POST OFFICE REVOLUTION: Political dithering led to decline of universal service ROYAL MAIL MONOPOLY
When Tony Blair received his detailed copy of proposals to remove the Royal Mail's monopoly yesterday afternoon, he may have wished that he and his senior ministers had grasped the nettle sooner.
Officials claim there was unanimous agreement between Mr Blair, Gordon Brown, chancellor, and Peter Mandelson, then trade secretary, to privatise all the Post Office as long ago as 1998. All three agreed it made little sense in the long term for postal services to remain in public hands.
Unfortunately, personal rivalries prevented the plan from receiving the backing it needed to overcome powerful union lobbying. Mr Mandelson and Mr Brown each feared the other would oppose any solution they championed. Mr Blair lacked the courage to tackle a subject he felt offered few political prizes, according to one senior civil servant involved in the discussions.
Today the compromise they hastily cobbled together instead is likely to blow up in their face.
Their decision to shelve privatisation meant that Consignia, as the Royal Mail was renamed, was told to prepare for gradual competition and given greater commercial freedom in return. An independent regulator was established to ensure that tough decisions on how to reduce Consignia's monopoly were separated from the interests of its single government shareholder.
Unfortunately the regulator, Postcomm, has decided to force the issue somewhat earlier than Consignia's management or the government expected. Competition will be introduced in the most lucrative part of the market within just eight weeks.
Consignia's deteriorating financial position left Postcomm with a dilemma. It could introduce competition slowly to allow managers to prepare by improving efficiency or it could speed up the process to give consumers more immediate alternatives if the historic problems of the Post Office proved intractable.
Over the past few months, Postcomm has decided to pursue the more radical second option. The reasons lie in Consignia's poor financial performance and service levels which appear to have been caused by historic neglect and under-investment rather than the fairly limited competition introduced to date.
The problems are most acute in the basic role of delivering letters. Stamp prices are now below what Consignia needs to support the Pounds 8.3bn cost of its 200,000-strong workforce, leading to its first operating loss of Pounds 100m last year.
The company has proposed a Pounds 1.2bn cost-cutting drive and warned that up to 30,000 jobs could go. Unions are opposing any compulsory redundancies.
While Consignia still enjoyed full monopoly protection, its large profits were diverted to the Treasury as a dividend rather than re- invested in modernising the business.
Another dilemma for Consignia and the government is the closure of smaller branch post offices, which are becoming increasing unprofitable as they are used less for distributing benefit payments. The government has agreed that Consignia should negotiate a compensation package with the Federation of Sub-Postmasters to manage the process.
Another battle is likely if Consignia goes ahead with threats to close much of Parcelforce, its loss-making parcel division. This has been haemorrhaging money for much of the past decade and managers have decided its only future lies in focusing on the more-profitable market for express deliveries.
Each of these struggling divisions alone would be enough to give other companies nightmares but the conjunction of all three has convinced Postcomm that Consignia has become its own worst enemy. Radical surgery is needed fast and if immediate competition does not provide enough incentive to force it through, then other companies should be encouraged to step in.
