BRIEFING PAPER Number 06763, 1 December 2020
By Niamh Foley Lorraine Conway
Postal Services Antony Seely Lorna Booth
Contents: 1. Overview of UK postal services 2. Common problems 3. Regulation of postal services 4. The letters market 5. Stamp prices 6. The parcels market 7. Performance of Royal Mail Annex: Postal Services Act 2011
www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary 2 Postal Services
Contents
Summary 4 1. Overview of UK postal services 5 1.1 Main operators 5 Royal Mail Group 5 Post Office 6 Other postal operators 6 1.2 Regulators 6 UK Government (Department of Business, Energy and Industrial Strategy) 6 Ofcom 7 Citizens Advice 7 POSTRS 8 1.3 Unions 8 2. Common problems 9 2.1 Receiving post 9 ‘Something for you’ cards 9 Receiving someone else’s post 9 Redirecting your post to your new address 9 Receiving nuisance or junk mail 10 Receiving damaged or unwanted goods 10 2.2 Sending post 11 Changes to collection times at post boxes 11 Lost mail 11 Prohibited items in the post network 11 Royal Mail’s Parcel Collect service 12 2.3 Postcodes 12 Finding out what your postcode is 12 Changing your postcode or address 12 2.4 Making a complaining about postal services 13 Complaining about Royal Mail 13 Complaining about a company other than Royal Mail 14 2.5 Parcel and letter deliveries during the coronavirus (Covid19) pandemic 14 3. Regulation of postal services 15 3.1 The universal postal service 15 Regulatory conditions placed upon Royal Mail 16 3.2 Regulatory conditions placed on other postal operators 16 4. The letters market 18 4.1 Trends in the letters market 18 Trends in type of operators 20 4.2 End-to-end market competition (U2D) 20 5. Stamp prices 22 Historic stamp prices 23 6. The parcels market 24 6.1 Impact of the Covid-19 pandemic 24 6.2 Competition in the parcels market 25 6.3 Consumer problems in the UK parcels market 26 3 Commons Library Briefing, 23 April 2021
Parcel Surcharges 28 6.4 Deliveries for disabled people 34 6.5 Leaving the EU 35 6.6 Postal regulation 37 6.7 Further information 37 7. Performance of Royal Mail 39 7.1 Five-year summary of Royal Mail financial performance 39 7.2 Modernisation of Royal Mail 40 7.3 Royal Mail targets 41 7.4 Complaints to Royal Mail 42 Annex: Postal Services Act 2011 44 Background to the Act 44 Provisions in the Act 45 The privatisation of Royal Mail 45
4 Postal Services
Summary
This note gives an overview of postal services in the UK. It discusses current regulation, market trends and consumer problems. Section 1 describes the key bodies in the UK postal market and the relationships between them. This section also introduces key terminology used to describe the UK postal market. Royal Mail is the largest operator and the 'universal service provider' in the UK postal industry. Ofcom is the regulator of UK postal services and focuses much of its regulatory activity on Royal Mail as the universal service provider. Section 2 tackles frequently asked questions regarding postal services, with a particular focus on issues that constituents may face. Section 3 lays out the regulatory framework of UK postal services. Section 4 sets out trends in the UK letters market. UK letter volumes have been in decline since the mid-2000s. Section 5 describes recent trends in stamp prices. Ofcom granted Royal Mail price flexibility over stamp prices in 2012. Soon after, the price of 1st class stamp rose substantially. A 1st class stamp is now priced at 76p, 95% higher than the face value of a stamp in 2010. Section 6 sets out trends in the UK parcels market. Since March 2020, parcel deliveries have significantly increased due to an increase in online shopping prompted by the Covid-19 pandemic. Royal Mail reported a year-on-year increase of 34% in parcel volumes in the five months to 30 August 2020. Section 7 explains the recent performance of Royal Mail. Royal Mail’s profits after tax fell slightly over the last couple of years and were £196 million in 2019/20. Royal Mail missed some of its Quality of Service targets in each of the past few years, some by quite a margin. It commented that its performance had been “significantly impacted by a number of exceptional events”. Ofcom investigated this and issued Royal Mail with a decision in July 2020. In 2018/19 and 2019/20, Royal Mail improved on meeting these targets.
Post Office The Post Office is separate from Royal Mail. The Library publishes information regarding the Post Office in separate briefings: • The Post Office • Post Office Numbers
Contributing Authors: Lorraine Conway, Consumer Affairs, Section 2.1 Antony Seely, VAT leaving the EU, Section 6.5
Cover page image copyright: Trevor King: Glossop mail vans, licence.
5 Commons Library Briefing, 23 April 2021
1. Overview of UK postal services
1.1 Main operators Postal services was formerly a part-nationalised industry in which the (formerly) state owned Royal Mail had a monopoly over letter delivery with some competition in parcel delivery. The liberalisation of postal services in the UK began in the early 2000s with markets being opened up to competition. Royal Mail was subsequently privatised following the passing of the Postal Services Act 2011. The Post Office, now a separate business, remains entirely owned by the Government. Postal services are generally reserved, rather than being devolved to Scotland, Wales and Northern Ireland. The figure below maps postal services in the UK – the elements are explained under the headings below. UK Postal Services
Mail delivery Post offices
Ofcom Regulator
Citizens Advice
Consumer watchdog
UK Government Royal Mail Group Other ‘end-to-end’ Universal Service Department of Business, Energy operators and Industrial Strategy Provider In addition to end-to end deliveries Royal Mail provide Entirely owns final mile delivery to access operators Post Office PLC
Access operators
Unions
Royal Mail Group Royal Mail Group is the UK’s largest postal operator, the only postal operator currently providing UK wide end-to-end letter delivery services, and the UK’s universal service provider. Section 7 of this note discusses in detail the recent performance and modernisation of Royal Mail. 6 Postal Services
Types of letter delivery There are two types of letter delivery services end-to-end services and access services. • End-to-end service is where the same postal operator undertakes the entire process of collecting, sorting and delivering mail. • Access service is where an operator collects and sorts the letters but then hands over final delivery to Royal Mail. Royal Mail is obliged to open its network to access operators. More information on the volume of letters delivered by these types of service can be found in Section 4 of this note.
Post Office The Post Office is a limited company entirely owned by the UK Government – it is separate from Royal Mail. The Post Office network is made up of roughly 11,500 branches. The Library publishes information on the Post Office in separate briefing notes: • The Post Office • Post Office Numbers Other postal operators Much of Royal Mail competition is in the parcels market rather than in Details of the the letters market. The parcel’s market is highly competitive and volumes of letter growing whereas Royal Mail operates a near monopoly over final mile and parcel deliveries letter deliveries in the UK. can be found in Sections 4 and 6 of There are a number of well-known brands which operate in competition this note. to Royal Mail, for example Hermes, Yodel, and DPD.
1.2 Regulators UK Government (Department of Business, Energy and Industrial Strategy) The Department of Business, Energy and Industrial Strategy (BEIS) has Government responsibility for postal affairs. The current Minister with this portfolio is Paul Scully MP, Parliamentary Under Secretary of State, Minister for Small Business, Consumers and Labour Markets. The Government, with Parliament, is responsible for legislation on postal services but currently have no published plans for new legislation in this area.1 Royal Mail is a fully privatised company. It is for Ofcom, as the industry regulator, to monitor the performance of Royal Mail in line with current legislation. BEIS has responsibility for the Post Office which remains entirely in Government ownership (see below).
1 The Postal and Parcel Services (Amendment etc.) (EU Exit) Regulations 2018 makes a number of changes to legislation around postal services in response to Brexit. See Section 7.2 for further details 7 Commons Library Briefing, 23 April 2021
Ofcom The Postal Services Act 2011 transferred regulatory powers over postal services from Postcomm to Ofcom. Under the Act, Ofcom must carry out its regulatory activity in a way that secures the universal postal service. Ofcom also has a duty under the Communications Act 2003 to further the interests of citizens and of consumers, where appropriate, by promoting competition. Where there is a conflict between the two duties, the provision of the universal postal service takes precedence.
The universal postal service The universal postal service is essentially the ‘one price goes anywhere’ principle of affordable postal services to all UK addresses. It requires Royal Mail (the universal service provider) to deliver to every address in the UK, six days a week, at a standard price.2 The legal basis for the universal service is the Postal Services Act 2011 and the Universal Postal Services Order. The universal postal service is described in more detail in Section 3.1 of this note.
