Regulator may demand GBP80m from UK Royal Mail

Royal Mail may have to pay out up to GBP80m in compensation payments to business customers as a result of failing to meet service quality targets set by the regulator.

Fines on top of this could also be levied by Postcomm after Royal Mail admitted yesterday that it expected to end the year on March 31 well behind its goals.

The reliability performance for delivery of first-class letters fell during the third quarter to end December to 84.9percent, bringing a cumulative performance over the first nine months to 90.3percent. This is short of the 92.5percent goal set by the regulator for the year.

Cumulative performance for second class mail in the first three quarters dropped by 1percent to 97.6percent, which is below the Postcomm annual target of 98.5percent. Royal Mail accepted there was little likelihood of it being able to make up the difference in the last quarter of the year, given it is introducing different transport and distribution systems.

“Our people are doing an outstanding job putting changes in place. But the unprecedented pace of change within Royal Mail’s network makes sustaining high levels of customer service more challenging,” said chief executive Adam Crozier.

A mathematical formula governs the amount of compensation that must be paid to customers in the event of service targets not being met.

Experts predicted Royal Mail would have to pay out GBP80m unless things drastically improved. The regulator is also entitled to levy a fine of up to 10percent of turnover – around GPB500m, in theory – or ask for changes in the way the company runs its business.

Postcomm declined to comment on likely penalties last night. “We shall have to wait and see what the position is at year end,” said a spokesman.

Last September Postcomm hit Royal Mail with a GBP7.5m fine for not meeting its obligations but it was made clear that this was letting the postal company off lightly as it was a first offence.