Postcomm decide on financial relief for industrial action & future of the bulk mail compensation (UK)

Postcomm published decision documents about giving Royal Mail financial relief for industrial action in 2007-08, and potentially also for 2008-09, and set out the future of the bulk mail compensation scheme.

Postcomm has largely accepted Royal Mail’s application for relief from the financial consequences of transformation-related industrial action in 2007-08. This means Royal Mail will forgo GBP 21.6m of allowed revenue (due to the C-factor) because of poor quality of service performance during the year, but bulk mail customers will not receive compensation. If Postcomm had not accepted the application, Royal Mail would have had to pay around GBP 77m in bulk mail compensation to customers and would have forgone around GBP 91m in allowed revenue. If Royal Mail’s application had been accepted in full, Royal Mail would still have forgone GBP 12m because of its poor Postcode Area performance.

Postcomm has agreed, conditionally, to Royal Mail’s request to suspend the Bulk Mail Compensation Scheme and to adjust the C-factor in 2008-09 where quality of service failures are caused by transformation-related strike action. However, Postcomm will consider a wide range of factors in reaching a final decision on relief at the end of the year.

Postcomm has decided to remove the regulated bulk compensation scheme for delay from 1 April 2010. The main reasons for removing Royal Mail’s compensation scheme for delayed bulk mail are:

– In the developing competitive market it is more appropriate to move towards market driven outcomes;
– Removing the scheme will allow customers to negotiate compensation schemes to suit their own needs;
– The current scheme does not necessarily target those customers who have suffered poor performance.

In June 2007, Postcomm agreed Royal Mail’s request to suspend – until the end of the financial year – the payment of compensation to bulk mail customers, and to earn revenue that it would not otherwise be permitted to do (due to the ‘C factor’), where industrial action has taken place and quality of service figures have dropped.

Postcomm agreed to the request because it wished to ensure that Royal Mail was not discouraged from taking the steps needed to modernise its business, which would benefit all mail users. Royal Mail requested that Postcomm repeat these arrangements for the year 2008-09.

In December 2007, Postcomm’s consultation on the review of Royal Mail’s compensation schemes asked for views on a proposal to remove the requirement on Royal Mail to have a bulk compensation scheme for delay. The consultation asked for views on the date at which the requirement should be removed – April 2009 or April 2010. Following consideration of the responses, Postcomm has decided to remove the regulated bulk compensation scheme for delay from 1 April 2010. This will allow sufficient time for Royal Mail, senders of bulk mail and access operators to make alternative arrangements for after the removal of the scheme.

Notes for Editors:
‘Allowed Revenue’, which is partly determined by Royal Mail’s quality of service performance via the C-factor, controls the prices that Royal Mail can set. A reduction in Allowed Revenue means Royal Mail can only charge prices that are, on average, lower than would otherwise be the case.

The ‘C factor’ is a means by which customers generally get lower prices if Royal Mail’s quality of service was below target in the previous year. It is implemented by an adjustment to Royal Mail’s allowed revenue under the price control.