In order to fulfil its regulatory duty Ofcom performs a number of functions. Ofcom: • Monitors the postal services market producing an annual report on updates in the postal market. • Imposes conditions upon Royal Mail as the universal service provider and other postal operators where appropriate. • Levies fines where Royal Mail or other postal operators fail to meet the obligations imposed upon them via regulatory conditions. • Can ‘name and shame’ operators with poor practice. The regulatory framework of the postal market is set out in Section 2.5 of this note. Citizens Advice Citizens Advice (a charity network) assumed statutory responsibility to represent consumers of postal services in 2014, along with Citizens Advice Scotland and the Consumer Council for Northern Ireland.3 A designated team provides policy advice and delivers strategic projects that contribute to improving the operation of the postal market and the postal universal service for all consumers. It also ensures consumer needs are represented in decisions on the future of the post office network, at both a strategic and branch level. Citizens Advice aims to ensure postal services and post offices meet the needs of consumers in a way that is “fair and accessible for all”, with particular regard to vulnerable consumers (for example disabled individuals, pensioners, individuals on low incomes).4 Citizens Advice regularly publishes research and updates about the performance of
2 Royal Mail is required to deliver letters six days a week and parcels five days a week. See page 15 for details. 3 Through The Public Bodies (Abolition of the National Consumer Council and Transfer of the Office of Fair Trading’s Functions in relation to Estate Agents etc) Order 2014 4 Citizens Advice, Trends in the Postal Services Market, 18 May 2018 8 Postal Services
postal services on its website. Citizens Advice Scotland and the Consumer Council for Northern Ireland also publish advice and analysis. POSTRS POSTRS: is an independent body that mediates disputes between certain regulated postal operators – CMS Network (London) Ltd, Royal Mail Group– and their customers.5
1.3 Unions In 2019, 8.2% of workers in the information and communication sector reported being a member of a Trade Union.6 Royal Mail estimate that a much higher proportion of their operational and administrative-grade employees are a member of a union, 89% in 2019/20.7 The largest union in the sector is the Communication Workers Union (CWU) which represents around 196,300 members in postal, telecom, mobile, administrative and financial companies, including Royal Mail and the Post Office.8 Recent major campaigns run by the CWU include a campaign on dangerous dogs to protect postal workers who fall victim to dog attacks, and a Save our Post Office campaign which… …is the CWU’s fight to save our nation’s cherished Post Office network, which has been recently launched by the union in response to the bombshell announcement that 74 Crown offices are to be franchised (privatised) to high-street retailer WH Smith – a move which will impact some 800 jobs and drastically cut services to communities.9
5 POSTRS Companies covered [last accessed 27/05/20]; Ofcom, jargon buster, [last accessed 27/05/20] 6 Department of Business, Energy and Industrial Strategy, Trade Union Statistics: Table 1.8, 27 May 2020 7 Royal Mail Plc, Corporate Responsibility Report 2019-20, May 2020 8 CWU, About the CWU [last accessed 27/05/2020] – figures are for ‘active members’ 9 CWU, Save our Post Office Campaign [last accessed 27/05/20] 9 Commons Library Briefing, 23 April 2021
2. Common problems 2.1 Receiving post ‘Something for you’ cards A ‘Something for you’ card is the common name for Royal Mail’s P739 form. This is the card that is left in the event that Royal Mail is unable to deliver an item. Items that cannot be delivered are sent to a local Delivery Office to allow for collection by the recipient. Recipients must take both their ‘Something for you card’ and proof of identification in order to collect their undelivered post from the Delivery Office.10 If the recipients loses their ‘something for you card’ it is not always possible to collect from the Delivery Office but the recipient can rearrange delivery online. Receiving someone else’s post As stated on Royal Mail website, I’ve received someone else’s mail, post is delivered to addresses rather than names. This gives rise to various scenarios. If people receive post which has their address but not their name, they are advised by Royal Mail to: “… cross through the address and write 'Not known at this address' or 'No longer lives here' and put it back in a letterbox. Where possible, we’ll return the item to the sender hopefully allowing them to update their records.11 They are asked to do this at their earliest convenience. Post returned in this way doesn’t require postage. If a person receives a “Something for you” card that is not in their name, Royal Mail recommends that they dispose of the card. Once its retention period has ended it will return the item to the sender. If a person receives someone else’s post (i.e. post that does not have their name or address and has been wrongly delivered), Royal Mail asks that the recipient re-posts the item at their earliest convenience. Again, there is no need to apply postage. Royal Mail will then process and deliver the item to the correct address. The incident can also be reported via a link on Royal Mail’s webpage. It is possible, of course, that post is correctly delivered but the intended recipient no longer lives at that address. If a forwarding address is known, the item should be readdressed with the statement “no longer at this address, please forward” written on the front of the envelope and re-posted. Redirecting your post to your new address Royal Mail recommends that those moving to another home in the UK or abroad have their post redirected to their new address. This ensures
10 Royal Mail I haven’t got a ‘Something for you’ card [last accessed 20/06/17] 11 Royal Mail I’ve received someone else’s mail [last accessed 6 May 2020] 10 Postal Services
that customers always receive their mail.12 Royal Mail will redirect post to any UK or overseas address for up to 12 months. Customers can apply to have their mail redirected on the Royal Mail website. Royal Mail charges for this service. It is important to note that this redirection service is available for personal customers or business customers. Receiving nuisance or junk mail Some individuals object to the amount of unsolicited direct marketing mail or promotions they receive through their letter box (often referred to as “junk mail”). They find unsolicited mail intrusive and annoying. It is not illegal for a company to send unsolicited mail unless the material is obscene or threatening. No legislation exists which can protect a householder from receiving it. If postage has been paid, Royal Mail is legally obliged to deliver all addressed mail, which includes mail that is addressed “to the occupier” as well as mail that is personally addressed. However, there are various options available to an individual who wishes to stop unwanted and unsolicited direct marketing mail. An individual can register free of charge with the Mailing Preference Service (MPS) and thereby have their details removed from direct marketing mailing lists. This should reduce the amount of addressed advertising mail they receive; the MPS covers around 90 per cent of mailing lists. However, the MPS is not designed to stop unaddressed items of mail, direct mail delivered to the door or the delivery of free newspapers. It is also difficult to stop junk mail that is sent from abroad. Although mail addressed to the “occupant/resident/homeowner” is not covered by the MPS scheme, it may be possible for an individual to “opt out” of receiving door-to-door mail items delivered by Royal Mail. This would involve completing an online opt-out form. The opt-out will usually last for a period of two years from the date that Royal Mail receives the form. To extend the opt-out period beyond the usual two- year period would require completion of a new opt-out form. Before opting-out, it is important to bear in mind that it is not possible for Royal Mail to separate material that the recipient may want from material that they do not want, such as advertising offers or leaflets from central and local government and other public bodies. Moreover, Royal Mail’s “door to door opt-out” does not extend to other distributors who will continue to deliver unaddressed mail items. A separate Commons briefing paper, “How can I stop junk mail and emails” (CBP 5762) provides more detailed information on what an individual can do to stop junk mail. Receiving damaged or unwanted goods Under the Consumer Rights Act 2015, it is the seller’s responsibility to make sure that an item is safely delivered to the consumer; whilst in transit, the seller retains responsibility for the good. Under the provisions of the Act, if a damaged good is delivered, the consumer is
12 Royal Mail Redirection [last accessed 20/06/17] 11 Commons Library Briefing, 23 April 2021
entitled to a replacement or refund. It follows from this that a consumer should immediately contact the seller if a good they have ordered hasn't arrived or has arrived damaged. They should not be told by the seller to take up their complaint with the delivery company. Sometimes, a person may be sent in the post goods they did not order or ask for (often referred to as “inertia selling”). The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 contains provisions which protect consumers from unsolicited sales and additional charges which have not been expressly agreed in advance. In addition, under the provisions of the Consumer Protection from Unfair Trading Regulations 2008, a consumer is not required to pay for the unsolicited supply of products. However, if goods have been delivered to a person by mistake (i.e. the order wasn’t meant for them), the goods still belong to the trader and the recipient should try to return them. This shouldn’t cost the recipient anything or inconvenience them. In practice, this would mean contacting whoever sent the goods, asking them to collect the goods within a reasonable deadline (usually 14 days), and making the goods available.
2.2 Sending post Changes to collection times at post boxes Royal Mail have changed the way they collect from post-boxes in response to falling letter volumes. Since 2014 for some of Royal Mail’s 115,000 post-boxes, mail is collected by delivery postmen and women whilst they are on their rounds rather than a dedicated collection by van. This means that the post-boxes are emptied earlier in the day.13 Royal Mail have stated that they will ensure that there is a late-posting box within half-a-mile of each post box restricted to earlier collections, and that this is signposted clearly to customers.14 Royal Mail has also stated that the majority of post-boxes will keep a 4pm or later collection time. Collection times can be found here. Lost mail Royal Mail has a guide for customers who think their mail is lost. If a customer deems their item lost and it is not held at a Delivery Office than the customer can make a claim for a lost item on the Royal Mail website. The website states what information customers need to submit a claim, and what compensation they may be entitled to if their claim is successful. Prohibited items in the post network A number of items are prohibited from being sent through the UK postal network. Royal Mail prohibit these items in order…
13 Royal Mail, Royal Mail's postbox network - your questions answered [accessed 12/9/2018] 14 House of Commons, PQ10286 12 Postal Services
…to comply with national and international regulations governing the carriage of mail, and ensure that mail in transport does not present a danger to the general public15 Items on the restricted list range from aerosols, controlled drugs, and electronic devices containing lithium batteries to hover boards. The complete list can be found in Royal Mail’s leaflet on prohibited and restricted items. Royal Mail’s Parcel Collect service In October 2020, Royal Mail launched a new parcel pick-up service, Parcel Collect. Postmen and postwomen now can collect up to five parcels per address on their delivery round for 72p per parcel, plus delivery costs. The service is available six days a week.16 For more information and how to book a collection see, Parcel Collect.
2.3 Postcodes Postcodes are set and reviewed by Royal Mail. They maintain this information on the Postcode Address File (PAF). Royal Mail states that there are 1.8 million postcodes held on PAF database, which receives 4-5,000 updates every day – mainly from postmen and women doing their daily walks – to ensure that it remains the UK’s most up-to date, accurate and widely-used address database.17 Royal Mail licences the information in PAF and this activity is regulated by the postal regulator Ofcom. Details regarding licensing of PAF can be found on Royal Mail’s PAF Licensing Centre. Ofcom conducted a review of PAF in March 2012. They made conclusions which broadly maintained the status quo. Finding out what your postcode is Royal Mail has a Postcode finder tool on its website. This allows you to type any part of an address and match it with a post code. You can use the postcode finder tool up to 50 times a day.18 Changing your postcode or address Royal Mail agreed the PAF code of practice in 2010 which explains why and how postal addresses and postcodes may change. This Royal Mail may occasionally they might need to change postcodes to maintain or improve the service offered by Royal Mail or to reflect customer demand. Local authorities are responsible for street names and house numbers. The Code states that, in exceptional circumstances, Royal Mail will make changes to the last two characters of a postcode in response to
15 Royal Mail, Prohibitions and restrictions in UK and international mail [last accessed 13/06/17] 16 Royal Mail Group, Posties to collect as well as deliver the mail on the doorstep, 21 October 2020 17 Royal Mail, Postcode Address File (PAF) [last accessed 17/03/21] 18 Royal Mail, Postcode Finder- Find an Address [last accessed 27/05/20] 13 Commons Library Briefing, 23 April 2021
customer demand. To do this, they require evidence that all those affected by the change are in favour of the changes– it is for the person requesting the change to provide this information.19 It is important to note that each case is decided on its own merits and that the overriding principle is that Royal Mail will only consider making changes if they will not materially affect the efficiency of its nationwide network of operations. This means that even if there were unanimous support for a postcode change, if Royal Mail held that the change would have a detrimental effect on the operations of its business, the request would be likely to be refused. You can contact the address maintenance team for information or advice on changing a postcode by calling 08456 011110.
