By Claire West

The Government has today published Richard Hooper’s update to his December 2008 Report on the maintenance of the universal postal service in the UK.

Since June Hooper has been analysing developments in the postal sector in the last 18 months. He has found that the underlying issues that threatened the universal postal service - the same price goes anywhere and a collection and delivery of letters six days a week - remain and that urgent action has to be taken:

•The decline in the number of letters being sent is greater than forecast in the 2008 report and will continue to deepen - worldwide falls in the next five years of between 25% and 40% are likely. The continued growth in parcels (a result of internet shopping) will not make up for the decline;

•Royal Mail’s financial position has deteriorated and the pension deficit, of around £8bn as at end March 2010, is even more unsustainable than 18 months ago; and

•Despite important steps forward on modernisation, Royal Mail still lags well behind the leading postal operators.

Hooper believes the Royal Mail management, workforce and unions must accelerate the pace of modernisation. His recommendations are broadly similar to 2008:

•A new less burdensome regulatory framework is needed with responsibility for regulation moving from Postcom to Ofcom;

•The pension deficit should be taken over by the Government as part of the wider range of measures; and

•Private sector capital must be introduced into Royal Mail in the form of sale to a partner/trade investor or an IPO.

Hooper argues that access to private capital will:

•Ensure that cash is available to fund modernisation - acknowledging that the state of the public finances means that Royal Mail will find it even harder to compete for Government capital against other public spending priorities;

•Inject private sector disciplines into the business;

•Reduce the risk of political intervention in commercial decisions; and

•Encourage within Royal Mail a more customer-focussed commercial strategy/diversification for the digital age.

He also states that an element of employee ownership could have the benefit of encouraging greater employee engagement within Royal Mail.

Business Secretary Vince Cable said:

“This update reaffirms the findings of Richard Hooper’s original report and the views he has given me during the course of the summer. He paints a very clear picture - Royal Mail is facing a combination of potentially lethal challenges — falling mail volumes, low investment, not enough efficiency and a dire pension position.
“We are determined to safeguard Royal Mail for the future and help it tackle these challenges. We will come forward with new legislation in the autumn. It will draw heavily on Hooper’s analysis and recommendations and the Government’s wider objectives, including the need for employees to have a real stake in the future of the business.”

Richard Hooper said:

“If all the recommendations in my updated report are implemented without further delay, and Royal Mail modernises to best in class with management, workforce and unions working together, then despite the very real market difficulties the company has a healthy future. Building on its unique ability to visit 28 million addresses on a daily basis, it can aspire to be the delivery company of choice for a wide range of physical mail from letters to parcels”.
The Queen’s Speech set out that a Postal Services Bill will be introduced during this session of Parliament. The Bill will enable the modernisation of Royal Mail, in partnership with employees, and will ensure it benefits from private sector capital and disciplines.

The Coalition Agreement committed that the Government will seek to ensure an injection of private capital into Royal Mail, including opportunities for employee ownership. The Post Office will be retained in public ownership due to its hugely important social and economic role in communities throughout the UK.