UK Royal Mail aims to deliver post office solution

Royal Mail is state-owned despite some abortive attempts at privatising it, but the management team of Allan Leighton and Adam Crozier has tried to introduce a private sector ethos at the loss-making postal operator.

Last year, the government lent Royal Mail Pounds 3bn to help it avoid bankruptcy and fund a three-year recovery programme involving cost- cutting and redundancies. As Royal Mail has promised to repay the cash, it is debatable whether this counts as a subsidy, and the loan was cleared by the European Union’s state aid watchdog.

But about £450m of the funds is being spent on subsidising the rural post office network, largely owned and operated by private businessmen and women. The offices are run by individual subpostmasters, often out of their homes, and usually double as village shops.

These businesses are finding it increasingly hard to make money but the government sees them as a way of delivering important social and economic services to the countryside. “Around 6,000 of the 8,000 rural post offices would shut if run on a purely commercial basis,” said the Royal Mail.

The government bail-out is designed to prop up the countryside post offices until 2006 but after that Royal Mail is hoping to come up with a longer-term solution for their funding. Postcomm, the postal regulator, is examining the future of the network and is to publish a report on other ways that the offices can make money. This will help the Department of Trade and Industry decide whether to keep funding the network after 2006.

Royal Mail is keen on developing post offices as outlets for financial services, which should generate more profit and also fit in with the government’s aim of improving access to banking. The Post Office has already formed a joint venture with Bank of Ireland to sell a basic range of credit cards, savings accounts and insurance products.

Postwatch, the consumer body, has been critical of how the rural post office subsidies have been implemented. It said the government needs to concentrate on improving access to, and the quality of, the services provided by post offices, rather than focusing mainly on the size of the rural network. This could include mobile postal, retail and banking services in remote areas.

“The current policy needs to be relaxed to allow greater flexibility and innovation where appropriate,” said Postwatch in a policy paper. “This would be more responsive to local customer needs, both by identifying areas that are currently inadequately served by post offices, and by giving subpostmasters greater freedom in tailoring their businesses to suit local demand.”