2.4 Making a complaining about postal services Complaining about Royal Mail Customers can complain to Royal Mail one of three ways. • Use the online form Information on the • Call the customer services team on 03457 740 740 number of • Write to Royal Mail at Royal Mail customer services, Free post complaints received by Royal Mail is in If the customer services team is unable to resolve the complaint Royal Section 8 of this Mail escalates the complaint to the ‘Escalated Customer Resolution briefing paper. Team’.20 Customers who are still unhappy with the way in which their complaint has been handled can contact the Postal Review Panel. The Postal Review Panel is a ‘ring fenced team’ within Royal Mail but outside the customer services team and is empowered to impartially review complaints.21 The Postal Review Panel can be contacted by an online form or at their address: The Postal Review Panel, FREEPOST. Customers who are still unsatisfied after complaining to the Postal Review Panel can contact POSTRS (Postal Redress Service). Complaints to POSTRS must be made within 12 months of Royal Mail being unable to resolve the complaint.22 Customers can download and upload their complaint form on the POSTRS website. Citizens Advice advises that those who have not received an initial response by Royal Mail within 90 days should take their complaint direct to POSTRS.23
19 Royal Mail, PAF code of practice 20 Royal Mail, How do I make a complaint [last accessed 13/09/20] 21 Royal Mail, Postal Review Panel, [last accessed 13/09/20] 22 POSTRS, Submit a claim [last accessed 13/09/20], Rules 2017 23 Citizens Advice, If your post sent with Royal Mail has been damaged [last accessed 25/09/20] 14 Postal Services
Complaining about a company other than Royal Mail Complaints about a postal operator other than Royal Mail should be addressed to the company in question and follow its own in-house complaints procedure. Ofcom requires postal operators to have a complaints procedure and for that procedure to be clearly published on the operator’s website.24 Many courier companies are not a member of the POSTRS and therefore POSTRS cannot arbitrate complaints about these companies. The following are current members of POSTRS:
. CMS Network (London) Ltd . Royal Mail Group
Further information on complaining about Postal Services • Royal Mail: How do I make a complaint • Citizens Advice: ─ Complain about Royal Mail or a Post Office ─ Complaining about a courier company • Ofcom: Complain about postal services • POSTRS: Frequently Asked Questions
2.5 Parcel and letter deliveries during the coronavirus (Covid19) pandemic Some changes have been made to delivery services as a result of the coronavirus pandemic, to ensure contact free deliveries. For example: • Royal Mail have said they will not hand over hand-held devices for customers sign for a delivery, but will instead log the name of the person accepting the item. If there is a parcel being delivered that cannot fit through the letter box, the item will be placed at the door and the person delivering the parcel will step aside to a safe distance while the item is retrieved.25 • If a signature is required for Hermes or DPD deliveries, the courier will knock on the door and step a safe distance back. When the door is open, the courier will take a photo of the parcel in the open doorway as proof of delivery.26 For up-to-date information on how different courier companies are operating during the pandemic, please see the company’s website.
24 Ofcom, Complain about postal services [last accessed 20/09/20] 25 Royal Mail, Coronavirus: changes to service, [accessed 30/09/20] 26 DPD, Parcel Delivery during COVID-19 & Hermes, Coronavirus response 15 Commons Library Briefing, 23 April 2021
3. Regulation of postal services
The Postal Services Act 2011 transferred regulatory powers of postal services from Postcomm to Ofcom. Ofcom must carry out its functions in a way which will secure the provision of the universal postal service. They also have a secondary obligation to promote competition in the postal services market.27
3.1 The universal postal service Royal Mail is the UK’s universal Postal Service provider. The universal postal service is essentially the ‘one price goes anywhere’ principle of affordable postal service to all UK addresses. It requires Royal Mail (the universal service provider) to deliver to every address in the UK, six days a week, at a uniform price. The statutory basis for the universal service is set out in the Postal Services Act 2011. The Act required Ofcom to make a ‘Universal Postal Services Order’. The Universal Services Order defines what should be considered part of the universal postal service and sets standards with which Royal Mail, as the universal service provider, must comply. 28 Specifically, the Postal Services Act stipulates that this definition must contain the following minimum standards: • at least one delivery of letters every Monday to Saturday and at least one delivery of other postal packets every Monday to Friday; • at least one collection of letters and other postal packets every Monday to Saturday; • a service of conveying postal packets from one place to another by post at affordable, geographically uniform prices throughout the UK; • a registered item service at affordable, geographically uniform prices throughout the UK. • an insured items service at affordable prices • free end-to-end services for legislative petitions and certain services to blind and partially sighted people29 Ofcom made the Universal Postal Services Order in March 2012. This order was then modified in December 2013– a consolidated version of the Order is available that includes the changes. The Order provides more detail about the minimum requirements set out in the Postal Services Act 2011 and includes some additional requirements upon Royal Mail as the universal service provider, for example to provide redirection services. 30
27 Postal Services Act 2011 28 Ofcom, Universal postal service order, 12 July 2013 29 Postal Services Act 2011 Section 31 30 Statutory Instruments 2013 No.3108 Postal Services 16 Postal Services
Ofcom review of the Universal Postal Service Ofcom’s regulatory framework published in 2012 was due to remain in place for seven years. Ofcom decided to review the framework in 2015 due to certain changes in the postal industry. Ofcom published the outcome of its review of Royal Mail regulation in March 2017. Ofcom’s key findings were that Royal Mail’s performance has improved and that consumers are largely happy with postal services. On this basis Ofcom announced that they would “retain the current framework for postal regulation – which had been due to expire in 2019 – until 2022.”31 There was an investigation into Royal Mail for missed performance targets for 2018/19. For more information see section 7.3. Regulatory conditions placed upon Royal Mail Royal Mail has three broad types of regulatory conditions imposed upon it by Ofcom. • Designated universal service provider conditions; which require Royal Mail to provide the universal postal service. • Universal service provider access conditions; which require Royal Mail to give access to its postal network to other postal operators and report these services separately to Ofcom. This facilitates ‘access competition’ whereby a postal operator other than Royal Mail collects and sorts mail before handing over to Royal Mail for final delivery. • Universal service provider accounting conditions; requiring Royal Mail to comply with the accounting conditions set by Ofcom.32 Royal Mail is also required to comply with regulations Ofcom imposes upon all postal operators.
3.2 Regulatory conditions placed on other postal operators Operators may provide postal services without the need for any licence or prior authorisation by Ofcom. However, all postal operators must have a complaints procedure that is “transparent, simple and inexpensive.33 Some postal operators should follow a code for misdirected or mis- collected mail.34,35 They should also take reasonable steps to minimise the risk of the loss, theft, damage or interference of post. In order to do
31 Ofcom, Ofcom concludes review of Royal Mail regulation, [last accessed 19/09/20] 32 Ofcom, Conditions imposed on postal operators [last accessed 19/09/20] 33 Ofcom, Conditions imposed on postal operators; Ofcom Consumer protection condition 3, CP 3.2 34 This is a general universal service condition (GUSC). GUSCs are generally applicable to all relevant postal operators (i.e. they are not specifically attached to an individual operator), however, they could be designed to only apply to operators of a specified description (for example, operators that provide a certain type of service). See Conditions imposed on postal operators for more information 35 Ofcom, Conditions imposed on postal operators; Consumer protection condition 2: postal common operational procedures, p5 17 Commons Library Briefing, 23 April 2021
this, postal operators delivering mail should implement and adhere to appropriate policies and procedures.36
36 Ofcom, Essential Condition 1.2 E1.3.2 to E1.3.5, p4-7 18 Postal Services
4. The letters market
Ofcom designated Royal Mail as the universal service provider in March 2012.37 As the universal service provider, Royal Mail is the largest operator in the UK letter market. The UK letters market is fully open to competition. There are two main forms of competition in the letters market, end-to-end competition (also known as direct delivery) and access competition. End-to-end competition is where a postal operator undertakes the entire process of collecting, sorting and delivering mail. Access competition is where an operator other than Royal Mail collects and sorts the letters but then hands over final delivery to Royal Mail. The diagram from Ofcom below shows the forms of competition in the UK parcel market.
Source: Ofcom, Annual monitoring update on the postal market Financial year 2018-19, 19 December 2019, p7 figure 3.1 4.1 Trends in the letters market As the chart below shows, the volume of letters delivered has been in decline since the mid-2000s. The decline in the total volume of letters has been marked in recent years – they fell by around 22% in the five years to 2019/20.38 Royal Mail reported that they were delivering on average around one letter per household a day in the UK, which is around half of what was being delivered at privatisation in 2015. Total letter volumes are about
37 Ofcom, Securing universal postal service, 2 December 2014 38 Ofcom, Annual monitoring update on the postal market reports: 2011/12-2019/20 19 Commons Library Briefing, 23 April 2021
half of the volumes when the Universal Service Obligation was signed in 2012.39
UK Total Addressed Letter Volume 1990-2020, Billions
25
20
15
10
5
0 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Notes: Data for the year 2001 is not available, figure here assumes a decline of 1.6% from 2000 levels as estimated by the Postal Museum. Data from 2011 onwards comes from Ofcom reports and reflects the total volume of letters in the postal market rather than just Royal Mail deliveries Data refers to the financial year, e.g. data for 2020 reflects volume in the 2019/20 financial year. Source: Postal museum historical statistics, Ofcom annual monitoring update on the postal market Future trends in letter volumes In 2019 Royal Mail commissioned PWC to provide an independent view on the outlook for UK letter volumes. PWC made projections up to 2028 for the letters market, predicting the decline would continue. PWC predicted that the total of volume of letters would fall from 10.3 billion in 2018 to 6.2 billion by 2028. They attributed the decline to continued growth in e-substitutions, economic uncertainty and a high rate of decline for Commercial letters.40 The decline in the letter market has accelerated during the coronavirus In the first six pandemic. Royal Mail reported excluding elections, there was a 33% fall months of the in addressed letter volumes and a 23% fall in letter revenue in April- 2020/21 financial May 2020 compared to the same period in 2019.41 The number of year, Royal Mail’s advertising letters had a 63% decline.42 For Royal Mail in the first six parcel revenues months of the financial year, parcel revenues increased by a third and overtook letter overtook letter revenues for the first time.43 For information on how the revenues for the first time.
