A session paper to be printed by Ofcom subsequent week will define radical choices for reforming Royal Mail’s common service obligation, Sky News learns.
By Mark Kleinman, City editor @MarkKleinmanSky
Ofcom will subsequent week define choices for reforming Royal Mail’s service obligations that would pave the way for the abolition of Saturday postal deliveries amid warnings from the corporate’s boss that it could require a authorities subsidy to survive.
Sky News has learnt that the regulator will on Wednesday publish a session paper on the way forward for the Universal Service Obligation (USO) which trade sources imagine is probably going to embody reforms equivalent to modifying first- and second-class supply targets; following European markets equivalent to Germany and Italy in transferring to alternate-day deliveries; offering a state subsidy to help the USO; and permitting Royal Mail to impose increased stamp costs.
Amending the present six-day USO – which obliges Royal Mail to ship to each UK tackle six days per week for the value of a stamp – to a five-day construction that might then lead to the long-standing system of Saturday deliveries being scrapped can be understood to be among the many choices that can be introduced within the Ofcom paper.
However, axeing the USO altogether, as Denmark has completed lately, is unlikely to be a sensible possibility that might acquire help from ministers.
Royal Mail has pleaded for pressing modifications to its regulatory framework, arguing {that a} system constructed for 20 billion letter deliveries a 12 months is now managing solely seven billion, with the quantity set to decline to as few as 4 billion inside 5 years, primarily based on present tendencies.
This weekend, trade sources identified that the Ofcom doc wouldn’t include conclusions or agency suggestions, however would as a substitute set out concepts for preserving the common postal service in a sustainable type.
A 90-day name for enter is anticipated to comply with, with formal proposals anticipated to be set out later this 12 months.
The regulator mentioned final September that it meant to publish a paper centered on reforming the USO, saying that it had been unchanged since 2011.
“However, consumer demand for postal services has changed substantially, and it continues to do so,” it mentioned.
Scrapping Saturday deliveries and transferring to a five-day USO would require parliamentary approval.
Last 12 months, the federal government rejected a request from Royal Mail to transfer to weekday-only deliveries, with estimates suggesting that this might save the corporate lots of of tens of millions of kilos a 12 months.
“We currently have no plans to change the minimum requirements of the universal postal service as set out in the Postal Services Act 2011… including six-day letter deliveries,” Kevin Hollinrake, the enterprise minister, mentioned final June.
Read extra:
UK’s first drone supply service launches
Surge in canine assaults on Royal Mail employees
Since its privatisation by the coalition authorities in 2013, the corporate has endured a collection of commercial disputes and parted firm with a succession of controversial chief executives.
Its latest supply efficiency has been lambasted by MPs, and in November it was fined £5.6m by Ofcom for failing to meet first- and second-class supply targets in the course of the 2022-23 monetary 12 months.
Under the present USO, Royal Mail is anticipated to ship 93% of first-class mail inside one working day of assortment, and 98.5% of second-class mail inside three working days of assortment.
Ofcom mentioned in November that the corporate had “breached its obligations by failing to meet its targets by a significant and unexplained margin”.
“This caused considerable harm to customers, and Royal Mail took insufficient steps to try and prevent this failure,” the watchdog added.
In a letter to MPs this week, Martin Seidenberg, chief government of Royal Mail’s guardian firm, International Distributions Services (IDS), wrote: “Delivering the present Universal Service necessities – in a financially sustainable way – is more and more tough, if not unimaginable, to obtain as the combination and variety of parcels and letters modifications.
“The bar set by the laws is unrealistic given the market realities.”
He mentioned there have been a number of methods to tackle the problem going through Royal Mail, “together with considerably rising costs, in search of a authorities subsidy, and/or reforming the Universal Service in order that it’s extra reflective of the client wants and market realities of at this time, not the wants of the previous”.
“Whilst we welcome the forthcoming Ofcom evaluate of the Universal Service, the inertia now we have skilled signifies that we at the moment are going through a much more critical state of affairs than we might have been if motion had been taken sooner,” Mr Seidenberg wrote.
“Every day that Ofcom and the Government additional delay reform simply creates extra threat for the long-term sustainability of the Universal Service, and certainly Royal Mail itself. We should maximise each pound spent to rework our enterprise for the longer term and ship extra for our clients – not proceed to maintain a service customary that was designed in a pre-internet period and now not displays buyer wants.”
On Thursday, the corporate reported that it had had its finest Christmas buying and selling interval for 4 years, with a 10% rise in revenues in the course of the closing quarter of the 12 months.
Ofcom and IDS each declined to touch upon Saturday.
