VAT change needed for TNT Post to launch UK end-to-end service

TNT Post has said it is considering running further trials this year for end-to-end bulk mail delivery services in the UK, but said today that talk of launching a full service had been “overstated”. The company, part of Dutch postal service PostNL, has had ambitions for years to provide bulk mail and direct mail delivery services in the UK to include the last mile.

It has trialled the service in Liverpool, but a major hurdle remains the issue of VAT.

As universal service provider, Royal Mail is exempt from charging the sales tax on mailings, whereas TNT Post UK would currently have to apply the 20% tax.

The company has been lobbying industry regulator Ofcom since it took over from Postcomm last year, and yesterday TNT Post UK chief executive Nick Wells told the Financial Times to “watch this space” regarding the extension of the company’s plans this year, possibly to include “orange postmen” on the streets.

However, a spokesperson for TNT Post in the UK told Post&Parcel that the article had suggested a full service would be launched, head-to-head against Royal Mail, which wasn’t the case.

“Nick was talking about new locations for trials,” said spokesperson Eimear Galvin. “It’s something that’s been under consideration, but nothing is being launched. The company cannot roll anything out until there’s changes in the VAT regime, and that’s something the government has to agree to change.”

TNT Post UK, which did post the Financial Times article on its blog stating the intentions to break Royal Mail’s “near monopoly” of the last mile of letter delivery, currently offers delivery to around 26m households in the UK.

Competition

This is mainly in the Downstream Access market, the most liberalised part of the UK letters market, where companies collect and process bulk mail before injecting the items into the Royal Mail network for the final stage of delivery.

One of the largest alternatives in the Downstream Access market, TNT Post UK currently claims to process about 17% of the mail of the average UK household, handling 200m items per month with 1,500 staff and a network of 8,000 delivery distributors nationwide. TNT Post does offer doorstep leaflet delivery services, but in the full end-to-end mail delivery chain Royal Mail currently has around a 99% market share.

Last September, TNT Post UK issued new research it commissioned into fully liberalised postal markets in Europe, which it said supported its view that Ofcom should bring Royal Mail onto a level playing field with other players in the market in areas like VAT.

The report suggested full end-to-end competition could improve the quality of universal services by putting pressure on incumbent operators to modernise and improve efficiency.

TNT Post suggested to the regulator that a form of zonal pricing could help Royal Mail protect its universal service while opening the door to full competition in the marketplace.