39 Royal Mail Group, Royal Mail Group Full Year 2019-20 Results and Business Update Transcript, 25 June 2020, p3 40 PWC, The outlook for UK letter volumes to 2028, 22 May 2019 41 Royal Mail Group, Full Year 2019-20 Results and Business Update, 25 June 2020, p7 42 Royal Mail Group, Royal Mail Group Full Year 2019-20 Results and Business Update Transcript, 25 June 2020, p10 43 Ofcom, Annual monitoring update on the postal market report: 2019-20, 26 November 2020, p3 20 Postal Services
parcels market has been affected by the pandemic, please see section 6.1. Trends in type of operators There has been a slow growth in the percentage of letters being handled by access operators; those operators who collect and sort letters but hand over final delivery to Royal Mail. Access operators now handle 64% of UK letter volumes. Most access mail is bulk mail. For example, an access operator may have a contract with a large company to collect all its mail, sort it and hand it to Royal Mail for delivery.
Percentage of addressed letters by type of operator 2011/12-2019/20
100%
80%
60%
40%
20%
0% 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Royal Mail end-to-end Royal Mail access Other end-to-end
Source: Ofcom, Annual monitoring update on the postal market 2011/12-2019/20 4.2 End-to-end market competition (U2D) Competition in the end-to-end market is very small. Royal Mail delivers the majority of end-to-end deliveries with other end-to-end operators delivering 0.1% of mail in 2019/20.44 There was a growth in other end-to-end operators between 2011 and 2015. This can be attributed to the arrival of Whistl (formerly known as TNT Post) as a competitor to Royal Mail. Non Royal Mail operators (mainly Whistl) increased their delivery volume to 170 million, reaching a peak of 1.3% of all letter deliveries in 2014/15. This was the first time operators other than Royal Mail delivered a greater than 1% share by volume of addressed letter mail end-to-end.45 Whistl operated in the end-to-end market between 2012 and 2015 in London, Liverpool and Manchester. Whistl primarily dealt in post collected directly from businesses and parts of the public sector and
44 Ofcom, Annual monitoring update on the postal market report: 2019-20, 26 November 2020 45 Ofcom, Annual monitoring update on the postal market, Financial year 2014-2015, p37 21 Commons Library Briefing, 23 April 2021
delivered to customers. Whistl withdrew from the end-to-end market in 2015 when it failed to attract private capital to fund growth.46 Royal Mail submitted a regulatory submission to Ofcom in June 2014 stating that direct competition in the end-to-end market by Whistl was a threat to the universal postal service. Royal Mail stated that direct competition in lucrative urban markets undermined Royal Mail’s ability to subsidise less profitable rural deliveries.47 In December 2014 Ofcom published its Review of end-to-end competition in the postal sector. In this document Ofcom concluded that they did not consider end-to-end competitors as posing a threat to the financial sustainability of the universal service. Therefore, Ofcom did not feel it necessary to impose regulatory conditions on end-to-end competitors to Royal Mail. 48 The withdrawal of Whistl from the end-to-end market saw a decline in the market share of non-Royal Mail postal operators in end-to-end deliveries from the 1.3% peak in 2014/15 to less than 0.1% in 2019/20.
46 Plimmer, Gill, 15 May 2015, 2,000 jobs at risk as Whistl halts ‘end-to-end’ delivery service, Financial Times 47 Royal Mail, 20 June 2014, Direct Delivery: A Threat to the Universal Postal Service, Regulatory Submission to Ofcom 48 Ofcom, 02 December 2014, Review of end-to-end competition in the postal sector 22 Postal Services
5. Stamp prices
From 1 January 2021, the price of a 1st Class stamp will increase by 9p to 85p. The price of a 2nd Class stamp will increase by 1p to 66p. Royal Mail have said the reason for the increase was due to the additional Covid-19 related costs: 2020 has been a challenging year for Royal Mail. Our people have worked tirelessly to keep the UK connected throughout the pandemic and associated restrictions. These price increases will help us continue to deliver and sustain the Universal Service in challenging circumstances.49 Royal Mail have had the freedom to set the price of their stamps since 2012, though the price of a 2nd Class stamp is still subject to price cap set by Ofcom. 50 There are two second class price caps: one on stamp letters and one on a basket of large letters and small parcels. Soon after Royal Mail were given freedom in setting stamp prices, the face value of 1st Class and 2nd Class stamps rose sharply – since then rises have been more gradual.
Face value of standard stamps 2009/10-2021/22, Pence
1st Class 2nd Class
2009/10 39 30 90 2010/11 41 32 1st Class 2nd Class 2011/12 46 36 80 2012/13 60 50 70 2013/14 60 50 60 2014/15 62 53 2015/16 63 54 50
2016/17 64 55 40 2017/18 65 56 30 2018/19 67 58 2019/20 70 61 20 2020/21 76 65 10 2021/22 85 66 0 % change 2009/10 2012/13 2015/16 2018/19 2021/22 since 2009/2010 118% 120%
Source: Ofcom, Annual monitoring update on the postal market 2011/12-2018/19 & Royal Mail, First and Second Class Stamp Prices, figures are not adjusted for inflation In July 2020, Ofcom announced they had fined Royal Mail £100,000 for overcharging customers for second class stamps. For 1 April 2018 to 31 March 2019 the cap was set at 60p. However, Ofcom found Royal Mail increased its price for second-class stamps to 61p on 25 March 2019,
49 Royal Mail, First and Second Class Stamp Prices, 1 December 2020 50 2nd Class stamps must be capped at the equivalent of 55p in 2015 prices, in line with inflation. Ofcom decided to raise the price by 5% in real terms to 65.2p for 2019- 20, and index by CPI thereafter. Ofcom, Statement: Review of Second Class stamp safeguard caps, 17 January 2019 23 Commons Library Briefing, 23 April 2021
and therefore were overcharging customers for seven days until the cap increased on 1 April 2019.51 Historic stamp prices Historically the price of a stamp has varied. The below graphs show stamp prices back to 1839 in 2020 prices.52 The charts show that stamp prices are at an historic high. In the immediate post-war era, the price of a stamp fell from the equivalent of 43p to 25p. Between 1965 and the early nineties the price rose back up to the equivalent of 40p. The price of a stamp was fairly stable in the nineties and the first decade of the 21st century. Since 2010 the price of a stamp has risen in real terms from the equivalent of 47p to 76p in 2020.
Price of a 1st Class Stamp Pence, 2020 prices
80
60
40
20
0 1839 1859 1879 1899 1919 1939 1959 1979 1999 2019 80
60
40
20
0 1945 1955 1965 1975 1985 1995 2005 2015
Notes: Face value prices prior to decimalisation in 1971 have been converted to ‘new money’ values the exchange rate in 1971 of 1 Shilling to 5p
Source: Postal Museum, Historical statistics, Ofcom Annual monitoring update on the postal market, & ONS Consumer Price Inflation
51 Ofcom, Royal Mail fined £1.5m for missing 2018/19 delivery target, 10 July 2020 52 Figures have been adjusted using CPI measure of inflation. 2018 measure taken from April in each year. 24 Postal Services
6. The parcels market
The parcels market has seen growth in recent years. This can be largely attributed to the popularity of online retail. In 2019/20, 2.8 billion parcels were sent in the UK – up 8% on the previous year. Associated revenue was £10.4 billion – up 4%.53
Parcel volumes 2013/14 to 2018/19, billions
3.0 2.8 2.6 2.4 2.5 2.1 2.0 2.0 1.8 1.8
1.5
1.0
0.5
0.0 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Source: Ofcom, Annual monitoring update on the postal market 2013/14-2019/20 6.1 Impact of the Covid-19 pandemic Since March 2020, parcel deliveries have significantly increased due to an increase in online shopping prompted by the Covid-19 pandemic and national lockdown. Online sales have soared, and even after the restrictions were lifted and shops could reopen (with the exception of some areas), this trend continues. ONS data found internet sales as a percentage of total retail sales increased from 19% in February 2020 to 26% in September, peaking at 33% in May.54 According to business analysis, “non-store purchases” in July 2020 accounted for £3 out of every £10 spent (up from £2 before the outbreak).55 Increases in e-commerce have further added to the demand for parcel delivery services. A study by Royal Mail found there was a 7% increase in company start-ups in March-July 2020, compared to the same period in 2019. Of the 315,000 new companies, nearly 16,000 were ecommerce.56 eBay also saw a surge of new businesses on the site: a 335% increase from June 2019-June 2020, its biggest on-year rise.57
53 Ofcom, Annual monitoring update on the postal market report: 2019-20 54 ONS Retail Sales Index time series (DRSI) via Internet sales as a percentage of total retail sales, 23 October 2020 [accessed 23 October 2020] 55 “Online shopping habit hard to break after lockdown supercharge”, Sky News, 24 July 2020 56 Royal Mail Group, Lockdown fuels rise in start-ups as entrepreneurial brits drive ecommerce boom, 16 October 2020 57 eBay, New businesses joining eBay UK surge 335% in June as Brits continue to turn to entrepreneurialism despite lockdown easing, 28 July 2020
25 Commons Library Briefing, 23 April 2021
Royal Mail have reported a year-on-year increase of 34% (177 million) in parcel volumes in the five months to 30 August 2020. In a Royal Mail survey, 45% of UK adults58 have been receiving more parcel deliveries since measures designed to limit the spread of covid-19 began.59 In the first six months of the 2020/21 financial year, Royal Mail’s parcel revenues increased by a third and overtook letter revenues for the first time.60 However, at the start of 2020, international parcel volumes did fall, as the coronavirus pandemic reduced imports from China.61 Royal Mail had forecasted the business to consist of 70% parcels and 30% letters over the following three years in their Journey 2024 plan, which was announced in May 2019. The impact of COVID-19 has “been to bring forward that reality to the current year”.62 It is also important to note the importance of the postal sector in providing key services during the pandemic. Royal Mail is a partner in the government’s coronavirus testing programme, collecting and delivering testing kits.63 Collection days increased to seven days a week in November.64
6.2 Competition in the parcels market The parcels market, and in particular the business to consumer delivery market, is extremely competitive, in part due to the strong growth in the UK online retail market. Strong competition has contributed to falling per-parcel revenue on average for operators. Ofcom reported that in 2019/20 the average unit revenue for a parcel decreased by 5.8% over the year, from £3.92 to £3.69.65 There are two major market trends which have increased market competition in recent years; the growth in retailers bringing deliveries ‘in house’ and the growth in ‘click and collect’ services. In 2014 Amazon launched its in house delivery service.66 It was reported that within a month Amazon had captured 3% of the UK parcel market.67 The move to bring deliveries ‘in house’ by retailers has the effect of leaving less economically viable deliveries to parcel carriers.68 ‘Click and collect’ services, whereby the courier delivers the parcel to an access point or shop for the consumer to collect, has seen growth in
58 In a survey of 2,000 adults 59 Royal Mail PLC, Quick trends: Online shopping during lockdown, 22 June 2020 60 Ofcom, Annual monitoring update on the postal market report: 2019-20 61 Ofcom, Annual monitoring update on the postal market report: 2019-20, 26 November 2020, p2 62 Kenneth Williams, Royal Mail Group, Royal Mail Group Full Year 2019-20 Results and Business Update Transcript, 25 June 2020, p1 63 Royal Mail, Delivering coronavirus tests to NHS staff, 6 May 2020 64 Department of Health and Social Care, Royal Mail to collect COVID-19 test kits 7 days a week, 16 November 2020 65 Ofcom, Annual monitoring update on the postal market 2019-20, p17 66 Plimmer, Gill, 15 October 2014 Amazon launches same-day delivery service in the UK, Financial Times 67 Plimmer, Gill, 19 November 2015 Royal Mail blames Amazon network for fall in profits, Financial Times 68 Ofcom, Annual monitoring update on the postal market 2015-16, p33 26 Postal Services
recent years. Many postal operators, including Royal Mail, are developing their ‘click and collect’ services. Though ‘click and collect’ offers growth opportunities for postal operators, it does result in delivery direct to consumers homes or businesses being bypassed. Royal Mail estimate that there is roughly 25% overcapacity in the UK parcels market (on average, through the year). Parcel carriers are continuing to invest in new capacity, resulting in increased pressure on prices. Traditional retailers are improving their in-store collection and delivery services.69
