Royal Mail CEO: Change cannot come soon enough

Ofcom  has announced that it will assess whether certain changes to Second Class letter delivery in the UK – while maintaining a next-day First Class service six days a week – would meet postal users’ needs, ahead of consulting on proposals early next year. 

Earlier this year, Ofcom launched a national debate on the future of the universal service, to seek input from valued experts and consumers before it make any proposals. Ofcom has now  set out the next steps. 

Clear need for reform

Ofcom has heard from thousands of people and organisations, including consumer groups, unions, businesses, public services, Royal Mail and the wider postal industry, as well as from postal users directly, from right across the UK.

Overall, respondents and participants in Ofcom’s public events recognised that the way people and businesses use letters has changed, and acknowledged that changes to the obligations on Royal Mail will be required if Ofcom is to ensure the service remains sustainable, affordable and reliable.

There was strong support for maintaining the fundamental principles of universality, affordability and uniform pricing.

Evidence gathered so far

Ofcom’s research shows that affordability is the most important feature to people when it comes to letter deliveries. Ofcom will therefore continue to ensure there is an affordable option available for consumers, on a ‘one price goes anywhere’ basis.

The evidence Ofcom has  gathered so far also suggests people want a next-day service available six days a week for when they need to send the occasional urgent letter or card. However, people acknowledge that most letters are not urgent.

If Second Class letters continued to be delivered within three working days but not on Saturdays – and First Class remained unchanged at six days a week – it would enable Royal Mail to improve reliability, make substantial efficiency savings, and redeploy its existing resources to growth areas such as parcels.

In its response to Ofcom’s call for input in January, Royal Mail set out its detailed plan for modernisation for the first time, which included a detailed proposal for such changes.

Next steps

Ofcom will now carry out further in-depth research among postal users to explore whether this option – which broadly aligns with one of the options we set out earlier this year – meets their needs. As we assess this, we will take full account of the issues and concerns raised by respondents to Ofcom’s national debate.

The changes we are assessing could be made through Ofcom’s regulations, and would not require Parliament to make any changes to legislation. Following the conclusion of Ofcom’s further consumer research, we expect to consult on detailed proposals for reform in early 2025, with a view to publishing a decision in summer 2025.

Many other countries in Europe have already reformed their universal postal service, with some reducing delivery days more radically.

Improving reliability and efficiency

In recent years, Royal Mail’s delivery performance has not been good enough. In the last five years, we have found it in breach of its quality of service obligations twice and fined it both times.^[2]

We have been pressing the company on what it is doing to turn things around, and we are currently investigating its latest failure to hit its annual delivery targets. Regardless of how the universal service evolves, Royal Mail’s delivery performance must improve.

While it has made some progress recently, including in relation to efficiency improvements, there is more to do as it modernises its network.

Postal users’ needs are at the heart of Ofcom’s review. If we decide to propose changes to the universal service next year, we want to make sure we achieve the best outcome for consumers.

So we’re now looking at whether we can get the universal service back on an even keel in a way that meets people’s needs. But this won’t be a free pass for Royal Mail – under any scenario, it must invest in its network, become more efficient and improve its service levels.

Securing the Future of the Universal Postal Service

Martin Seidenberg, Group CEO of International Distribution Services plc, said: “To save the Universal Service, we have to change the Universal Service.

“Letter volumes have fallen from their peak of 20 billion to just 6.7 billion a year today meaning the average household now receives just four letters per week. Yet whilst most countries have adapted their Universal Service requirements to reflect the new reality, in the UK the minimum requirements have not changed.

“Our proposal for the future of the Universal Service has been developed after speaking to thousands of people across the country and is designed to protect what matters most for customers. It can be achieved through regulatory change with no need for new legislation.

“The Universal Service faces a very real and urgent financial sustainability challenge. Change cannot come soon enough. We look forward to continuing to engage with all our stakeholders to secure a financially sustainable Universal Service for many years to come.”

Commenting on the findings, Tom MacInnes, Interim Director of Policy at Citizens Advice, says: “With Royal Mail failing to meet its targets for nearly half a decade, the current Universal Service Obligation (USO) clearly doesn’t protect consumers as it should.

“Reforms to the USO need to address this. They can’t just be a disguise for cuts that prioritise saving Royal Mail money over providing a good standard of service.

“We agree that improving reliability and affordability is essential. But cutting deliveries won’t automatically lead to the more reliable service people need.

“Ofcom has acknowledged some of Royal Mail’s failings but we need to see that recognised with action. The regulator needs to make sure we have a USO that serves its basic purpose of protecting consumers – not Royal Mail’s bottom line.”

Royal Mail set out its proposal for Universal Service reform in April 2024 in response to Ofcom’s call for input into the Universal Service. The proposal was developed following extensive consultation with wide range of consumers, businesses and other stakeholders and is designed to protect what matters most to customers. It can be achieved through regulatory change with no need for new legislation.

Letter volumes have declined from 20 billion a year in 2004/5 to just 6.7 billion a year in 2023/4. In practical terms, that means Royal Mail now only delivers around four letters to each address per week, compared to 14 letters per week in 2004/5.

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 £348 million in 2023-24 and £419 million in 2022-23. The combination of declining letter volumes and increasing costs means that the Universal Service faces a very real and urgent financial sustainability challenge.

Royal Mail’s proposal, if fully and comprehensively 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

Ofcom is the government-approved regulatory and competition authority for the broadcasting, telecommunications and postal industries of the United Kingdom.