commons Business and
Enterprise Select Committee has agreed to undertake an inquiry into
what further services the Post Office could offer.
Conclusion
My Lords,
I believe that Royal Mail and the postal market can thrive in the
future – provided that decisive action is taken now. Without
far-reaching change, the opportunities brought by technology will
become overwhelming threats. This need not be the case. I believe
that there are benefits for everybody in the package of measures that
we intend to take forward.
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It will protect the universal service
for consumers.
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It will give Royal Mail new
opportunities to modernise and develop.
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It offers the Royal Mail’s staff a
future in a modern, efficient postal operator with more secure
pension arrangements.
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It offers the whole country a Royal Mail
we can be proud of.
I commend
this statement to the House.
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