Leighton's fury over Postcomm 'madness'

Russell Hotten and Mark Court on Consignia's battle with the postal regulator over plans for future funding.

FOR six months, Allan Leighton and his team at Consignia held detailed talks with Graham Corbett, the Postcomm regulator, about price rises and service improvements.

Yet the gulf between what Mr Leighton wanted and what Mr Corbett would offer only emerged on Tuesday night -less than 48 hours before publication of an important document about Consignia's future. Mr Leighton reacted furiously yesterday to the release by Postcomm of a price and performance package covering Consignia for the next three years.

The Consignia chairman is happy about the 1p rise in first-class and second class stamps. Nor does he see any problem with plans to compensate customers for poor service. However, his anger has been roused by new price controls, which Mr Leighton believes could derail Consignia's delicate restructuring plans to cut losses of Pounds 1.2 million a day.

Details of this price formula appear to have come under serious scrutiny only three weeks ago. And it was not until Tuesday evening that Mr Leighton told Postcomm that it would cost the Royal Mail Pounds 460 million and could blow apart his rescue package.

At the heart of the problem is a recommendation by Postcomm that Royal Mail fix the average price of its products and services at 29.1p for the next three years. In other words, when you add up the price of stamps, parcels, special deliveries, and so on, the average cost to the consumer should come to no more than this figure.

It was "regulation gone mad", Mr Leighton said. "The regulator is giving with one hand and grabbing even more back with the other," the Consignia chairman said. "We would be like turkeys voting for Christmas if we accepted this."

Mail service rivals such as Hays and Deutsche Post are being allowed into the market, and will inevitably target Consignia's standard letter service.

Mr Leighton's fear is that when rivals get a slice of this business, the Royal Mail's weighted average price of services will inevitably rise.

"That would breach Postcomm's average price formula [of 29.1p], so to comply with it, we would have to cut some of our prices," Mr Leighton said.

"It is a double whammy. Not only does Royal Mail lose out if rivals can take our business. We also suffer from being forced to lower prices and our revenue falls further."

Rather perversely, Royal Mail could also be penalised if it won new business. Take the fast-growing Special Delivery guaranteed service, with a basic price of Pounds 3.65. A big increase in this business would push up the weighted average price – forcing Royal Mail to lower its prices for other products.

Mr Leighton said: "It means that winning Special Delivery business costing customers Pounds 3.65 generates just 29.1p for Royal Mail.

"Where's the commercial incentive for us behind that sort of barmy regulation?"

Consignia estimates that Postcomm's package will cost Pounds 460 million over three years, which Mr Leighton says puts a big hole in his restructuring plans, which include 30,000 job cuts and borrowing Pounds 1.8 billion.

"This is a major corporate restructuring," he said. "I would not mind, except that none of these extra costs and controls were factored in when we drew up the recovery plan."

Graham Corbett, Postcomm's chairman, was somewhat bemused by Mr Leighton's response. It was, he thought, "a bit of an overreaction", and perhaps even "just a bargaining position".

Postcomm does not dispute the Pounds 460 million figure, but has asked for further details. "Don't forget that this is a consultation document and there will now be two months of talks," Mr Corbett said. And he insists that there is plenty of room for manoeuvre.

"There had better be room," said Billy Hayes, general secretary of the Communication Workers Union. He also rounded on Postcomm, calling the proposals "reckless folly".

With Consignia undergoing such a radical restructuring, it was going to take something serious to get Mr Leighton and the unions side by side against a common enemy.

Key players

The chairman

Allan Leighton, who revitalised Asda before selling it to Wal-Mart, is the UK's best-known serial director, a cause he champions through his going-plural.com website. His catholic collection of non-executive and part-time directorships span the gamut of corporate Britain, ranging from the chairmanship of the high street retailer Bhs to a board position at BSkyB. His portfolio embraces large, small, public and private companies across a sweep of sectors. He currently chairs Bhs, Wilson Connolly, Race for Opportunity, Cannons Group and lastminute.com. He is deputy chairman of Leeds Sporting and a director of BSkyB, Dyson and George Weston. He joined Consignia in April last year as a non-executive director and became chairman early this year, prompting critics of the plural approach to suggest that he is spreading himself rather thinly.

The regulator

Graham Corbett was appointed chairman of the Postal Services Commission in March 2000. He was previously a deputy chairman of the Competition Commission. He is also chairman of Ricability, a charity concerned with research and information for consumers with disabilities. Born in 1934, he qualified as a chartered accountant and was the senior partner of the acccountancy firm Peat Marwick in Paris for 12 years. He then moved to the commercial world, becoming the chief financial officer and a main board director of Eurotunnel during the huge restructuring that the company underwent. He was appointed a CBE for services to transport in 1994. He and his wife have retained their connection with France and have a house in Provence.

The union leader

Billy Hayes, the 48-year-old general secretary of the Communication Workers Union, represents about 180,000 postal workers. A Labour Party activist who supports proportional representation, Mr Hayes is having to come to terms with about 30,000 job losses among his Consignia members. His relationship with Allan Leighton has sometimes been tense -he recently accused Mr Leighton of "shallow and insincere" attempts to gain popularity with Consignia staff. Yesterday the two men were united in their condemnation of the Postcomm proposals. Mr Hayes says regulation of the industry needs to be re-examined, arguing that attempts to bring in new competitors are being railroaded through at the cost of a popular public service. He believes the Government should intervene to rein in Postcomm before the postal system is destroyed.

(c) Times Newspapers Ltd, 2002