6.3 Consumer problems in the UK parcels market In 2014, following concern about the quality of service offered by those providing parcel deliveries, the Department of Business Innovation and Skills (now BEIS ) published a “Statement of principles for parcel deliveries”. This document is not a code of practice or a form of regulation but offers a set of principles which retailers can voluntarily follow. Specifically, the document sets out six principles for parcel deliveries that are designed to spread best practice, address current delivery problems experienced by some consumers, and ensure delivery services meet the current and future needs of consumers by building on the minimum requirements of retailers’ legal obligations. The six principles are reproduced below: • Principle 1 – Online retailers should ensure that their delivery pricing policies do not discriminate against consumers on the basis of their location. Geographical surcharges should be applied only when these costs are justified by objective criteria, such as actual and unavoidable costs incurred because of the distance. The level of any necessary geographic surcharges applied should reflect the true additional cost of delivery. • Principle 2 – Online retailers should ensure that their delivery coverage policies do not discriminate against consumers on the basis of their location. Online retailers should use their best endeavours to provide the widest possible delivery coverage, refusing delivery only when this can be justified by objective criteria. Possible objective criteria may be that the dimension and/or weight of the item fall outside the scope of the universal service obligation.70 • Principle 3 - At the earliest possible stage in the online buying process, online retailers should ensure that consumers can easily access clear, timely and transparent delivery policy information, including information on any possible necessary geographic surcharges or delivery restrictions that could apply, and the reasons for such variations. Online retailers should provide consumers with
69 Royal Mail, Annual Report 2017/18 (Market Overview) 70 The universal service obligation ensures that packages up to 20kg and meeting minimum and maximum size restrictions can be delivered to all areas of the UK at a standard price. The universal service provider is Royal Mail. 27 Commons Library Briefing, 23 April 2021
transparent information about delivery options before they complete their order. • Principle 4 - Online retailers, working with their carriers, should consider how delivery options and services could be used to increase the success of first-time delivery, and should endeavour to offer delivery options that are innovative and responsive to the changing market and needs of their consumers. • Principle 5 - Online retailers should seek to provide consumers with other relevant delivery information that they hold at the time the order is completed and/or dispatched. • Principle 6 - Online retailers should include options for consumers to provide feedback about their delivery experience. In short, the Statement of principles encourages online retailers and delivery companies to provide the consumer with full information about the delivery “before they complete their order”. It also encourages retailers and delivery companies to provide a consistent service across the UK (both in terms of price and speed of delivery). Citizens Advice (the consumer watchdog) published research in June 2017 which indicated that two thirds of online shoppers had suffered problems with their parcel delivery. Their research showed: • 38% of people have had a parcel arrive late - including more than one in ten (16%) who paid for premium delivery service. • More than 1 in 10 have received damaged items. • More than 1 in 5 had a parcel go missing • 28% had a parcel left in an unsecure location • 28% were at home but had a note through the door saying the parcel couldn’t be delivered.71 In suggesting a need for further investigation, Citizens Advice made the following recommendations: • Failed deliveries could be reduced by investing in community pick- up points and requiring new builds to have a parcel locker. • A voluntary certification scheme to indicate which companies adopt and apply the Statement of principles for parcel deliveries could be created. • There could be a case for stronger regulatory intervention.
71 Citizens Advice Parcel Delivery: Delivery services in the online shopping market, June 2017 28 Postal Services
Parcel Surcharges There has been concern that prices for parcel deliveries in the Highlands and Islands of Scotland and in Northern Ireland are unfairly high. Citizens Advice Scotland72 and the Consumer Council for Northern Ireland have produced a number of reports regarding parcel surcharging and longer waits for parcels in the Highlands and Northern Ireland. 73 On 26 November 2019, the Scottish Parliament Information Centre (SPICe) published online a briefing entitled “Scotland’s parcel delivery surcharge cost on the up”.74 Over the last three years SPICe has estimated the additional cost to Scotland of parcel delivery surcharges relative to the rest of the UK. The estimated additional cost to Scotland of parcel delivery surcharges for 2019 was £40 million, an increase of 11% since its original costing of £36.3 million in 2017.75 According to SPICe, growth in online shopping and the uprating of prices for inflation were the main factors driving the increase. The ONS internet access survey 2019 shows that in 2019, among all adults, 82% bought goods or services online in the last 12 months, an increase of five percentage points since 2018.76 This increase was seen mainly in adults aged 35 years and over (with a six percentage points increase since 2018).77 SPICe concludes as follows: The growth in online retail has been significant over the last decade. In 2008 just 53% of adults bought goods or services online. This substantial shift in behaviour has a range of policy implications, […] including Scottish consumers who are often disadvantaged by parcel surcharges, late delivery or are refused delivery altogether when they try to buy goods online.78 The map and table below show the additional £40 million cost to Scotland broken down by Scottish Parliament constituency.
72 Citizens Advice Scotland The Postcode Penalty: Delivering Solutions p4 73 Ofcom Annual monitoring update on the postal market 2015-16 74 “Scotland’s parcel delivery surcharge cost on the up”, SPICe Spotlight, Alison O’Connor and Andrew Aiton, 26 November 2020, [online] (accessed 11 May 2020) 75 Ibid 76 Ibid 77 Ibid 78 Ibid 29 Commons Library Briefing, 23 April 2021
30 Postal Services
Cost of delivery surcharges to Scotland, by Scottish Parliament constituency Relative to the rest of the UK, 2019
Additional cost (£)
Inverness and Nairn £7,239,000 Skye, Lochaber and Badenoch £6,272,000 Caithness, Sutherland and Ross £4,843,000 Argyll and Bute £3,109,000 Moray £2,786,000 Aberdeenshire East £2,448,000 Aberdeenshire West £2,180,000 Banffshire and Buchan Coast £2,035,000 Na h-Eileanan an Iar £1,518,000 Perthshire North £1,282,000 Shetland Islands £1,271,000 Orkney Islands £1,021,000 Perthshire South and Kinross-shire £954,000 Dumfriesshire £927,000 Galloway and West Dumfries £758,000 Dumbarton £684,000 Stirling £365,000 Cunninghame North £331,000 Clackmannanshire and Dunblane £93,000 Aberdeen South and North Kincardine £23,000
Total cost to Scotland £40,139,000
Notes Figures may not sum due to rounding
Source SPICe, Scotlands parcel delivery surcharge cost on the up, 26 November 2019 Explanations for parcel surcharges Ofcom investigated parcel surcharging in 2015/16 and 2016/17. They gathered data from a number of postal operators (DPD, Hermes, Royal Mail, Parcelforce) and found that there was some correlation between the areas where at least one provider used a third-party operator to deliver and the areas where operators were applying surcharges. Ofcom found that operators were paying varying prices per parcel to third party groups, from £2.32 to £4.56 per parcel.79
79 Ofcom, Annual monitoring update on the postal market 2016-17, p52 31 Commons Library Briefing, 23 April 2021
However, Ofcom concluded that in most cases the surcharge applied to bulk retail customers was greater than the cost incurred by the parcel operator from the third party company. Ofcom stated that it was… “…therefore not clear that costs incurred in reliance on third parties and transport companies fully account for the surcharges applied by parcel operators to their bulk retail customers. However, we note that it is likely that other factors beyond a reliance on third parties and air and ferry transport companies also contribute to additional costs in certain areas”80 Parcel operators who gave evidence to Ofcom highlighted three main factors which determine their decision to introduce parcel surcharges: • An area has a low ‘drop density’. Drop density refers to the frequency of deliveries in one area. • An area requires the transportation over water. • An area is a long distance from the nearest network hub, where the operator sorts and distributes parcels. Citizens Advice Scotland said that they…
…did not find any evidence that higher prices are the result of systematic profiteering, but it is not fully accurate to say that prices merely represent higher costs incurred. Rather, the price difference is the result of national delivery operators deciding to cross-subsidise costs over some areas, but not others.82
Scottish Affairs Committee Inquiry The House of Commons Scottish Affairs Committee looked into Delivery charges in Scotland, undertaking a one off evidence session on the 28th February 2018. In this session they took evidence from both online retailers and courier companies. Online retailers including eBay, Amazon and Argos all said they had adopted policies to reduce or eliminate surcharges. Amazon and eBay said they would intervene if consumers were to complain about sellers in their marketplace charging extra delivery fees. Couriers giving evidence (DPD, JBT and Menzies couriers) argued that where they charged higher prices this was proportionate given the extra costs associated with delivering to remote areas. It was noted by a number of those giving evidence that small online sellers and retailers do not have access to the rates available to larger companies sending more items in bulk.81
Citizens Advice Scotland recommendations Citizens Advice Scotland have recommended that public and private sectors co-operate to help reduce costs. They suggest “pick up and drop off” locations like parcel lockers, convenience stores and post offices can help reduce costs for delivery companies. They have suggested that the extension of Scotland’s network of “pick-up drop off” locations should be explored.83
80 Ofcom, Annual monitoring update on the postal market 2016-17, p52 81 House of Commons Scottish Affairs Committee, one off evidence session on the 28th February 2018, see also Tamebay, Scottish Affairs Committee examines excessive courier surcharges, 2 March 2018 82 Citizens Advice Scotland The Postcode Penalty: The Distance Travelled p6 83 Ibid p 6 and 7 32 Postal Services
Citizens Advice Scotland have also called upon the Government to improve education about the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 and increase the voluntary uptake of the “Parcel Delivery Statement of Principles” published on 23 November 2018. This Statement of Principles sets out best practice principles as to how retailers can ensure their delivery services meet the needs of their online customers. The principles may have particular relevance for operators selling to consumers in the Highlands and Islands and other remote, rural and island communities. It is important to note that the use of the Statement of Principles is voluntary and should be read alongside retailers’ legal obligations.84 Delivery Law UK On 22 June 2018, the Highland Council announced a new website that was developed using funding from Trading Standards Scotland. Delivery Law UK aims to provide a ‘one stop shop’ for consumers across the UK dealing with surcharging concerns The Council stated that the section of the site for consumers has clear, readable information about consumer rights, with examples of each type of potentially problematical scenario. As well as “self-help” tools for consumers to test whether they have a case and template letters to use to raise cases. There is a section to enable consumers to report unfair practices to the correct Trading Standards department or to the Advertising Standards Authority, as well as clear signposting to the Citizens Advice Consumer Helpline where consumers can access more advice.85 There is also an information section for businesses aimed at describing how website operators can comply with the law and treat consumers fairly, as well as how to complain if they have experienced surcharges in their buying. The section for practitioners is for people who want to look into the legal requirements in more detail, such as advisers, investigators, solicitors, and policy-makers.86 Government position A Westminster Hall debate on this issue took place on the 2 July 2019 in which Kelly Tolhurst, then Parliamentary Under-Secretary of State for BEIS, responded to concerns over parcel surcharging. She said: The Government strongly encourage businesses to provide consumers, as far as possible, with a range of affordable delivery options. To help to achieve that, the Government have ensured that everybody, including retailers, has access to an affordable postal service for deliveries across the UK under the universal service obligation, which has been mentioned in the debate.
