Q&A: The postal dispute

Postal workers at Britain's state-owned mail service Consignia are threatening to strike on 8 May over changes to the way post is delivered.

With up to 40,000 jobs set to go over the next three years and massive cuts needed to fight-off bankruptcy, a quick settlement to the dispute is vital.

BBC News Online takes a closer look at dispute and how it might affect an already crisis-hit industry.

What is the dispute all about?

What it is not about is basic pay - both sides are satisfied with a 4.7% increase over two years.

However, Consignia is also offering a further 2.2% if the Communication Workers Union (CWU) agrees to changes to working patterns, with the time postal workers spend out on the street without a break increasing from 2.5 to four hours.

This is to accommodate changes to the way mail is delivered, with the second post being dropped in favour of a once-a-day service.

Consignia says this is vital to cut costs, but the unions say it would involve a "massive change" in working conditions which they are not prepared to include in the current pay discussions.

They also say Consignia has reneged on its previous agreement to trial other options.

Will a strike happen?

Consignia certainly hopes not - it has warned that any action would be "financial suicide" for a company already losing £1.5m a day and faced with increasing competition.

The CWU, however, has already balloted members on industrial action, and has the mandate to go ahead with a strike if negotiations break down.

It is unclear how real their threat is. With discussions still ongoing, bringing the threat of a strike to the table will certainly strengthen their arm.

But the unions will also be wary of the damage a dispute could have to a business already having to lay off thousands of workers to save itself from collapse.

There's a history of postal strikes isn't there?

Industrial relations were described as "frankly dire" by a report commissioned by the CWU and Royal Mail last year.

Unions and management shared the blame in Lord Sawyer's report - with autocratic managers and strike-happy workers being singled out for criticism.

The report warned that the Royal Mail could be killed off if relations did not improve.

Since the report came out last July, efforts have been made - with some success - to improve the situation, and the latest strike threat will be seen as a setback by both sides.

Despite a number of "wildcat" strikes in recent years, this would be the first national postal strike since 1996 if it went ahead.

How bad are Consignia's problems?

Financially, Consignia is looking very weak. Its operating losses increased by 500% to £100m in the six months to 23 September 2001.

And losses at its package division Parcelforce are expected to reach £200m by the end of the year.

Letter deliveries are losing the firm £1m a day. It spends 28p to deliver a 27p first-class letter.

The company says it needs to reduce its current costs by 15%, or £1.2bn.

The poor results are a sudden downfall from what was previously a healthy company.

The Post Office has been profitable during the past 40 years, and in the last 10 years it has made a profit of about £350m every year except for the past two years.

Who's to blame for the financial crisis?

The management of the firm must take a great deal of the blame according to Ian Senior, an economist who has written extensively about the postal service.

Consignia's main aim over the last two years has been to fend off the concept of liberalisation of the postal service, he said.

But the government has decided that the monopoly must be broken, and other companies such as Hays and Business Post Group are allowed to compete with Consignia to deliver the nation's letters.

Licences are already being awarded. So far these have not been for full scale competing services, but for small pockets of interest here and there.

Consignia was partly-privatised in March last year. It has a limited amount of commercial freedom, but is still subject to stiff regulatory control to ensure social objectives are met.