IDS: If we want to save the Universal Service, we have to change the Universal Service

In their call for input Ofcom concluded that reform of the Universal Service is necessary, given letter volumes have declined from a peak of 20 billion a year in 2004/5 to seven billion in 2022/3. Volumes will likely drop to around four billion in the next five years.

Following extensive consultation, listening to a wide range of consumers, businesses and stakeholders, Royal Mail’s proposal is designed to protect what matters most to customers, with no changes to:

• The one-price-goes-anywhere service to all parts of the United Kingdom
• First Class letters delivered daily, six days a week (Monday to Saturday) to recognise the importance of next day and Saturday deliveries, especially for the NHS, publishers and senders of greeting cards
• The option of First Class and Second Class letters, giving people the choice of price and speed
• Parcels delivered up to seven days a week as currently.

The proposal includes vital changes to deliver a more efficient and more financially sustainable Universal Service:

• All non-First Class letter deliveries, including Second Class, would be delivered every other weekday
• The delivery speed of standard bulk business mail (used by large mail shippers for bulk mailings such as bills and statements) would be aligned to Second Class, so they arrive within three weekdays instead of two currently.

Listening to what customers have told us is important, Royal Mail is also calling on Ofcom to modernise the Universal Service for the digital age by introducing the following new features:

• The introduction of new, additional reliability targets for First Class and Second Class services, alongside revised, realistic speed targets, to give customers further confidence
• Tracking added to Universal Service parcels to reflect customer demand.

The proposal for reform can be achieved with regulatory change without the need for legislation. Royal Mail is urgently calling for Ofcom to act faster on implementing change, with the introduction of new regulations by April 2025 at the latest.

Martin Seidenberg, Group CEO of International Distributions Services plc, said: “The fact that letter volumes have dropped from 20 billion to seven billion a year means that the Universal Service is now unsustainable.

“If we want to save the Universal Service, we have to change the Universal Service. Reform gives us a fighting chance and will help us on the path to sustainability.

“Our proposal is based on listening to thousands of people across the United Kingdom to ensure it meets their needs. We have worked hard to come up with a proposal that is good for our customers, good for our people and would allow Royal Mail to invest in products and services that the UK wants.

“We have serious concerns that the urgency of the situation is not properly recognised by Ofcom. With no need for legislation there is no need to wait.”

The need for change

The Universal Service hasn’t changed for over 20 years, despite major changes to how people communicate. Royal Mail has been calling for reform for more than four years. Ofcom calculates that providing the current Universal Service to the UK has a net cost to Royal Mail of £325 million to £675 million every year – put another way, it costs the company £1 million to £2 million every day to provide the Universal Service to the UK.

This is in the context of Royal Mail posting losses of £419 million in 2022-23 and £319 million for the first six months of 2023-24. The combination of declining letter volumes and increasing costs means that the Universal Service faces a very real and urgent financial sustainability challenge.

A more sustainable future – with limited change for customers

Royal Mail’s proposal, if fully and swiftly implemented, would reduce the net cost of the Universal Service by up to £300 million per year. This is very dependent on how quickly reform is enacted and the rate of letter decline. These savings would allow Royal Mail to continue to invest in the modernisation and transformation of the business to provide products and services that customers want and reduce its environmental impact.

The proposal is designed to create a more financially stable future for the business and its shareholders, protecting tens of thousands of jobs and the best terms and conditions in the industry. It closely aligns to changes successfully made in comparable countries – in Europe and around the world – over recent years, with limited changes for customers.

As a result of the changes creating a more efficient network, posties would, for example, deliver to around seven out of ten addresses on every walk, compared to just four out of ten today. This would mean a net reduction in daily delivery routes of 7,000-9,000 over the course of around 18-24 months. The company expects there to be no compulsory redundancies and fewer than 1,000 voluntary redundancies. The reduction would be managed through natural turnover wherever possible.