84 A number of regulations set out legal obligations for retailers when trading online. These include the Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013; the Consumer Protection from Unfair Trading Regulations 2008, and the Price Marking Order 2004 85 The Highland Council, New Website Provides One-Stop Shop for Postal Surcharge Concerns, 22 June 2018 86 The Highland Council, New Website Provides One-Stop Shop for Postal Surcharge Concerns, 22 June 2018 33 Commons Library Briefing, 23 April 2021
Through the universal service obligation, Royal Mail delivers parcels up to 20 kg, five days a week, at uniform rates throughout the UK. Let me make it clear that it is up to businesses themselves to determine the most appropriate delivery option for the consumers of their products. There are no rules to prevent differential charging between businesses for deliveries, and I do not believe that, for example, imposing a price cap is a practical answer. We should not seek to force retailers to use a specific supplier, such as Royal Mail, because competition in the delivery market is an important driver of efficiency. A competitive market should be a sufficient incentive to put pressure on charges applied by retailers and delivery operators.87 The Scottish Government In November 2018, the Scottish Government launched the Fairer Deliveries For All: An Action Plan which listed eight key actions to tackle the “unfair and discriminatory parcel delivery charges faced by communities in remote and rural Scotland”’. In August 2020, the Scottish Government published a report in response to action point 4 of the Plan. In the report it states that We talked to five of the largest (parcel delivery operators) and much of this has now been published. We found that four out of five of those operators, Royal Mail being the exception, do charge surcharges in some parts of the Highlands and Islands. The amount that retailers pay is extremely variable, because the larger retailers do negotiate very hard with the parcel operators to strike contracts for bulk delivery of goods. The amount that consumers then pay is also very variable… some retailers absorbing all the cost, all the surcharge, and others charging more than the operator is charging them for delivery. It is a very mixed picture. …very much down to the contracts that the operators have with the particular retailers and of course it is then the retailers that ultimately determine what price the consumer pays for deliveries. There is not consistency, as it were, either in where the surcharge applies, but also on how and whether it is passed on to consumers in those areas.88 In the Scottish Government’s Programme for Scotland 2019-20, they committed to …continue our work to tackle unfair delivery charges. The harm caused by these are felt most by our rural, island and remote communities and we will take action by launching the Scottish Parcel Delivery Map. We will introduce a new postcode tool to reduce the instances of unfair delivery charges resulting from postcode misclassification.89 Advertising Standards Agency (ASA) enforcement notice On the 12 April 2018, the ASA issued an Enforcement Notice on Advertised Delivery Restrictions and Surcharges. In this notice the ASA states that advertisers must not make misleading claims about “UK delivery” if the charge or service does not apply across the whole of the
87 HC Debate volume 662, Rural Areas in Scotland: Additional Delivery Charges, 2 July 2020, Column 518WH-519WH 88 Scottish Government, Review of the Statement of Principles for Parcel Deliveries, August 2020, p16 89 Scottish Government, Protecting Scotland’s Future: The Government’s Programme for Scotland 2019-20, September 2019, p74 34 Postal Services
UK, including the Scottish Highlands and Islands and Northern Ireland (but not Crown Dependencies). If there are delivery restrictions or exclusions, advertisers must make this clear to the consumer. Advertisers had until the 31st May 2018 to comply with this enforcement notice.90
6.4 Deliveries for disabled people Research published by Citizens Advice in December 2019 found 1 in 5 disabled people shop online because they cannot get access to physical shops. The research also found 2 in 5 people whose impairment “affects them a lot”, shop online at least once a week. Despite an increased reliance on online shopping, 2 in 3 disabled people in the UK had problems with their parcel deliveries in the previous year.91 Some of the problems that face disabled people include: • Not having enough time to get to the door and so missing the delivery • The parcel is left in an inaccessible location • Feeling rushed or anxious when signing for parcels92 More recently during the coronavirus lockdown, Citizens Advice found 39% of disabled people experienced problems with parcel delivery in a single week. For people who were shielding, which includes elderly people and pregnant women, 51% of people were affected.93 This is in comparison to 27% of people who do not identify as disabled.94 The solution, suggested by Citizens Advice, is to have additional delivery needs captured ‘at some point in the customer journey’ so that the driver is made aware. Citizens Advice is asking delivery companies to commit to two things: 1. Find a way to enable disabled people to specify their accessibility needs, and to pass this information on to the driver making the delivery 2. Where applicable, clearly publish accessibility information about their Pick-Up and Drop-Off points online95 According to Citizens Advice, five UK parcel companies have committed to make these improvements. They are: DHL Parcel, Hermes, DPD, Menzies, and Parcelly.96
90 Advertising Standards Agency, Advertised delivery restrictions and surcharges, 12th April 2018 91 Charlotte WitsØ and Laura Clark, Citizens Advice, The Missing Link: Why parcel companies must deliver for disabled people, 5 December 2019 92 Charlotte WitsØ and Laura Clark, Citizens Advice, The Missing Link: Why parcel companies must deliver for disabled people, 5 December 2019, p8 93 Citizens Advice, Over 7 million disabled people faced delivery problem in single week, despite online shopping being a lockdown lifeline, 11 August 2020 94 Ibid 95 Charlotte WitsØ and Laura Clark, Citizens Advice, The Missing Link: Why parcel companies must deliver for disabled people, 5 December 2019, p16 96 Citizens Advice, Over 7 million disabled people faced delivery problem in single week, despite online shopping being a lockdown lifeline, 11 August 2020 35 Commons Library Briefing, 23 April 2021
6.5 Leaving the EU The UK’s decision to leave the European Union is expected to have an impact on the postal services industry. In general, postal services benefit from strong economic conditions; consumer and business confidence usually leads to more spending on postal deliveries. Therefore, any economic uncertainty as a result of Brexit may have a knock-on effect on letter and parcel volumes.97 The UK left the EU on 31 January 2020, but it continues to be a member of the EU single market and customs union through the ‘transition period’, the period over which the UK is to negotiate its future trading relationship. At present it is anticipated the transition period will end on 31 December,98 and Royal Mail have said that during this time, it does not expect any changes to how items are sent and received.99 However, Brexit has potential for increased costs for cross border deliveries if the UK’s being outside the single market and/or customs union creates additional border checks and other requirements related to customs, VAT and/or regulatory compliance. In March 2018 the House of Commons European Scrutiny Committee argued that the wider implications of Brexit on cross border parcel delivery services were likely to be ‘significant’, concluding: Leaving the customs union and the single market will, by default, result in customs duties, border control formalities, and import VAT applying to goods bought online by UK consumers from EU businesses (and vice versa). These changes would lead to slower delivery times and increased costs for businesses and consumers.100 In a report published before the 2016 EU referendum, ParcelHero (an online parcel delivery company) argued that extra transport costs, duties and taxes arising from Brexit could add around 30% to 33% to the price of imported items.101 The company argued that many courier companies did not service non-EU countries due to the complexities of border controls, so that the lack of competition in these markets would result in higher prices.102 Although the outcome of the UK’s negotiations with the EU remain uncertain, the Government have announced one reform which will have an impact on the cross-border delivery of small parcels from the end of the transitional period: the abolition of Low-Value Consignment Relief.
