Royal Mail - Postcomm Faces Select Committee

24 February 2009 by David Lynch - © Hellmail.co.uk

Talking to the Business and Enterprise Select Committee today, Postcomm gave an insight into its involvement in the regulation of Royal Mail.

Postcomm chairman Nigel Stapleton said that it was economies of scale that actually undepinned the universal service, ie revenue from business mail. He said that only one in five letters was stamped mail which gave some indication of the scale involved but that increasingly, this revenue was being lost to digital media.

He said the only other option would be to pass cost of USO on to electorate but that was deemed unacceptable. He said although Royal Mail presently showed a profit, it was still saddled with a massive pension deficit and over the coming years would make a loss. He acknowledged that the Royal Mail faced enormous challenmge to avoid moving into a loss-making situation and that this did not include the growing costs attached to the pension.

Chief executive at Postcomm, Tim Brown, said Royal Mail operated under tight constraints whereas other countries were not bogged down by being tied to government and a growing pension problem. He said greater separation from government in terms of operational decisions was essential, as was the need for access to network expertise and skills.

Asked whether such expertise could be bought in, chairman Nigel Stapleton said he would not be drawn on management experise against political issues but said he was not critical of management given the constraints it has to operate in.

On whether now was good time to get a deal from a private operator. Stapleton pointed out that the present modernisation loan from government was still bering looked at by the EU two years later and that on the whole, a government loan had more strings attached than private loan.

Neither was willing to put a figure on just how much money was needed to modernise but Tim Brown said Royal Mail needed to continue modernising and that is wasn’t a single process that would come to an end soon. He was concerned however, that a partnership with TNT would present challenges in a competitive market.

Nigel Stapleton said that Postcomm’s strategy review had never talked about a partnership but it had consistently maintained that change and modernisation was crucial to its future. He said the fact that the modernisation hadn’t happened quickly enough was why bolder changes were now needed.

He said that the postal services act had made the Royal Mail a PLC but the constraints had not enabled management to decide what was right for the business.

Postcomm was supportive of keeping the Post Office entirely separate and although it did provide an access point to Royal Mail products, it also provided many other services. Tim Brown said greater financial transparency between the two was important. He said there were already moves towards Post Offices providing access to a range of operrators with DHL offering services through branches of W H Smith. He said he did not believe it would undermnine Royal Mail which itself was already offering services through Tesco and other outlets. He said anything that improved access to postal services was a good thing.

Nigel Stapleton pointed out that it only a third of Post Office revenue came from Royal Mail. He said the key to sustainability was more revenue coming in and identity with local communities. They both ageed that a strategic partnership would be good for Post Offices.

On accountability, Nigel Stapleton said that as the government would remain the main shareholder, Royal Mail should still be accountable. He said the lack of real pressure from government to modernise meant the relationship between government and Royal Mail needed careful examination but it was important that the government shopuld remain involved.

Peter Luff (Select Committee), speaking to BBC news said the rise in the Royal Mail pension deficit was leaving Royal Mail with its hands tied behind its back.

“Unless we do something about it, we’ll lose our mail service” he said.

“Royal Mail needs more capital to modernise, the question is where that money is going to come from.” he said.