Competition in the post
If the Royal Mail, or Consignia as it now prefers to be known, provided a quality service, there would be little need to consider big changes this week in the market for delivering letters.
Consignia does not provide such a service. It has failed to achieve its first-class mail delivery target in each of the past six years. Its 200,000 employees are responsible for more strikes than any other industry. It made its first operating loss last year. And the departure of Neville Bain as chairman has left a management vacuum, which the government, Consignia’s sole shareholder, has been slow to fill.
So the test for Postcomm, the regulator, is to bring forward clear proposals for the introduction of greater competition into the postal market.
Last week the National Audit Office muddied the water by warning of two contradictory risks associated with competition. Its report argued that competition might not be effective, so it might bring only weak pressure to improve Consignia’s efficiency. But the NAO also suggested that if competition were too effective, it might be impossible for Consignia to meet the service standards prescribed in its licence. This fence-sitting by the NAO was unfortunate.
Given our poor postal service, the former risk, not the latter, deserves Postcomm’s attention. Consignia’s recent failures cannot be blamed on the gradual introduction of competition at the margins of its monopoly. And it is absurd to suggest that because Consignia is so bad, competition should be avoided.
The NAO report accurately adds that other methods of bringing pressure to bear on Consignia’s management are relatively weak. The Department of Trade and Industry is the sole shareholder, so the likelihood of political intervention is ever-present. So far, for example, the greater commercial freedoms granted to the state-owned group last year have done little to counter years of underinvestment.
Experience in Germany and the Netherlands has shown that monopoly postal operators are not helpless in the face of new competition – provided they invest heavily in more efficient technology and working practices. Given its enormous head start over new entrants, Consignia’s all-too-obvious problems should not be confused with some deeper vulnerability that requires protection.
Postcomm undoubtedly has a difficult balance to strike between giving Consignia time to adapt and providing enough incentive to do it quickly. The regulator deserves a clear signal from ministers that they will support it through this painful transition.
