Post Office deal with Royal Mail opens door to independence

The UK’s Post Office Ltd took another big step towards independence from postal service Royal Mail Group today, signing a 10-year contract to continue Royal Mail services through UK post offices. The deal was one of the key milestones on the way to the retail network of Post Office Ltd separating from the Royal Mail Group later this year, prior to the planned privatisation of the Group.

UK postal minister Ed Davey confirmed to Parliament today that the contract had been signed this month, giving “certainty” to the nation’s subpostmasters that the full range of Royal Mail products and services would be available via post office counters.

Davey said the deal would give greater confidence to those concerned about Post Office Ltd finances.

“Coupled with winning new contracts such as those with the UK Border Agency and Westminster Borough, and the successful pilots of new operating models, the signs are extremely encouraging for the future of the Post Office,” said the minister.

The latest step on the way to separation of Post Office Ltd from Royal Mail follows last July’s appointment of a separate board for the retail network operator, chaired by British Airports Authority non-executive director Alice Perkins.

The government has been working towards the separation since its November 2010 policy statement laying out plans for the 11,500-strong post office network, which looks likely to be turned into a mutual organisation, with some kind of employee share ownership structure put in place, while Royal Mail itself is privatised.

Over the past year, efforts to shore up the Post Office Ltd finances have included the extension of financial services and a modernisation programme backed by £1.34bn in government support.

Davey today dismissed concerns about the financial situation at Post Office Ltd and the split from Royal Mail, insisting that his government had been making “good progress” in building on the company’s strengths and making it more competitive.

“While it will take several years to turn round the Post Office’s finances,” he said, “it’s increasingly clear the reforms are beginning to work. Concerns people had about the Post Office becoming independent from Royal Mail were always misplaced as that separation is part of our cure.”

“Vital”

Post Office Ltd managing director Paula Vennells said today that the deal with Royal Mail was “vital” for a long-term and sustainable Post Office, and good for customers and employees of the Post Office.

“A long-term relationship with Royal Mail ensures we continue to provide the unrivalled access and great customer service in mail and parcels services, which individuals and business customers want from the Post Office,” she said.

Royal Mail Group chief executive Moya Greene said the deal provided a “firm foundation” for the future of the Post Office while ensuring Royal Mail customers continued to gain access to services via post offices.

“For Royal Mail, the business retains the current, unrivalled, UK-wide retail distribution network for its products and services aimed at consumers and small businesses,” she said. “We look forward to a new chapter in our continuing, close relationship.”

Consumer watchdog Consumer Focus hailed the deal today as “good news”, stating that it provided a “significant amount of security” to the network over the next decade.

Mike O’Connor, the CEO of the national consumer champion, said: “Mail accounts for one third of post office revenues and therefore is a key part of the jigsaw in maintaining a strong and healthy post office delivering those services that consumers expect. This deal helps provide firm foundations for the post office network’s future.”

“End of an era”

The Communication Workers Union was less positive about the contract, describing it as the “end of the Post Office as we know it”.

Billy Hayes, the union’s general secretary urged caution, though less about the details of the contract itself – something the union has supported as securing retail access and post office revenue – than the fact it signifies the imminent separation of Post Office Ltd from the Royal Mail Group.

“It’s the end of an era and an unprecedented step by the government,” he said. “We’re not aware of any other country which has severed the retail post office network away from the main mails, deliveries and logistics part of the business.”

Hayes said it was “too early” to claim any success for the government’s transformation of the Post Office network, “which has many uncertainties ahead – mutualisation, for example”.

“While some new contracts have been won, they don’t replace the huge contracts which have been lost,” said Hayes of the current situation at Post Office Ltd, pointing out that National Saving and Investment products are being withdrawn from post offices along with “Green Giros” benefit payment services.

“While little material difference will be felt today, from the separation date of 1st April, Post Office staff will have questions and concerns about their job security and the protection of their pay, pensions and employee benefits.”