Royal Mail may be viewed with a high level of affection by the public now, but will that still be the case after it’s privatised?
From the Guardian Comment is free
The inevitable has happened. The government has announced its schedule for the privatisation of the Royal Mail, due to begin in 2013.
It’s not clear yet whether it will be full privatisation or part-privatisation, whether it will be sold off to another mail company or to a private equity firm, or whether it will be floated on the stock market as an IPO (initial public offering) and advertised to the public in the manner of the “Tell Sid” campaign for the sale of British Gas way back in 1986. “We see no reason why this company should not be IPO-able,” said one senior figure. “Royal Mail is viewed with a high level of affection by the public.”
The reasons given for the privatisation were outlined in the Hooper report in 2010.
They are as follows:
1) Falling volumes of mail due to competition from electronic media such as email and texts.
2) The inefficiency of the Royal Mail compared with its competitors.
3) The need for modernisation and the private investment to complete this.
Hooper consulted widely throughout the industry. However, he has never, as far as I know, spoken to any postal workers.
What we would have told him is that while it may be true that mail volumes have fallen, staff numbers have been falling at a faster rate. Up to 50,000 job losses since 2002.
In other words, the weight of mail for the average postal worker has been increasing. We are carrying more mail, to greater numbers of people, on larger rounds than ever. Our sacks are heavier. We work longer hours, and we’ve taken an effective pay cut since the postal agreement of 2010 in which door-to-door (junk mail) – which we were previously paid for separately – has now been incorporated into our workload. In other words, falling mail volumes have been more than compensated for by staff efficiencies.
We would also have told him that the so-called inefficiency of the Royal Mail is due as much to market liberalisation as it is to anything inherent in the company.
Private mail companies have access to the Royal Mail network through a mechanism known as downstream access. They bid for the most lucrative contracts from corporate customers, but have no obligation to deliver the letters. They leave that up to the Royal Mail, dropping it off on our doorstep for final-mile delivery. In other words, our so-called competitors have a peculiar market advantage. They take a cut of the profits, while we do the actual work.
As for modernisation, that is being subsidised by the taxpayer. The government has already loaned the company £1.7bn and is proposing to write off £1bn of that.
Which brings us to the pension deficit, which has already been taken into government hands. Even then it was never as great a problem as has been made out. The deficit currently stands at £9bn but the assets stand at £28bn. That’s three times as much. The deficit only becomes a problem if all Royal Mail workers cash in their pensions immediately, something that is not going to happen.
These are just some of the ways in which the argument for privatisation has been skewed.
Meanwhile, in preparation for the event, the new regulator, Ofcom, has announced a lifting of the cap on how much the company can charge for first-class mail. The public are hardly likely to enjoy that. Nor is this going to increase public affection for the company.
However, here’s the problem. The cost of mail delivery has been way too cheap for way too long. Sixty pence to deliver a first-class letter from the Outer Hebrides to the Scilly Isles: it’s still a bargain by anyone’s reckoning.
Traditionally the profitable parts of the company were used to supplement the unprofitable parts. This is the means by which the Royal Mail has been able to deliver the universal service obligation (USO).
It is the breaking up of the company that has lead to the threat to the USO, one of the reasons Hooper gives for the need for privatisation. (Indeed, his report is called “Saving the Royal Mail’s universal postal service in the digital age”.) The irony here is that the USO might be dropped in order to sweeten any future deal.
Anyone who wants to know what privatisation means for staff only needs to look at the Dutch model, where postal rounds have been franchised out to home workers in a system known as “sort and deliver”. Boxes of mail are dropped on a home-worker’s doorstep, who then has to sort the mail and deliver it on an agreed day. The worker is paid per item, not by the hour.
The trick here is that there is often a gross underestimation of the time it takes to do the work. Casual workers get no sick pay, no holiday pay, no health insurance, no pension and – depending on how long the round takes – often end up being paid below the minimum wage.
All of which is likely to erode that “high level of affection” felt by the public for the Royal Mail.
Read more here.
Royal Mail has a new regulator, but its proposals fail to protect the service from privatisation and unfair competition
From the Guardian, Comment is free
Friday 28 October 2011 08.00 BST
The Royal Mail now has a new regulator, Ofcom, which took over the role from Postcomm on 1 October. Ofcom has already issued a report in which a number of changes are proposed. There is a public consultation under way, which closes on 5 January 2012.
