UK Government 'could save Pounds 31m on post bill'

THE public sector would save Pounds 31 million a year if it dropped Royal Mail in favour of rivals, sent some letters second class and used the internet more, the Government's spending watchdog said yesterday.

The finding by the National Audit Office (NAO), which examined how key departments handled their post, is a blow to Royal Mail. The postal group, which handles most public sector mail, is already losing key contracts as full competition takes its toll.

The report also highlights the large quantities of mail sent by departments to incorrect addresses or people. The NAO found that the average cost of mail in the public sector is 28p an item, compared with 22p in the financial services industry.

The watchdog said that departments should also send more letters second class, use the internet more and manage their systems better.

The NAO studied the postal operations of the Department for Work and Pensions, Revenue & Customs, the Driver and Vehicle Licensing Agency, National Savings & Investments, and RBS Group, which was used as a private sector comparison.

Edward Leigh, chairman of the Public Accounts Committee, said: "When it comes to its own mail, the public sector has been extraordinarily timid in taking advantage of opportunities to save money, for example, through the newly liberalised postal market."

Millie Banerjee, chairman of the Postwatch, the consumer group, said: "Public sector organisations are amongst the biggest mailers and will be able to secure significant savings."

A spokesman for Royal Mail said: "In a fully liberalised market what is crucial is making sure that our customers are satisfied. We will operate as efficiently as possible to offer the best prices we can."

Both the NAO and Postwatch still use Royal Mail because they say their volumes of mail are too low to secure attractive discounts for bulk mailing. However, both said that they would switch if they were able to.

The projected savings of Pounds 31 million amounts to 5 per cent of the Government's total postage bill.

National Audit Office Press Notice
Improving the Efficiency of Postal Services Procurement in the Public Sector
Report by the Comptroller and Auditor General
HC 946 2005-2006
24 March 2006
ISBN: 0102937303
Price: £10.75

Substantial savings, in addition to the significant improvements already achieved, could be made by more efficient management and purchasing of postal services by the public sector, according to a report by Parliament’s spending watchdog. The National Audit Office has found that an estimated £31 million a year could be saved across the public sector by 2008-09.

The public sector spends almost £650 million a year on post, ten per cent of the total licensed UK mail market. Around £250 million of this is spent by central government departments, with the Department for Work and Pensions and HM Revenue and Customs responsible for more than half of this total. Despite the growth in the use of internet and email, at least for the foreseeable future conventional mail will remain essential to the way public bodies communicate with the public.

Significant improvements have already been made. For example, the DVLA claims savings of some £3 million a year by doing more of the mail sorting themselves and HM Revenue and Customs is aiming to save £2 million a year by improving its address data, so reducing the amount of mail returned as undeliverable.

But there is a wide range of performance across the public sector. The average cost of mail per item varies from 31.1p to 21.5p, and the average cost across the public sector at 28p per item is a quarter higher than that paid by the financial services sector, at 22p per item, and higher still than the utilities sector, at 20.4p per item. Some of these differences can be explained by greater volume of weightier items, such as application forms, or the need to use first class post, but there is still significant scope for savings.

On top of the savings already made, the NAO estimates that a further £31 million can be saved annually by 2008-09 in four main areas:

£9 million through increased use of discounted ‘work share’ products, where customers receive discounts for performing activities such as preparing or sorting mail.
£9 million through increased use of second class mail or mail products with longer delivery times.
£8.5 million through increased use of competitive tendering. To assist this, OGCbuying.solutions is setting up framework agreements to help public sector buyers.
£4.5 million through a reduction in the amount of undeliverable mail which saves postage costs and time in processing mail.
These savings are estimates across the public sector, including the health, education and local government sectors, and many of the improvements can be introduced at low cost and within a short timescale. This is particularly true of changing to second class mail, competitive tendering, reducing undeliverable mail and switching to more efficient mail products. Of the £31 million total, £15 million can be saved by central government, around £8 million by local government, and £4 million each in the health and education sectors. Often, the crucial first step is working closely with existing suppliers.

