Is It Time For Some Free Market Reforms In The Postal Sector

The Royal Mail was privatised back in 2013, in common with previous privatisations the model used was to move a monopoly type industry into the private sector at the same time leaving elements of that monopoly firmly in place.

Royal Mail was given an ongoing requirement to collect and deliver throughout the UK six days a week and regulated to ensure it did so.

In addition, competitors wishing to provide an alternative letter delivery service have to apply for a license.

The regulator also has powers to control prices and access to the Royal Mail network. In the years that have followed the letter, volumes have fallen dramatically a trend that was already underway prior to privatisation.

Growth in the use of email, initiatives like online bill payment and new regulations such as GDPR are significant factors in this. We are already at a point where very few residential addresses receive mail every day of the week.

At the same time the market in parcels has grown, but in this area, competition is open and fierce. Royal Mail states it wants to transform itself into a parcels company that delivers letters. Now would be a good time to let them do that in a genuinely free market. At the same time, their competitors could also be given the right to operate freely as well.

  • Reforming the market in post and parcels would be assisted by taking the following measures:
    An immediate reduction in the Universal Service Obligation from six days to five with a phased reduction over a period of time leading to its eventual abolition. Premium services like special delivery could then be made available seven days a week.
  • Complete freedom for any potential competitors who want to enter the home letter delivery field without having to get permission from the state regulator.
  • Royal Mail to have the freedom to fix its prices for all products including first and second-class mail.
  • Bulk posters to be able to access the Royal Mail network at individual delivery offices instead of being restricted to its 38 mail centres.

All the above steps would also have the benefit of reducing and eventually eliminating the regulator from the area of postal services saving the hard-pressed taxpayer money.

In the area of parcels, a free market already exists, and competition has forced Royal Mail to adapt, something they haven’t done in letters.

I firmly believe that there has never been a better time to start modernising the UK’s postal sector along free-market lines.

* David is a member of Horsham and Crawley Liberal Democrats

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12 Comments

  • James Baillie 21st Nov '18 - 3:07pm

    I feel like it would be unrealistic to reduce or get rid of the USO. Such a move would presumably significantly damage the ability of worse off households and communities in remote areas to use the postal service, which would be a significant problem. People still need paper forms for so many areas of life, especially access to legal and electoral services where online services just haven’t developed to a point that allows the sort of security people demand for these areas, that I don’t think a liberal government could in conscience take steps that would restrict that access. Money saving is all very well, but I fear that in this case it could come at a problematic cost to remote or badly off rural communities across the UK.

  • marcstevens 21st Nov '18 - 3:38pm

    I agree with James Baillie and am totally opposed to any further marketisation of the RM. I still get a daily delivery where I live and for many rural areas and older people the Royal Mail service is a life line. We don’t all live online and by email, there is a serious purpose for letters and they still have their place. It think this is another example of the OBs trying to influence and dictate party policy, let’ s stop them.

  • Once upon a time, there was effectively a USO on bus services… Those that live outside of London know how that panned out…

    Whilst some reform of the USO could be beneficial, I think we need to seriously decide if we want a Royal Mail and a universal service or not and ensure that appropriate investments are made to ensure the continued survival of Royal Mail.

  • Nonconformistradical 21st Nov '18 - 3:55pm

    “I still get a daily delivery where I live and for many rural areas and older people the Royal Mail service is a life line.”

    The rural issue is a key one. However… do rural households depend on deliveries on 6 days of the week?

    Perhaps in rural areas the USO could be modified so deliveries (and collections) take place on alternate days, with the Royal Mail staff each covering two rounds?

    Another important issue is that for parcels instead of having to rearrange delivery by some (useless) courier service, if Royal Mail try to deliver and fail at least the intended recipient can collect the parcel from the delivery office at a time convenient to them.

  • Lorenzo Cherin 21st Nov '18 - 5:18pm

    David , am not at all convinced.

    Respect and liking for the views, comments,you post , and please see my responses to your post on universal benefits, on the policy group on you are now in too, mingles with deferring to your experience in the Royal Mail, but to not much avail! Only kidding, but no, colleagues here are correct, a slippery slope.

    I am a real believer in social market reforms , making the state and society more consistent, a two way street, involving more cooperative and not for profit ethos in the public and private area.

