Page last updated at 13:38 GMT, Tuesday, 6 May 2008 14:38 UK

'Few benefits' from mail shake-up

Postal workers sorting mail
The Royal Mail still controls 90% of the postal market

The liberalisation of the UK postal service has produced "no significant benefits" for either households or small businesses, a report has said.

That is the initial finding of an independent review of the UK postal sector commissioned by the government.

It warned there was now a threat to the Royal Mail's financial stability.

The Royal Mail's 350-year monopoly ended at the start of 2006, when other licensed operators were given the right to collect and deliver mail.


The independent panel warned that the "substantial threat" to the Royal Mail's financial security threatened the universal service - the collection and delivery to all UK addresses.

Maintaining the universal service is at the heart of this review - ensuring collection from pillar boxes and post offices and delivery to all addresses
The report panel

As a result, the independent panel - which will produce its full report in the summer - said the continuing "status quo is not tenable".

"The policies needed to establish a sustainable future will be the focus of our report later this year," it said.

While the initial report said homes and small firms had not gained from the increased competition, it said large companies had "seen clear benefits from liberalisation - choice, lower prices and more assurance about the quality of the mail service".

Royal Mail's financial security is now at threat
Competition has offered no benefit for homes and small firms
Big companies have gained from more bulk mail competition
Royal Mail has no competition in 'final mile' delivery

It says these large firms have benefited from the big growth in competition in the bulk mail sector - postal firms that collect, sort and transport bulk mail before handing it over to the Royal Mail for the final delivery.

Yet at the same time, the report found that the Royal Mail still had "virtually no competition" in the delivery of addressed letters over the "final mile" to letterboxes.

"Maintaining the universal service is at the heart of this review - ensuring collection from pillar boxes and post offices and delivery to all addresses," said the report.

'Stable future'

The core problem for the Royal Mail is that while it has lost business in the lucrative bulk mail collection and sorting market, it still has to uphold the universal mail delivery service, which struggles to make a profit.

Looking towards the final report, the panel said it needed "to establish how best to create the incentives for Royal Mail to modernise its operation, providing a stable financial future".

Mail industry analyst David Stubbs said that one possible solution would be other firms taking over delivery work in the more remote parts of the UK, and being paid a subsidy to do so.

The Royal Mail has declined to comment on the initial report.

Regulator Postcomm said decisions on fundamental reform needed to be taken quickly "if Royal Mail is to lead a healthier mail market and provide a strong universal service".

Consumer group Postwatch said it was pleased that the review was taking place, and that the panel recognised that "a healthy, efficient and profitable Royal Mail is critically important".

TNT Post is one of the 19 companies - including Royal Mail - that are now licensed to provide mail services in the UK.

It said in a statement that it disagreed with the review's opinion that small and medium-sized firms had not benefited from mail liberalisation.


Last year, Royal Mail announced a programme of changes to pay and working practices which it said were essential to modernise the service and enable it to compete more effectively.

However, this led to a strike by Royal Mail staff and a bitter dispute which, although now resolved, is estimated to have cost Royal Mail more than 200m.

The independent review panel was appointed by the Department for Business, Enterprise and Regulatory Reform.

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