Government publishes Hooper Royal Mail update

Since June Hooper has been analysing developments in the postal sector in the last 18 months. He has found that the underlying issues that threatened the universal postal service – the same price goes anywhere and a collection and delivery of letters six days a week – remain and that urgent action has to be taken:

• The decline in the number of letters being sent is greater than forecast in the 2008 report and will continue to deepen – worldwide falls in the next five years of between 25% and 40% are likely.  The continued growth in parcels (a result of internet shopping) will not make up for the decline;
• Royal Mail’s financial position has deteriorated and the pension deficit, of around £8bn as at end March 2010, is even more unsustainable than 18 months ago; and
• Despite important steps forward on modernisation, Royal Mail still lags well behind the leading postal operators.

Hooper believes the Royal Mail management, workforce and unions must accelerate the pace of modernisation. His recommendations are broadly similar to 2008:

• A new less burdensome regulatory framework is needed with responsibility for regulation moving from Postcom to Ofcom;
• The pension deficit should be taken over by the Government as part of the wider range of measures; and
• Private sector capital must be introduced into Royal Mail in the form of sale to a partner/trade investor or an IPO.

Hooper argues that access to private capital will:

• Ensure that cash is available to fund modernisation – acknowledging that the state of the public finances means that Royal Mail will find it even harder to compete for Government capital against other public spending priorities;
• Inject private sector disciplines into the business;
• Reduce the risk of political intervention in commercial decisions; and
• Encourage within Royal Mail a more customer-focussed commercial strategy/diversification for the digital age.

He also states that an element of employee ownership could have the benefit of encouraging greater employee engagement within Royal Mail.

Business Secretary Vince Cable said:

“This update reaffirms the findings of Richard Hooper’s original report and the views he has given me during the course of the summer. He paints a very clear picture – Royal Mail is facing a combination of potentially lethal challenges – falling mail volumes, low investment, not enough efficiency and a dire pension position.

“We are determined to safeguard Royal Mail for the future and help it tackle these challenges. We will come forward with new legislation in the autumn. It will draw heavily on Hooper’s analysis and recommendations and the Government’s wider objectives, including the need for employees to have a real stake in the future of the business.”

Richard Hooper said:

“If all the recommendations in my updated report are implemented without further delay, and Royal Mail modernises to best in class with management, workforce and unions working together, then despite the very real market difficulties the company has a healthy future.  Building on its unique ability to visit 28 million addresses on a daily basis, it can aspire to be the delivery company of choice for a wide range of physical mail from letters to parcels”.

The Queen’s Speech set out that a Postal Services Bill will be introduced during this session of Parliament. The Bill will enable the modernisation of Royal Mail, in partnership with employees, and will ensure it benefits from private sector capital and disciplines.

The Coalition Agreement committed that the Government will seek to ensure an injection of private capital into Royal Mail, including opportunities for employee ownership. The Post Office will be retained in public ownership due to its hugely important social and economic role in communities throughout the UK.

Notes to editors:

1.      The update can be viewed here http://www.bis.gov.uk/hooper-report

2.      Its terms of reference were:

• To consider developments in the postal sector and Royal Mail since the publication of the Review’s final report.
• To test whether the underlying issues which threatened the maintenance of the universal postal service remain.
• To consider whether the recommendations in the report still provide the best solutions to maintaining the universal service.

3.      An independent review of the postal services sector, chaired by Richard Hooper, was undertaken between December 2007 and December 2008. The review looked at changes taking place in the postal and wider communications markets and what the implications of those changes were for the UK postal service, in particular the provision of the universal postal service.

The review published its final report on 16 December 2008 (“Modernise or Decline: Policies to maintain the universal postal service in the United Kingdom”). At the heart of the report were three linked recommendations:

• Pension deficit: as part of a package of changes, the government should take over responsibility for reducing substantially the pension deficit.
• Partnership: to improve the Royal Mail’s performance it should forge a strategic partnership with a postal operator with a proven record in transforming its business, working closely with the workforce.
• Regulation: Hooper proposed that Ofcom should take over responsibility from Postcomm for regulating the postal market. Its primary responsibility being to maintain the universal service in the wider context of the other changes taking place in communication markets.

4.      Richard Hooper CBE was Deputy Chairman of the Office of Communications (Ofcom) between 2002 and 2005. He was Chairman of the Radio Authority for 3 years until 2003. He stood down as Chairman of Informa plc in May 2007.   He is currently a senior independent director at YELL Group plc and at VocaLink Holdings Ltd.  Previous directorships include non executive director of MAI plc (1993 to 1996), non executive director of United News & Media (1996 to 1997), non executive director of Superscape plc (2000 to 2002) and non executive Chairman of IMS Group plc (1997 to 2002).  He was also Director, Prestel, at Post Office Telecommunications between 1980-81 and Chief Executive Value Added Systems and Services, BT (1982-86).

5.      A Postal Services Bill will be introduced during this session of Parliament. The Bill will help to safeguard the future of the Royal Mail and the Post Office network – giving employees a secure future and consumers and businesses a service they can continue to depend on. The Government has made the following commitments.

• 20 May Coalition Agreement: “We will seek to ensure an injection of private capital into Royal Mail, including opportunities for employee ownership. We will retain Post Office Ltd in public ownership.”
• 20 May Coalition Agreement: “We will ensure that Post Offices are allowed to offer a wide range of services in order to sustain the network, and we will look at the case for developing new sources of revenue such as the creation of a Post Office Bank.”
• 25 May Queen’s Speech: “My Government will modernise the Royal Mail, in partnership with employees, and will ensure it benefits from private sector capital and disciplines.”

5.  BIS’ online newsroom contains the latest press notices, speeches, as well    as video and images for download. It also features an up to date list of BIS press office contacts. See http://www.bis.gov.uk/newsroom for more information.

6.  It may be possible to facilitate an interview with Richard Hooper on the day of publication. Please contact Henry Tanner in the BIS Press Office on 020 7215 5947.