97 The Guardian, Brexit jitters mean less junk mail (and less money for the Royal Mail), January 2017 98 Brexit timeline: events leading to the UK’s exit from the European Union, Commons Briefing paper CBP7960, 9 October 2020 99 Royal Mail, What has Royal Mail been doing to plan for leaving the EU?, 10 August 2020 [accessed 16 October 2020] 100 European Scrutiny Committee,Twenty-first report of Session 2017-19, HC301-xx, 27 March 2020 para 10.7 (see, 10. Cross-border parcel delivery services) 101 Parcel Hero, Delivering Brexit: the true cost of leaving the EU, December 2015 102 Ibid 36 Postal Services
Generally, imports into the EU are charged VAT. VAT is normally due at the same rate as on the supply of those goods in the relevant Member State. Under European VAT law all Member States are required to exempt from VAT commercial consignments worth €10 or less. This is known as ‘low value consignment relief’ (LVCR). Member States may apply a higher threshold up to €22 and the UK has done this in the past. Setting the ceiling for LVCR represents a trade-off. More tax would be collected if the limit was €10, but more Customs and postal staff would be needed to process packages and impose charges, as many more consignments would no longer qualify for relief.103 Provision is made for a higher limit to apply for personal gifts. VAT is not chargeable if the value of a gift is €45 or less, if it has been sent from one person to another, if there is no commercial or trade element, and it is of an occasional nature only – say, for a birthday or anniversary. For gifts of alcohol, tobacco, perfumes or toilet waters, an additional limit is set to the volume or quantity sent. The €45 limit for gifts has been in place for many years, though it has had to be adjusted to take account of changes in exchange rates and is £39 at present.104 In July 2020 the Government published its Border Operating Model – setting out how the border with the EU would work after the transition period – and as part of this confirmed that LVCR would be withdrawn.105 Further guidance was published in October; an extract is given below: Outline of the changes For imports of goods from outside the UK in consignments not exceeding £135 in value (which aligns with the threshold for customs duty liability), we will be moving the point at which VAT is collected from the point of importation to the point of sale. This will mean that UK supply VAT, rather than import VAT, will be due on these consignments. The new arrangements will also involve the abolition of Low Value Consignment Relief, which relieves import VAT on consignments of goods valued at £15 or less. Online marketplaces (OMPs), where they are involved in facilitating the sale, will be responsible for collecting and accounting for the VAT. For goods sent from overseas and sold directly to UK consumers without OMP involvement, the overseas seller will be required to register and account for the VAT to HMRC. Business to business sales not exceeding £135 in value will also be subject to the new rules. However, where the business customer is VAT registered in the UK and provides its valid VAT registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge. The changes will not apply to consignments of goods containing excise goods or to non- commercial transactions between private
103 For more background see, VAT on postal packages, Commons Briefing paper CBP4155, 9 June 2017. 104 HMRC has detailed guidance for post users, which, to date, does not cover the position after the end of the transition period: see, HMRC, Notice 143: a guide for international post users, 26 February 2020 105 Cabinet Office, The Border Operating Model, last updated 8 October 2020 37 Commons Library Briefing, 23 April 2021
individuals. Existing rules will continue to apply for these transactions. In addition, for sales of goods by overseas sellers, where the goods are already in the UK at the point of sale, we will move the responsibility for accounting for VAT from the overseas seller to the OMP that facilitates the sale. Overseas sellers will remain responsible for accounting for the VAT on goods already in the UK and sold directly to UK consumers without OMP involvement.106 HMRC’s guidance underlines that some types of consignment will be outside the scope of these arrangements including “non-commercial consignments, such as gifts (gift relief for consignments valued up to £39 will remain).”107 The Taxation (Cross Border Trade) Act 2018 includes provisions which will allow these rules to be amended with the UK’s exit from the EU. In its Customs White Paper, published before the introduction of this legislation, the Government stated that its aim was to “ensure that … the movement of goods as small parcels, via Royal Mail and fast parcel operators, continues to operate effectively. This will maximise fluidity, protect revenues and guard against an increase in tax evasion.”108
6.6 Postal regulation The implications of Brexit on postal services regulation are likely to be modest. This is because the UK’s domestic regulatory framework generally sets standards that go beyond the minimum requirements in EU law, for example in relation to the definition of the universal service obligation.109 The Postal and Parcel Services (Amendment etc.) (EU Exit) Regulations 2018 make a number of changes in response to Brexit – for example removing requirements on Ofcom to share data with the European Commission.
6.7 Further information The Government produced an analysis of the postal sector which was published (with some exclusions) by the House of Commons Committee on Exiting the European Union: Sectoral Analyses: Post. This contains information on the sector, the current EU and international regulatory regimes, and existing arrangements which govern the way in which other countries trade with each other in this sector. Royal Mail and the Post Office have published webpages explaining changes that could come into place at the end of the Transition period.
106 HMRC, Changes to VAT treatment of overseas goods sold to customers from 1 January 2021, Updated 5 October 2020 107 ibid. see also, Avalara press notice, UK post-Brexit VAT on e-commerce B2C imports, 30 September 2020 108 HM Treasury, Customs Bill: legislating for the UK’s future customs, VAT and excise regimes, Cm 9502, October 2017 para 5.20. For further background see, The Taxation (Cross-border Trade) Bill, Commons Briefing paper CBP8126, 6 July 2020 (specifically section 5.3). 109 Exiting the European Union Committee, Sectoral Analyses: Post, p8 38 Postal Services
Brexit: Getting ready for leaving the EU (Royal Mail), and Brexit: What will it mean for you? (Post Office) should be kept up to date with the most recent information. 39 Commons Library Briefing, 23 April 2021
7. Performance of Royal Mail
Royal Mail Group is a public limited company consisting of multiple ‘business units’. Royal Mail group consists of UKPIL (UK Parcels, International & Letters) and GLS (General Logistics Systems), the company’s international arm.110 UKPIL contains Royal Mail Group’s parcel business Parcelforce Worldwide.111
7.1 Five-year summary of Royal Mail financial performance The table below gives a five year summary of the financial performance of Royal Mail Group.112
Royal Mail Group, five-year summary 2015/16-2019/20 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20 Income statement - adjusted (£ millions) Revenue 9,251 9,776 10,172 10,581 10,840 Operating profit before transformation costs 742 712 694 544 455 Transfromation costs 191 137 133 133 130 Operating profit before specific items 551 575 581 411 325 Profit before tax 538 559 565 398 275 Tax -118 -121 -111 -93 -79 Profit after tax 420 438 454 305 196
Shares (pence) Basic earnings per share 41.3p 44.1p 45.5p 30.5p 19.6p
Balance sheet (£ millions) Property, plant and equipment 2,002 2,062 2,016 2,066 3,120 Intangible assets 451 567 608 631 558 Net cash / debt (debt if negative) -224 -338 14 -300 -1,132
People numbers Group total headcount (end year) 156,535 158,955 159,117 161,978 160,772 Source: Royal Mail Annual Accounts; 2015/16 to 2019/20 Notes: Results are adjusted to exclude the pension charge to cash difference and specific items. Headcount is based on permanent employees. 2018-19 information is presented on a 53 week basis, whereas other information is on a 52 week basis Net debt increased by around a £1 billion in 2019/20 due to the capitalisation of leases under IFRS 16 accounting changes Royal Mail Group, total revenue Royal Mail Group, profit after tax £ millions £ millions
12,000 600
10,000
8,000 400
6,000
4,000 200
2,000
0 0 2015/16 2016/17 2017/18 2018/19 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20
110 The GLS network covers 36 countries and nation states in Europe. GLS operates in eight states in the Western US and Canada. Royal Mail, Annual Report and Financial Statements 2019-20 111 Royal Mail, Annual Report and Financial Statements 2019-20 112 Royal Mail plc, Full Year Results 40 Postal Services
Royal Mail Group (RMG) profits after tax have fallen slightly over the past two years. In 2019/20, RMG posted an adjusted profit after tax of £196 million. During the last five years RMG have invested in transformation of their business, spending on to upgrade IT and parcel systems as well as changing the way in which they operate their business. RMG spent £130 million on transformation costs in 2019/20. At the end of 2019/20, Royal Mail Group reported a total staff numbers of around 160,000, around 1,000 less than the previous year. UKPIL performance Royal Mail Group reports volumes of mail separately for its UK Parcels, International and Letters (UKPIL) business. UKPIL volumes have been changing in recent years. UKPIL has seen a decline in the volume of letters and an increase in the volume of parcels. This is in line with trends in the postal service market. UKPIL letters volumes fell 5% between 2018/19 and 2019/20. This has coincided with a fall in revenue from letters by 1% over the same period. Parcels volumes on the other hand have increased by 2%, with revenues increasing by 5%. In June 2020, it was announced that UKPIL will be cutting 2,000 jobs in management roles, as part of action to save £130 million.113
UKPIL Letters and parcels business 2015/16-2019/20
2015/16 2016/17 2017/18 2018/191 2019/20
Reporting period 52 week 52 week 52 week 52 week 52 week
Letters Volume (millions) 15,556 14,856 14,378 13,376 12,650 Revenue (£millions) 4,475 4,321 4,152 4,057 4,021 Parcels Volume (millions) 1,130 1,169 1,230 1,287 1,312 Revenue (£millions) 3,196 3,337 3,463 3,538 3,699
Notes: 1 Royal Mail re-presented 2018/19 firgures to reflect new methodology of allocating UKPIL letter and parcel revenue and volume. The 2018/19 results are presented are on the new basis.
