Volume of UK mail drops for first time in 25 years

ROYAL Mail revealed yesterday that the overall volume of mail is declining for the first time in 25 years, and claimed it was evidence of economic downturn in Britain.

Chairman Allan Leighton said yesterday that the organisation was "a barometer of the economy'', adding that Royal Mail was "very much dependent on GDP''.

Overall mail volumes handled by the provider are down 1pc in the current year, with nearly all the loss in the profitable business mailings sector.

A spokesman said there had been a particularly noticeable downturn in letters inviting people to apply for credit cards.

"We've always tended to do well when the economy is strong and less well when it isn't,'' he said, adding that the postal regulator had done all its calculations assuming the mail market would grow by 2pc over the next few years.

The organisation typically delivers 82m items every day there is a delivery, and so the 1pc downturn represents about 200m items of mail not being delivered.

Mr Leighton disclosed that the fall for the first time at a Trade & Industry Select Committee where he also warned that the Royal Mail's ''one price goes anywhere'' service would be under threat unless it was allowed to charge 39p for a first class stamp by 2009-10.

Royal Mail is facing competition in its traditional monopoly market for the first time, and the MPs on the Committee were asking questions to assess the impact of this liberalisation.

Royal Mail's chief executive, Adam Crozier, together with Mr Leighton, told the MPs that competitors had spent far more money on technology and said that much of its network depends on "obsolete equipment''.

Mr Leighton said the organisation needs pounds 2billion in order to bring its equipment into line with big overseas names such as Deutsche Post and the Dutch Post Office, TPG.

The organisation is believed to be in discussions with Government about the money, and Mr Leighton was asked by Labour MP Lindsay Hoyle whether he would be "knocking on the door of Number 11''.

The company has also said it needs the increase in stamp prices in order to cope with a pounds 4billion pension deficit which currently makes the business technically insolvent.

Mr Leighton said that the organisation needs to pay pounds 400m a year into the pension fund, and that this will increase to pounds 800m under FRS17 accounting standards. He said there was no way the business could deal with this on its own "short of robbing a bank''.

"This is too big a thing for us to take on, and, if it isn't sorted out, in the end it will go pear-shaped,'' he added.

Postcomm, the postal regulator, has said it is minded only to allow Royal Mail to increase the price of its first class to 34p by 2009-10, which Mr Leighton said is not reflective of the economic cost of posting a first class letter, which is over 40p. The organisation currently loses money every time a letter is posted.

Mr Leighton was also quizzed about plans to give employees a share in the business, and gave his clearest answers yet about how he wants this to work.

He added that the company would be able to create a trust and that the shares would be bought by the trust.

People would be able to trade shares within the trust, which would then pay out a dividend.

Asked how much of the company he hoped the employees would own, he replied 20pc.

He has no agreement with the Government, which is Royal Mail's only shareholder, about the issue, but he said yesterday he was "optimistic''.

However, he was unequivocal on the possibility of Royal Mail being privatised, saying he didn't believe it would be the best thing for the organisation. The Government has also ruled this out in the short-term.

Britain's mail market will be fully opened to competition by January 2010, and Mr Leighton said there is no precedent to show what might happen to the market.

Other markets, such as Finland and Sweden, have been opened, but they are neither as big nor as profitable as Britain's, he said, adding that it was no wonder that big postal organisations, such as Deutsche and TPG, would attempt to take Royal Mail's business.

"Can we compete in a competitive market? Yes, if we are given a reasonable run at it,'' Mr Crozier said.

"It depends on the regulatory set up and all of these issues. That's a qualified response, but it has to be.''

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