UK postal delivery switch ‘has seen costs rise’

Royal Mail’s controversial switch from twice-daily to once-a-day deliveries last year, which the postal operator predicted would save more than Pounds 100m a year, has actually increased net annual costs by Pounds 105m, its regulator has told MPs.

Nigel Stapleton, chairman of Postcomm, yesterday cited the figures to explain why the regulator believed the state-owned postal operator could make double the 1.5 per cent a year efficiency savings it has proposed for the four years to 2010.

Postcomm and Royal Mail still appear at daggers drawn over the potential for efficiency savings, a core component of bitterly contested price controls the regulator is due to finalise this month.

Grilled by MPs on the trade and industry select committee, Mr Stapleton rejected Royal Mail’s claim that a 3 per cent efficiency target – and consequently tighter caps on postal prices – could send the company into a spiral of decline.

Instead, he suggested Royal Mail had failed to make significant inroads into its costs base during the turnround from losses to profitability that Allan Leighton, Royal Mail’s chairman, has spearheaded.

“Allan Leighton has done a remarkable job with Royal Mail but by his own admission they’re at the foothills of a very long climb,” Postcomm’s head told the MPs.

“Over the past three years some 30,000 people have been taken out of the business but costs haven’t come down, they’ve gone up. Productivity has gone up 8 per cent but wages per full-time employee have gone up 19 per cent, so unit costs have also gone up.”

This increased inefficiency – rather than Postcomm’s proposed price controls – constituted the real threat to Royal Mail’s ability to carry out indefinitely its legal obligation to deliver to every address in the land for a fixed price. “That (rise in unit costs) is the threat to the universal service,” added Mr Stapleton.

Royal Mail last night rejected criticisms of the cost increase produced by the switch to single delivery, saying Postcomm itself had recognised that staff changes negotiated as part of the move – a switch from a six to five-day working week, allied to higher pay levels – had produced a “platform for more efficient working”.