The most contentious of the proposals is the one to lift the cap on what the Royal Mail can charge for its principal service. According to some reports this could mean the price of a first-class stamp going up to £1. Less well recognised, but equally important, is the proposal to lift the cap on the price of bulk mail and business mail, which could also have an impact on customers further down the line.
The move to Ofcom follows on from proposals made in the Hooper report, which has been the basis of policy for successive governments since it was first published in 2008. It was updated at the request of the current government in 2010.
Hooper makes a number of recommendations, of which the change of regulators is just one. Other recommendations include the introduction of private capital through a “strategic partnership with a company with corporate experience of modernisation” – privatisation – and the removal of the pension deficit to the public purse, thus lifting the burden from any future buyer. In March 2010 the deficit stood at £8bn. Hooper states that his proposals must be taken as a package, which implies that privatisation is not far off.
The stated aim of both the Hooper report and the Ofcom proposals is the protection of the Universal Service Obligation (USO) by which the Royal Mail is required to collect and deliver letters six days a week at an affordable and uniform price across the UK. None of the other mail companies has this obligation. It is interesting to note that these proposals come on the eve of privatisation. They allow any future buyer the freedom, not allowed to the Royal Mail for the past few years, to set a price in line with actual costs.
Meanwhile Ofcom also offers safeguards to protect vulnerable consumers from onerous price rises by placing a cap on the price of second-class stamps of between 45-55p. It also, very significantly, promises “to require Royal Mail to continue to provide competitors with access to its delivery network”.
It’s at this point that we enter the bizarre world of “downstream access”. Hooper explains the term in his report, in a footnote on page 12:
“Royal Mail delivers 99% of all letters downstream. Royal Mail is required by the regulator … under the terms of its licence to deliver letters for competitors who collect and sort upstream in competition with Royal Mail. This is called the access regime or downstream access regime. Competition in physical mail happens upstream whereas downstream delivery of physical mail has the characteristics of a monopoly.”
Do you get that folks? “Competition in physical mail” – that is competition for profits – “happens upstream”, while “downstream delivery of physical mail” – that is, the actual work – “has the characteristics of a monopoly”. Royal Mail has a monopoly of the work, while the other companies get a share of the profits. And you wonder why the USO is under threat?
The Ofcom proposals continue: “Royal Mail would have the freedom to set the ‘wholesale price’ for access to its network but would be subject to rules regarding the allowed margin between the wholesale and retail prices. This would help ensure that efficient competitors can compete effectively with Royal Mail.” This is known in the business as “headroom”. It is the difference between what the Royal Mail is allowed to charge, and what the “competitors” – who don’t, in any recognisable sense of the word, actually compete – require in order to continue to generate profits for themselves.
Ofcom makes a sort of nod of recognition to the absurdity of the situation when it promises, in the next sentence, “to assess on a case-by-case basis any interest in providing so-called ‘end-to-end competition’ in the UK, where a postal operator receives the letter and delivers to an address without using Royal Mail’s network.” It is interesting to speculate what this might mean. Are we going to see rival pillar boxes on our street corners, and rival posties with different coloured uniforms vying with each other to get to the letter box first? Will there be a kind of postal workers’ turf-war going on, in which I meet my rival at the gate and have to fight him off for access to your letter box?
Of course not. The rival companies will only consider an end-to-end service if there is profit to be made, which means they won’t be in the slightest bit interested in the USO. If such a thing happens at all it will be delivery within one city, or between cities, no more. Rural and remote areas of Britain will never be graced by any but the Royal Mail’s characteristic uniform. Whatever else happens, the Universal Service Obligation will remain the obligation of one company alone. Which is the reason why the Royal Mail will always remain a special case.
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A Panorama programme on postal junk was compelling, but didn’t mention that the market is skewed against Royal Mail
Junk mail. We all hate it don’t we?
Postal workers probably hate it more than anyone else, as we see more of it than anyone else. You only have a few items a week to deal with, we have hundreds of items a day. Sometimes we have as many as six separate items per household to load into our frames. That could be well in excess of 3,000 items a week. You can’t imagine how tedious this is.
