What we want to do with the Royal Mail and why

By Peter Mandelson

There have been several good posts about the Royal Mail on LabourList, which is great, because the more we debate this issue the better. I want to explain what we are trying to do and why, and in doing so answer some of the points made by Billy, Kerry and Kris, and those who have commented on their posts.

I understand how important Royal Mail is to the country and how much people value our postal service.

I do not support the privatisation of Royal Mail and this is not what the Government is proposing. The Labour Government remains committed to a publicly owned Royal Mail – as stated in its 2005 General Election manifesto.

However, the Royal Mail is facing big problems and it is in need of reform – a view shared by management and trade unions. Indeed, the General Secretary of the Communications Workers Union (CWU) Billy Hayes recently acknowledged that the present status quo is untenable.

As well as the commitment to public ownership, our 2005 Manifesto committed us to carrying out a review of postal services. This review was commissioned in December 2007 and led by Richard Hooper. It looked into the issues for 12 months, held over 200 meetings, met with postal workers and visited postal operations both in the UK and overseas. In December 2008, the Hooper Report published its conclusions.

The Hooper Report set out the problems being faced by Royal Mail.

First, the volume of mail we post every day is falling as people turn to the internet, email and text messaging. Since 2005, volumes carried by Royal Mail have decreased by 7% and are projected to fall further. Royal Mail used to handle 84 million items a day, it now carries 78 million, even including the increase in packet postage as a result of internet transactions.

The second major problem that the Royal Mail faces is the pension fund deficit. This deficit, which last year was estimated at £5.9 billion, could be significantly higher by the time of its next valuation which is underway and will be completed later this year. This represents a huge burden for the company and casts a doubt over the security of the pensions of the hard working men and women who work for Royal Mail. On an accounting basis, Royal Mail had a pension deficit larger than any FTSE 100 company at the start of 2008. It cannot afford its growing deficit payments.

In addition, Royal Mail is less profitable than most other European postal services. Despite receiving government loans of £1.2 billion to invest in modernisation, the organisation has not modernised as much as it should have and the last stage of the sorting process is still done by hand whereas in the most modern European postal service this is mostly automated.

The overall conclusion of the Hooper Report is that without change the universal postal service is under threat.

Recognising the problems that Royal Mail faces, the Government has published a bill designed to deal with these issues.

The key measures in the Bill are:

Royal Mail will remain in public ownership and this will be enshrined in law. No future government would ever be able to privatise Royal Mail without primary legislation.

The Post Office Limited, with its network, which I know is also highly valued by the public, will remain entirely in government hands.

The universal service – letters collected and delivered anywhere in the UK, six days a week, for a single, affordable price – is to be written into the legislation. This is a service greatly valued by the British public and I believe we are right to fully protect it.

The current regulator, Postcomm is to be abolished. Ofcom is to regulate postal services and to have as its primary duty maintenance of the universal service.

There have been a lot of concerns about the terms under which Royal Mail competes with other companies. Many are concerned that competitors have been able to ‘cherry pick’ the best contracts and use the Royal Mail network for deliveries at a low cost. Although this competition has not been the key reason for Royal Mail’s problems, I understand these concerns and I want to help ensure a level playing field for Royal Mail. There will be a new regulator for Royal Mail whose first duty will be to protect the universal service. That duty will override other regulatory requirements such as the promotion of competition.

The Government’s proposal, also allowed for in the Bill, is to bring in management expertise and experience of postal service modernisation and also extra capital for investment by allowing a partnership between Royal Mail and another operator. It is this issue which has been the most controversial. I want to ensure that a partnership does not put in jeopardy Royal Mail’s status as a publicly owned company.

In return for making these changes to the organisation, the Government will take on responsibility for the historic pension liabilities, which will put those members who come under the scheme on a par with the NHS or teachers’ pension schemes.

I know that there is real concern about these changes and I understand the strong support to keep Royal Mail in public ownership. I want to ensure that we protect Royal Mail so that it can continue to provide the universal service, develop its business and protect those who rely on its pension fund. There will be further discussions as the bill makes its journey through Parliament but I do believe that we need to face up to the problems Royal Mail has and ensure we have a modernised postal service for the future.