    So for instance, allowing no profit making, shareholder driven big companies not even in the health care field, to run NHS contracts, yet having no problem with non profit, health organisations, as well as small self employed ones. Virgin, no, Bupa, perhaps, freelance practitioners yes.

    Mail is not my area of knowledge, but as any feel as a customer, lay person, the worry is the service deteriorates due to lack of regulation.

    I believe in social obligation, universal liberation. That is a mantra to interpret many differing ways.

  • David Warren 21st Nov '18 - 6:07pm

    Thanks for all the contributions.

    I agree that phasing out the USO is pretty radical but reducing it from 6 days to 5 certainly isn’t.

    As far as I know we are the only country in Europe that delivers on a Saturday and it is an anachronism.

    The Royal Mail workforce hates working on that day, the residential customer isn’t that bothered and the majority of businesses are closed so the mail gets sorted but stays in the offices until Monday.

    Turning to the issue of the regulator.

    His record is not a very good one, he has failed to open up the market and restricted access.

    The refusal to allow bulk posters to present mailings at the delivery offices is simply nonsensical.

    Such a move would not hurt Royal Mail at all, in fact it would shift much needed non delivery work to all their locations.

    Work that could be performed by people who aren’t able for whatever reason to pound the streets.

    Letter volumes are falling dramatically and that isn’t going to change.

    A 5 day service has many benefits and enables the company to concentrate on what is says is its priority parcels.

  • Steve Trevethan 22nd Nov '18 - 8:51am

    Might we have some information on the terms, conditions, pensions etc of the people in the various organisations, actual and potential, who do the delivering?
    Perhaps “saving money ” for the customer is only part of relevant calculations, real and theoretical?

  • Letter volumes are falling dramatically and that isn’t going to change.
    So given a declining market, increasing the competitive pressures on the existing players would seem to only encourage the market to whither and die sooner rather than later.

    I note you have focused on the doorstep deliveries, and largely ignored the input side. Remember RM have a rather large network of post boxes and offices along with a bulk collection service. For a competitor to effectively compete they will have to replicate this (I can see the ultra-free market types suggesting arrangements not too dissimilar to those BT have to operate under…). The problem is as we have already seen, the competition will focus on the low hanging fruit and target the bulk collection service; the more profitable segment of the market. Thus I suggest we will rapidly see the postal market divide into two very distinct segments: the well funded and potentially profitable bulk/business market and the postal service joe public and smaller businesses use when they need to send a letter.

  • Innocent Bystander 22nd Nov '18 - 10:37am

    We already have a reduced service. I pass my PDO at the same time every morning. I can tell by the number of vans outside whether it will be “our turn” for post that day or not. Our area is served alternate days and never on Saturdays.
    A universal daily postal service is something many poor countries can not afford.
    And our economy is relentlessly moving towards joining them.
    Because virtually all political activists only ever talk about new ways to spend money but none to make it.

  • clive englisjh 22nd Nov '18 - 2:42pm

    hmm having actually worked in this industry I would have to say presenting direct access mail at delivery offices, whilst not impossible, would not be a very good service for the customers. It would still be generally quicker (for consumers) to present it to mail centres oddly enough. More generally removing the barriers to competition sounds great and may actually benefit Royal Mail as they have often been artificially held back by governments, but is unlikely to help consumers, especially with removing the USO as this will mean a good service in city centres and none in rural or suburban locations.
    Not sure that’s a public service of any sort any more then.

  • David Warren 22nd Nov '18 - 6:57pm

    Thanks for all the comments.

    The article achieved what it set out to do which is spark a debate.

    @SteveTrevethan asked about pay, conditions and pensions.

    In Royal Mail pay has increased by more than the rate of inflation in recent years largely as part of a wider trade off.

    Levels of overtime traditionally a very popular way of boosting earnings have fallen.

    Pensions have also suffered too, the final salary scheme was closed in 2007 and a new even worse scheme is just being introduced.

    All this has come against a backdrop of a union that effectively signed up to a no strike deal in 2013 when privatisation happened.

    In the competitors mainly parcel companies terms and conditions are nowhere near as good.

    As in other new areas of the economy levels of unionisation are relatively low.

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