And whereas in the past we were paid separately for it, as a supplement to our wages (which compensated us for it somewhat) these days it is part of our workload; and whereas the general estimate for the number of houses we cover on a daily basis is about 85%, for junk mail it is 100%, meaning it takes longer to deliver than ordinary mail.
Now a Panorama programme has been aired all about junk mail. It seems as if the Royal Mail is addicted to it – at least if you believe Richard Hooper, author of the Hooper report into the future of our postal services.
As he said in the programme: “There is absolutely no question that advertising mail, which the critics describe as junk mail, is central to the viability of the Royal Mail in the 21st century.” As proof of this he gave us some fairly compelling figures: about a quarter of the total letters market, of around £5.4bn, is advertising mail. Or as Tom Heap, the reporter, summarised it: “On the face of it, it seems the best way of ensuring the survival of our beloved postal system is to sign up to as much junk mail as you possibly can.”
Unfortunately, as the programme also pointed out, there are some pretty serious consequences to this, not least in the cost of disposing of the stuff once it comes through our doors, and – almost immediately – is chucked into the bin. Millions of pounds a year is spent by councils around the country, either in recycling the material, or in shovelling it into landfill sites.
It seems we are stuck with junk mail. Or are we?
The problem is that we were not given all the facts. There are a number of issues that Hooper – the acknowledged expert in the field – omitted to inform you about.
Central to this is something known as downstream access (DSA). This is the means by which rival companies are allowed access to the Royal Mail’s delivery network, at a loss to the Royal Mail. According to Royal Mail’s chief executive Moya Greene in December last year, this is in the region of 2.5p for every item of DSA mail we deliver. Some price changes have since been introduced by the regulator and the extent of subsidy and loss since the changes is as yet unclear [see footnote].
Yes, that’s right: we deliver our own rivals’ mail for them, and then we take a loss on it. By law. Or, to put it another way: we postal workers, and you members of the public, are made to pay so that rival companies to the Royal Mail can make a nice profit. This is what Hooper refers to as “modernisation”. It is the real drain on the Royal Mail’s revenues, and the reason why it is now so dependent on junk mail to survive. Sometimes we are made to deliver our own competitors’ junk mail.
It is achieved through a process known as headroom. What this means is that the price the Royal Mail is allowed to charge for bulk mail delivery – the bills and statements sent out by banks and utility companies, which is the prime source of all revenue in the letters market – always has to allow headroom for its rivals to make a profit.
Without this artificial skewing of the market – in the name of the so-called “free market” – the company would not be anywhere near as dependent on junk mail for its future survival.
Actually, the Panorama programme was effectively two stories in one. Only the first part was about junk mail, the second part was about scam mail. What the programme failed to come up with was a solution to this particular problem, but I can provide that: allow postal workers to identify scam mail and to report it, and then allow the Royal Mail the legal means to stop it at its source.
There’s one old lady on my round who has been receiving scam mail. Day after day she gets a pile of letters from someone who is described on the envelope as “the world’s most trusted psychic”. The envelopes are always the same, but the return addresses are from all over the world. Sometimes I’m delivering 10 or 15 of these letters a day. I reported it to my manager and asked if we could stop delivering them, but he told me we couldn’t. It is paid-for mail and we are obliged to deliver it.
This is a perfect example of what I have been suggesting over and over again: the company should learn to trust its own workers. Because unlike the high-tech machines which are being introduced in the much heralded modernisation programme, us postal workers actually know our customers. We can tell the difference between scam mail and real mail. We know who is vulnerable and who is not, and we can alert our managers when a vulnerable person is being targeted.
I’m certain that every postal worker would recognise this material. If there was a system by which we could report it, and a legal means of stopping it, we could get rid of it overnight.
• This footnote was appended on 7 July 2011. TNT contacted the Guardian after publication of the piece to say the reference to the DSA agreement is not applicable in the context mentioned. “In fact there has been a 22 percent price increase in charges by Royal Mail this year alone which renders this argument obsolete”, a company representative said.