In addition, there is scope for public sector organisations to improve the efficiency of their use of postal services, by switching to the internet or telephone as an alternative or departments sending out joint mailings.

The NAO has produced a guide to help public sector organisations improve efficiency, drawing on examples of good practice in both the public and private sectors of how to reduce costs while at least maintaining customer service levels.

Sir John Bourn, head of the NAO, said today:

"Although much work has already been done to reduce costs, there is much still to do if public bodies are to be smarter customers, both of Royal Mail and of the new entrants in the liberalised market. There is scope for significant savings by taking some relatively straight-forward measures, and there is no reason why the public sector cannot achieve the £31 million annual savings identified in the report, representing five per cent of their total mail costs, and aspire to cost levels closer to those enjoyed by the best of the private sector."

Notes for Editors
Under the Postal Services Act 2000, the mail market was liberalised in two phases. Phase Two, in January 2006, removed the final restrictions. No part of the postal market is now reserved for Royal Mail alone, subject to the operator having a licence from Postcomm, where appropriate. In mid 2005, Royal Mail had a 97 per cent market share across both public and private sectors.
OGCbuying.solutions is an executive agency of the Office of Government Commerce. Its role is to deliver value for money gains for central civil government and the wider public sector through its procurement service, providing central purchasing contracts and catalogues.
Press notices and reports are available from the date of publication on the National Audit Office website at www.nao.org.uk. Hard copies can be obtained from The Stationery Office at www.tsoshop.co.uk/bookstore.asp or on 0870 2422345.
The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office which employs some 800 staff. He and the National Audit Office are totally independent of government. He certifies the accounts of all government departments and a wide range of other public sector bodies, and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.
Press Notice 24/06
All enquiries to Nick Morrison, NAO Press Office:
Tel: 020 7798 7934
Mobile: 07796 940 746

PUBLIC SECTOR POST `WASTING £31M EVERY YEAR'
PA News, p 1 03-24-2006
By PA Chief Political Correspondent By Andrew Woodcock

An estimated £31 million of taxpayers' money could be saved each year if the public sector handled its post better, according to a report released today by Whitehall's spending watchdog.

The public sector spends almost £650 million a year on post and sends out more than 2.5 billion items of mail annually – around 10% of the total UK market.

But Government departments, local councils and the state education and health services waste millions of pounds each year by using first-class stamps instead of second, failing to delete out-of-date addresses from their mailing lists and not taking advantage of competitive tendering, said the National Audit Office.

The average cost of mail per item in the public sector is 28p – with some departments' averages reaching as much as 31.1p – compared with 22p in the financial services sector and 20.4p for utilities.

The NAO calculated that the public sector could save £9 million a year by increasing its use of second-class postage and £4.5 million by reducing the amount of undeliverable mail it sends out.

Some £8.5 million could be saved by increased use of competitive tendering and £9 million through increased use of “workshare” schemes, under which mail companies offer discounts to customers who pre-sort their mail into geographical areas.

In addition, there is scope for public sector organisations to improve the efficiency of their use of postal services, by switching to the internet or telephone as an alternative or departments sending out joint mailings.

Auditor General Sir John Bourn said: “Although much work has already been done to reduce costs, there is much still to do if public bodies are to be smarter customers, both of Royal Mail and of the new entrants in the liberalised market.

“There is scope for significant savings by taking some relatively straight-forward measures, and there is no reason why the public sector cannot achieve the £31 million annual savings identified in the report, representing 5% of their total mail costs, and aspire to cost levels closer to those enjoyed by the best of the private sector.”

Biggest spenders on mail in the public sector are HM Revenue and Customs (£77 million) and Department of Work and Pensions (£69 million), which have to send out millions of letters relating to tax, benefits and pensions each year.

Revenue and Customs estimates that at least 5% of its outbound mail is incorrectly addressed, while more than 1 million letters are returned to the DWP each year because they are undeliverable.