UK regulator set to reject Royal Mail plea over efficiency

THE postal regulator is expected to reject Royal Mail’s plea for an easier regime on efficiency improvements when a final plan for price controls is produced this month.

Nigel Stapleton, chairman of Postcomm, said that some of Royal Mail’s claims were “almost impossible to believe”. He criticised its initial business plan, submitted as part of the regulatory review of prices, as lacking coherence.

In an interview with The Times, Mr Stapleton said that, although Postcomm might accept changes to its initial plans for stamp prices, it was unlikely to give ground on its demands for efficiency gains of 3 per cent. Royal Mail has said that it can manage only 1.5 per cent.

Mr Stapleton said: “They achieved savings of 1 per cent in the 1990s with very little investment in the business and what was perceived as being poor management.

Now they are intending greater investment and have what is regarded as a good management…It is almost impossible to believe their numbers.”

Postwatch, the consumers’ group, has said that Royal Mail could achieve efficiency savings of 5 per cent.

The Postcomm chief said that Royal Mail had remade its strategic plan for the regulator to fill in some gaps. He said that the first submission had painted only a basic picture and “from the top down it was less coherent”.

Postcomm commissioners meet today to finalise the pricing proposals before publication before the end of the month. Originally the regulator had recommended that the price of first-class stamps should increase to no more than 34p from the current 30p within three years. Royal Mail had called for at least 39p.

The regulator has drafted proposals assuming no contribution to Royal Mail from the Treasury, although it is widely expected that the Government will inject a large amount of money after the pricing issue has been settled.

This week Barry Gardiner, the Minister for Postal Services, said that any state money to help Royal Mail’s pension problems would probably be illegal but the Government would look at providing other funds.

Mr Stapleton said that Royal Mail’s Pounds 4.7 billion pension deficit was more a matter for the Government than for the regulator, although Postcomm has factored repaying the deficit over 17 years into its first plans for stamp pricing. Royal Mail has complained that its deficit makes it technically insolvent.

Mr Stapleton said: “Price control delivers cashflow. You can’t expect a price control on day one to correct a technical insolvency.”

The regulator’s warning to the postal operator over efficiency comes as the company is expected today to report a jump in profits of between 10 and 15 per cent for the half-year.

Last year Royal Mail reported operating profits of Pounds 217 million for the half-year to September 30. The increased profits will come at a difficult time for Royal Mail as it makes last-ditch appeals for leniency to the regulator.

Meanwhile, a battle on pay is looming between Royal Mail and the Communication Workers’ Union. The union intends to make substantial pay demands to bring postal workers’ pay into line with the national average.

Figures released last week showed that, despite substantial pay rises over the past three years for postal staff, their ranking had slipped against the national average.

The union and Royal Mail are already at loggerheads over the company’s plans to give employees shares.

The CWU condemns the plan as privatisation.