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It’s not a free market, it’s a rigged market, says Roy Mayall
The Hooper Report
When Peter Mandelson came on TV in May last year proposing the part-privatisation of the Royal Mail, he was very clear. Volumes are down, he said. People don’t send letters any more, they send texts and emails instead. The Royal Mail is under threat from the incursion of new technology into the communications business. It is all down to the market and to market choice.
The company he had in mind as the new potential co-owner of the Royal Mail was TNT, which had once been the Dutch national mail company.
TNT, of course, is one of any number of private mail companies vying for a place in the British postal market.
The impression we were being given was of an old-fashioned and beleaguered Royal Mail struggling with its more efficient rivals in an open market place.
The document that Peter Mandelson was basing his statements on was the Hooper Report.
The report makes a number of recommendations which are worth reviewing as they are still the basis of government policy. The Royal Mail has to modernise, but fast, it says. The CWU and Royal Mail need to get their act together and start being more cooperative. The government should take on responsibility for the pensions deficit in order to allow the company to concentrate on the modernisation process. A new regulatory regime is required to put the postal business in line with the rest of the communications market. And finally – and crucially – there should be a “strategic partnership” between Royal Mail “and one or more private sector companies with demonstrable experience of transforming a major business, ideally a major network business.”
These were precisely Peter Mandelson’s conclusions, although his plans for the part-privatisation were shelved – according to him – because of the weak condition of the market prevailing at the time. We might also add that there was an almighty outcry from the public, and from his own backbenchers, not to say, from Royal Mail staff and the CWU.
Plans for the sell-off remain in place, however, awaiting a change in “market conditions.”
All of this talk of “the market” makes you wonder.
Because when you take a close look at it, the market doesn’t exist. There is no market. It turns out to be little more than a propaganda tool used by the privatisation lobby to beat the Royal Mail over the head with.
In fact, the Royal Mail is in a very healthy state in terms of the profits it generates. Not only did it make £255 million in the first nine months of 2008 – a profit of over £1 million a day – but it also, through downstream access, generates massive profits for TNT and the other private mail companies too.
This is the issue that the Hooper Report fails to address: downstream access, the process by which private mail companies can crowbar themselves into the Royal Mail network, profiting from the system while undermining it. The Royal Mail is being regulated in order to allow the private companies to make a profit from it.
This isn’t a “free market”. It’s a rigged market.
What’s worse, according to Billy Hayes, general secretary of the CWU, the Royal Mail actually subsidises the private mail companies at the rate of about 2p per letter. So not only do they take the profitable trade away, leaving the Royal Mail with the expensive and hard to run universal service obligation, but the Royal Mail actually pays them to do this.
“I must make it clear, that the system used in the UK is not used in any other country,” Billy Hayes said, in a recent article. “It is uniquely bad.”
So what is going on here? The government can’t pretend that it is not aware of this. The members of Postcomm, the regulatory body which sets the prices, are all appointed by government, and I can’t imagine that Peter Mandelson, control freak that he is, does not insist upon being kept fully informed.
Not only that, but if you check out the Postcomm website you’ll see that members of the commission all have interests in private mail companies; either that or they are in the deregulation business. In other words, the people who the government appointed to look after the regulatory system are also the people who are rigging the market, for their own benefit.
It’s like the Royal Mail is being forced to enter the “Free Market Casino” against its will, only to discover that the roulette wheels are loaded, and that the dealers are all card-sharks.
None of this is mentioned in the Hooper Report, which also goes on to avoid a number of other issues. In particular, while it highlights the pensions deficit, estimated to reach £10 billion this year, what it doesn’t do is to tell us the cause of the deficit in the decades long pensions holiday which the company took, with full government approval, draining the coffers while allowing the workforce to pour our own hard-earned money into what was effectively a bottomless pit.
Finally the report makes what amounts to a threat. “Our recommendations are a package,” it says. “Each element of the package is needed if the universal service is to be sustained: modernisation achieved through partnership, tackling the pension deficit, and changing the regulatory regime.”
Or, to put it another way, the Hooper Report is a long drawn out ransom note with our pensions as hostage.
Give us privatisation, it says, or your pension gets it.
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Roy Mayall is a pseudonym for a postal worker who has been in the job for about five years and works in a delivery office somewhere in the south-east of England. He writes a blog at roymayall.wordpress.com