23 January 2024

‘Letters for the rich, letters for the poor’? The future of Royal Mail


This is the night mail crossing the Border,
Bringing the cheque and the postal order,

Letters for the rich, letters for the poor,
The shop at the corner, the girl next door.

Not every public utility inspires classic cinematography, let alone a script written by someone three times considered for a Nobel prize. But the Royal Mail is no ordinary institution and Night Mail, a 1936 documentary featuring verses by WH Auden (quoted above) and music by Benjamin Britten, is just one of the many works of art inspired by it. From the Penny Black of 1840, via Postman Pat to ITV’s recent dramatisation of the sub-postmasters scandal, the Post Office is woven into our social and economic history, but does it really have a future?

Royal Mail is losing money. In the first half of this financial year, the company lost £319m, up from £219m the previous year. It is not hard to see how: its business is shrinking, a series of strikes convulsed its workforce from May 2022 to July 2023, it was hit by a huge ransomware cyber attack a year ago, it was fined £5.6m by Ofcom last November for missed delivery targets and in the same month it lost its monopoly on parcels at Post Office branches.

Under those circumstances, it is hardly surprising that Royal Mail’s management wants to make changes. It has been agitating for changes since 2020, and currently is proposing to stop delivering post on Saturdays, moving to Monday-to-Friday service only. The company argues that it is ‘simply not sustainable to maintain a delivery network built for 20bn letters when we are now only delivering 7bn’. There is an obvious mismatch between Royal Mail’s income and its obligations, and clearly reform has to come in some way.

This is complicated by the nature of Royal Mail. It passed out of public ownership in 2015 when the government sold its last 13% stake in the company, having raised £3.3bn from the privatisation; Sir Sajid Javid, then business secretary, proclaimed proudly that he had ‘delivered on our promise to sell the government’s entire remaining stake, which means that for the very first time, the company is now wholly owned by its employees and private investors’.

However, the Postal Services Act 2011 created a regulatory framework within which Ofcom is required to maintain a universal postal service, defined as ‘at least one delivery of letters every Monday to Saturday’ and ‘at least one collection of letters every Monday to Saturday from every access point in the United Kingdom used for the purpose of receiving postal packets’.

Ofcom is now undertaking a review of Royal Mail’s obligations, specifically considering ‘how the universal service might need to evolve to more closely meet consumer needs’. Downing Street has made it clear that dropping to five days a week is not an option. Rishi Sunak’s spokesman said ‘Saturday deliveries provide flexibility and convenience… They are important for businesses and particularly publishers. The Prime Minister would not countenance seeing Saturday deliveries scrapped.’

It would be unreasonable to expect the government or the prime minister to anticipate the regulator’s review. Nevertheless, this is depressingly familiar territory. The Conservative Party retains some free market instincts, and has not abandoned the idea that privatisation is the key to long-term financial sustainability and that competition is in the interests of customers.

Lest anyone should be tempted into partisan sniping, much of this was articulated by Dr Vince Cable, the Liberal Democrat’s light-footed economic guru who was business secretary from 2010 to 2015. The sale, in his words, ‘is practical, it is logical, it is a commercial decision designed to put Royal Mail’s future on a long-term sustainable business’.

But Royal Mail now faces an impossible conundrum. A private company which is losing money on an unsustainable and outmoded business model, it is unable to take the corrective measures it knows are necessary because it is obliged by statute to maintain uneconomic services. The government stands by the statutory obligations, but is unwilling to intervene in financial terms in the operation of a private company. But that means the service must rely on a third way which simply does not exist.

It would be intellectually coherent to argue that the market will provide a sustainable service which would be affordable for both provider and consumer – but it would almost certainly not be universal. Alternatively, and perhaps more realistically, one could regard postal services as part of critical national infrastructure, open to private enterprise but fundamentally underpinned by public resources.

The government, 18 months after the defenestration of Boris Johnson, is pursuing his notorious ‘cakeism’: as the former prime minister said in 2016, ‘My policy on cake is pro having it and pro eating it’. This won’t wash any more. Royal Mail has been clear: it must raise prices, receive a subsidy from the government or abandon its universal service obligation.

What does the government propose? Ofcom’s review will outline options but will not make recommendations. With the exhaustion which is seeping into so many areas of policy, the PM’s spokesman seems to be suggesting the government will pretend this stark set of choices is not there.

Nigel Lawson, 18 months after his resignation as chancellor of the Exchequer, famously quoted French premier Pierre Mendès France: ‘to govern is to choose’. Remember, though, how he continued: ‘I agree with that. To appear to be unable to choose is to appear to be unable to govern’.

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Eliot Wilson is co-founder of Pivot Point Group

Columns are the author's own opinion and do not necessarily reflect the views of CapX.