Post strike could cost Royal Mail GBP 300m

Royal Mail has privately warned that a national postal strike could cost up to GBP 300m in penalty payments and lost income, according to senior industry figures.

Royal Mail executives have made the claim to a group representing major business users, while indicating similar consequences to industry regulators.

As the Communication Workers Union prepares to announce on Thursday the results of a national strike ballot over pay, conditions and a potential restructuring of the business, Royal Mail has drawn up contingency plans that include drafting in up to 7,000 managers.

The CWU is confident that its 130,000 membership will vote in favour of the first national strike in 11 years, pointing to independent polls which indicate that 65 per cent will say yes to action.

Earlier this month Royal Mail asked Postcomm, its regulator, to make an exception in the case of industrial action to regulations governing penalty payments if service standards fall. At present a strike is not considered ‘force majeure’ under the regulations, and if there is a stoppage, Royal Mail can be penalised.

This can happen in several ways: a compensation scheme for businesses which reduces Royal Mail’s future revenues, a quality benchmark that it must meet or trigger penalties – known as the ‘C factor’ – and direct fines from Postcomm. Royal Mail believes the first two measures could cost it up to GBP 300m in the event of protracted strikes, and on 2 May asked the regulator to waive them for two years.

Postcomm is considering the proposal, but is concerned that if it does lift the penalties it will disturb commercial negotiations between the company and the CWU. On Friday, the Direct Marketing Association (DMA), which represents companies sending mailshots and other marketing material, wrote to the regulator objecting to Royal Mail’s request, but adding that restrictions could be lifted in tightly defined circumstances.

Alan Halfacre, DMA director, said: ‘We are against it in principle because it is for two years. But we see the importance of Royal Mail’s modernisation programme, which is the cause of all this, and if strikes can be shown to be targeted at this, then we can see a justification for it.’

Private operators such as TNT and Business Post, which process bulk mail, are unable to claim compensation under existing regulations. Guy Buswell, chief executive of Business Post, said: ‘We would like to see a level playing field.’ He warned that a strike could drive businesses away from mail to the internet.

Royal Mail would not comment on potential costs of a strike