Downsizing the Royal Mail
It has been a wonder of the past 20 years that large utilities such as telecommunications, power and gas were able to shed about a third of their staff after privatisation with no discernible interruption to service. Now Consignia, the former Post Office, has announced plans to cut 15,000 jobs as a first step in reducing its 220,000 staff by up to a fifth over the next three years. The process will be painful for those involved but cutting costs is essential to ensure a future for an organisation losing Pounds 1.5m a day.
Yesterday’s announcement includes radical surgery at Parcelforce Worldwide, which accounts for a third of Consignia’s losses. More than half its 11,700 staff will be cut by ending the declining and unprofitable delivery of non-urgent parcels. Business users already have alternatives – including Parcelforce’s express services – while domestic customers’ parcels will be handled along with letters.
On financial grounds alone, this makes good sense. But it has a wider significance in axing a large loss-making operation wholesale. Consignia is bound to provide a universal service, delivering across the UK at a uniform price – but that does not mean providing every variety of service. Cuts such as these will free the organisation to focus on the universal service obligation.
Other cuts will come from rationalising distribution using the sort of model adopted by big supermarket chains. These changes are designed to improve Consignia’s reliability, which has fallen abysmally short of its performance targets in recent years.
Painful though this first round of cuts will be, the Pounds 460m saved is not enough to restore Consignia to profitability. Up to 40,000 jobs are expected to go in total, to reduce costs by Pounds 1.2bn and allow Consignia headroom to face competition in letter deliveries.
Getting rid of so many staff would be hard if they were concentrated in particular areas, as with industries such as coal and steel. The fact that Consignia’s staff are distributed around the country – many in the south-east where there are job vacancies – will ease the problem. So will staff turnover, which now averages 15 per cent a year in letters and 25 per cent at Parcelforce.
Consignia – to be renamed Royal Mail – is promising to redeploy staff if possible and to offer others generous redundancy terms, at a cost of about Pounds 400m. The unions were seething yesterday over the scale of the job losses but should resist the strike action that has so damaged the postal service. With long-overdue liberalisation of the letter post just a few weeks away, the future of Royal Mail can be secured only by restoring it to profit.