Source: Royal Mail Annual Accounts; 2015/16 to 2019/20
Source: Royal Mail Annual Accounts; 2015/16 to 2019/20 7.2 Modernisation of Royal Mail Royal Mail has been undergoing a programme of modernisation since 2006/07.114 In 2018/19, Royal Mail launched a five year transformation strategy, which involved around £1.8 billion in investment.115
113 Royal Mail plc, Financial Report for the full year ended 29 March 2020, 25 June 2020, p1 114 Royal Mail Annual Report 2012/13, p22 115 Royal Mail, Royal Mail to invest around £1.8 billion in UK over five years, 22 May 2019 41 Commons Library Briefing, 23 April 2021
The investment programme will focus on customer service improvements, digital initiatives, network enhancements and new ways of working to deliver more productivity and efficiency. This initiative will help fund the UK’s Universal Service.116
7.3 Royal Mail targets As the Universal Service Provider, Royal Mail’s performance is measured against a number of targets it is required to report to Ofcom. Some of these targets are formalised in DUSP Condition 1; failure to meet these targets could result in Ofcom imposing a fine upon Royal Mail. Royal Mail publish quarterly reports on their performance against these Quality of Service targets. Ofcom also publishes information regarding Royal Mail’s performance against these targets in their Annual monitoring update on the postal market. Royal Mail missed several of its targets in 2017/18, some by quite a margin. It commented that its performance had been “significantly impacted by a number of exceptional events”. While figures below have been adjusted for events outside Royal Mail’s reasonable control (force majeure events) such as some very severe weather, Royal Mail point out other issues affected performance: These factors included a very challenging industrial relations environment, some very severe weather, Cyber Week falling outside the exemption period and significantly reduced staffing levels caused by the Australian flu outbreak… If the 2017-18 performance was adjusted for these factors, we would have achieved our First Class target.117 In 2018/19, Royal Mail reported a performance of 91.5% (91.9% with adjustment) against its First Class national standard of 93% and reported meeting its postcode area target in 75 of 118 postcode areas. Because of this Ofcom opened an investigation into Royal Mail on the 31 May 2019.118 Ofcom has the power to fine Royal Mail. The final decision of the investigation was made on the 10 July 2020. Ofcom chose to fine Royal Mail £1.5million for ‘failing to meet its regulatory first-class delivery target’.119 It was also found that Royal Mail had overcharged customers for second-class stamps for seven days, and so Ofcom fined Royal Mail a further £100,000. Royal Mail responded that
We are disappointed with our First Class regulated Quality of Service performance in 2018-19. We accept and understand Ofcom’s decision.120
116 Royal Mail, Royal Mail to invest around £1.8 billion in UK over five years, 22 May 2019 117 Post & Parcel, Royal Mail misses first class mail target, 11 May 2018 118 Ofcom, Investigation into Royal Mail's quality of service performance in 2018/19, 21 August 2020 119 Ofcom, Royal Mail fined £1.5m for missing 2018/19 delivery target, 10 July 2020 120 Royal Mail, Ofcom Investigation, 10 July 2020 42 Postal Services
In 2019/20, after adjusting for the effects of Covid-19, Royal Mail met more of their performance targets than previous years, as shown in the table below.
Royal Mail performance against quality of service targets 2017/18-2019/20
2017/18 2018/19 2019/20 2019/20 Target result result result result1
First Class delivery 93.0% 91.6% 91.5% 92.6% 93.0%
Second Class delivery 98.5% 98.4% 98.6% 98.7% 98.8%
Post Code Area (PCA) target: First Class 91.5% in 118/118 72/118 75/118 105/118 114/118
Special Delivery 99.00% 98.10% 98.20% 98.50% 98.60%
Collection points served daily 99.90% 99.39% 99.85% 99.90% 99.92%
Delivery routes completed daily 99.90% 98.88% 99.55% 99.52% 99.84%
Items deemed correctly delivery 99.50% 99.74% 99.76% 99.70% 99.70%
Notes Figures are not adjusted for force majeure 1 figures adjusted for impact of Covid. Otherwise, results not adjusted for force majeure
Source: RoyalMail: DUSP1.10.7 Full year results 2015/16 to 2019/20
Source: Royal Mail: DUSP1.10.7 Full year results 2017/18 to 2019/20
7.4 Complaints to Royal Mail The number of consumer complaints received by Royal Mail has been reasonably steady over the past couple of years, as the graph below shows. Royal Mail received 761,000 complaints in the reporting year 2019/20.121 The biggest single category of complaint was loss of item.
121 Royal Mail are required to submit an annual report regarding complaints to Ofcom. The latest report is for 2017/18. 43 Commons Library Briefing, 23 April 2021
Number of consumer complaints received by Royal Mail 2012/13-2019/20, Thousands
1,000
862 797 757 761 761 800 736 733 750
600
400
200
0 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Notes: Received and completed complaints Source: Royal Mail, Annual Consumer Complaints & Compensation Scheme Reports
Royal Mail consumer complaints 2019/20
Loss or part loss 35%
Delivery problems 18%
Other 14%
Redirection 8%
P739 Failure 7%
Delay 6%
Denial of Receipt 6%
Damage 6%
Notes: - Received and completed complaints - Problems with delivery cover: mis-delivery, delivery procedure errors and redelivery failure - Royal Mail is required, Ofcom's Consumer Protection Condition 3, Section 3, para 15, to break consumer complaints down into no more than ten of the main causes of consumer complaint. Source: Royal Mail Annual Report, Complaints and Compensation, 26 June 2020 44 Postal Services
Annex: Postal Services Act 2011
Background to the Act Since the late 1990s the postal services market has been rapidly changing. Email and online shopping have reshaped demand for postal services. Against this backdrop of a changing market there was of Government interest in reforming postal services in the UK. The Hooper reviews In 2007 the then Labour Government commissioned Richard Hooper to undertake a review of Postal Services. The resulting report, Policies to maintain the universal postal service in the United Kingdom, was published in 2008. The 2008 report recommended that in order to achieve the modernisation of Royal Mail and secure the future of the universal service… there should be a strategic partnership between Royal Mail and one or more private sector companies.122 The 2008 Hooper report advised against publicly listing Royal Mail. Royal Mail’s financial performance was seen as too weak, and publicly listing the company would not deliver the access to corporate experience that Royal Mail required to implement modernisation. The 2008 Hooper report also raised concerns surrounding Royal Mail’s pension deficit should it ever be publicly listed. 123 The then Labour Government agreed that a strategic partner would be the best way forward and introduced the Postal Services Bill [HL] 2008/2009. Part One of the Bill provided for the part sale of Royal Mail.124 However on 1st July 2009 the Government announced that they had been unable to find an appropriate partner for Royal Mail and therefore they did not proceed any further with the Postal Services Bill [HL] 2008/2009.125 After the 2010 General Election the new Coalition Government agreed More information to introduce legislation to reform postal services. Before bringing about Postal forward a new Bill to Parliament, then Business Secretary, Vince Cable Services reform 126 announced that he asked Richard Hooper to update his 2008 Report. prior to 2011 can The resulting report, Saving the Royal Mail’s universal postal service in be found in the the digital age, had three main recommendations which broadly Library note The reiterated points that had been made in the 2008 Report.127 reform of Postal Services 1997-2011 • There should be an introduction of private sector capital in the Royal Mail • The Government should relieve Royal Mail of its pension deficit • Regulation of postal services should be transferred to Ofcom
122 Hooper (2008) Policies to maintain the universal postal service in the United Kingdom p79 123 Hooper (2008) Policies to maintain the universal postal service in the United Kingdom 124 HL Deb 10 March 2009 c1062 125 HL Deb 01 July 2008 c222 126 Department for Business Innovation and Skills, Government asks Hooper to refresh his Royal Mail report 24 June 2010 127 Hooper (2010) Saving the Royal Mail’s universal postal service in the digital age 45 Commons Library Briefing, 23 April 2021
Following the second Hooper Report recommendations the Coalition Government introduced the Postal Services Bill 2010-2011 to Parliament. Provisions in the Act The Postal Services Act 2011 gained Royal Assent on the 13 June 2011.128 The Postal Services Act is divided into five Parts: Part One of the Act deals with the restructuring of Royal Mail group of companies. In particular, provision is made to lift the restrictions on the sale of shares in Royal Mail. Provision is made for the establishment of an employee share scheme prior to any sale. The restrictions on ownership of Post Office Ltd are modified to provide for it to remain in 100% Government ownership except for a possible move to a mutual ownership structure in future. Part Two of the Act deals with Royal Mail’s pensions scheme. This Part enables historic pension liabilities to be transferred to the Government. Part Three of the Act is concerned with the regulation of the postal services sector. This Part makes various provisions for the regulatory framework including, but not limited to: giving Ofcom the functions of the regulator for the postal services sector and abolishing Postcomm; making maintenance of the universal service, including its financial sustainability, the primary duty for the regulator in relation to postal services; replacing the current licensing 10 regime for the provision of postal services with a general authorisation scheme; and providing for the regulator to impose conditions aimed at ensuring accounting separation and cost transparency. Part Four of the Act contains provisions for a special administration regime. The purpose of this is to ensure that the objective of the administrator is to secure the continued provision of the universal postal service in the event that a privately-owned Royal Mail (or other provider of the universal postal service) is at risk of entering insolvency proceedings. This follows precedents in the rail, energy and water industries. Part Five of the Act contains general provisions relating to orders or regulations made by the Secretary of State, commencement and other general matters.129 The privatisation of Royal Mail The Postal Services Act 2011 facilitated the sale of shares in the privatisation of Royal Mail, which has taken place in three parts – the majority of the company was disposed of in 2013, with 10% of shares
128 Parliament.uk Postal Services Act 2011. 129 Postal Services Act 2011 46 Postal Services
allocated to an employee free offer and 60% sold to individuals and More detail financial institutions. regarding the The first sale of Royal Mail started in October 2013, with shares priced Privatisation of at £3.30 each – total proceeds of the first sale were £1,980 million. Royal Mail can be When markets opened following the sale, Royal Mail shares were valued found in the Library at £4.50. Since then the share price has mostly ranged between about briefing £4 and £6. Privatisation of The sales of the remaining part started in June 2015. The final sale was Royal Mail. completed in October 2015. Half of the remaining 30% of government owned shares after the first sale was sold on 10 June 2015 for a price of £5.00 a share, generating £750m with the second half sold on 13 October 2015 at a price of £4.55 a share, generating £591m. The government has said that this money will be used to reduce the national debt. The final sale also included a provision for 2% to go to Royal Mail employees. The total proceeds of privatisation came to £3.3bn. There were questions about the value achieved from the first flotation. The Business, Innovation, and Skills Committee report on Royal Mail Privatisation on 11 July 2014 concluded, “It is clear that the Government met its objectives in terms of delivering a privatised Royal Mail. However, it is not clear whether value for money was achieved; it appears that the taxpayer has missed out on significant value.” The National Audit Office (NAO) had similar conclusions: “Although the Department achieved its primary objective of delivering a sale of shares within this Parliament it could have achieved better value for the taxpayer.”
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