THE HIGHLAND COUNCIL Item 29 June, 2003 Report No Postal Services

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1 THE HIGHLAND COUNCIL Agenda Item 29 June, 2003 Report No Postal Services Report by Chief Executive Summary This report highlights a number of changes that are currently being implemented and promoted in respect of postal services in the UK. In particular there are matters of significance to the Highlands raised in the current consultation from Post Comm regarding the Universal Postal Service on which Council may wish to respond. 1. Introduction The implementation of the 2000 Postal Services Act is bringing about substantial change to UK postal services and the institutions that have delivered these services in the past. A programme for the opening up of mail services to competition is underway a process managed by an independent regulator Postal Services Commissioner (PostComm) with consumer interests being promoted by a Consumer Council for Postal Services (PostWatch) Parcel services, business mail, first and second class postal services are a significant industry with Royal Mail s average daily mail bag during 2002/03 containing just over 82 million letters. Former mail services including main post offices now forms a public limited company Royal Mail Group Ltd. The company now increasingly has to compete with others who are gaining licences to provide mail services whilst retaining, at least for the time being, the responsibility for the provision of a universal service (USO Universal Service Obligation) These changes are happening as the whole nature of the postal services business both in the UK and internationally evolve from the impact of Information Communications Technology (ICT). Many more businesses are using e mail, direct banking, e procurement as a preferred method of doing business. The government for example is to progressively withdraw its paper based systems for paying benefits during and have such payments paid through automatic credit transfers to individual bank accounts. This action alone will make a significant reduction in the business conducted by local post offices and in the footfall of the businesses associated with each post office This report seeks to draw to the attention of members some of the current issues arising and briefly highlight matters that have more significant consideration for individuals and businesses in Highland. There are two consultations that have been published in April and May by the Regulator on which the Council may wish to respond In addition the Council is in regular receipt of notifications of service changes, closures and re-opening from Post Office Ltd / Royal Mail Group and can chose to respond. The following post offices for example have seen service changes in recent weeks: - Forsinard Post Office Culduthel Post Office Braes Post Office Relocation Closure Re opening

2 Information on these changes is normally conveyed to Area Managers who can make representations to Post Office Ltd / Royal Mail Ltd in consultation with Area Committees. 2. Background /Current Issues The Royal Mail Group Ltd comprises three distinct units Royal Mail, Post Office Ltd and Parcel Force. The Company as a whole has a three year plan to save 1.4 billion by April 2005 and once again become a profitable business. This is anticipated to be achieved from: - the introduction of single mail delivery, 6 days a week, at a consistent time automating and restructuring the mail business restructuring of UK Parcels Transport a streamlined network outsourcing / streamlining non core activities creation of a viable post office branch network Overall 30,000 jobs were forecast to go in 2002, over half of which have already gone through voluntary redundancies, transfers to other firms or through the non replacement of staff who left the company. In May 2003 Royal Mail Group reported that the previous year s record loses had been halved and still anticipates reaching profitability by Attached are notes on some of the current issues that the three arms of Royal Mail Group Ltd face Members will be aware of the impact of some of these changes already with the loss of two deliveries a day in some communities and the collection of mail from local post boxes being restricted to one collection a day. The Royal Mail Group has published its definition of the Universal Service Obligation (USO) and perhaps more importantly the exceptions to the USO. Ninety nine percent of all households in Highland will receive their mail each day, with only a few remote mainland and island communities off the adopted road network having a lesser service 2 3 deliveries per week in winter periods when public ferry services are reduced. This level of service is considered to be acceptable however subtle changes in the delivery of this service, for example later daily delivery times are being considered that may disappoint service users The Council may empathise with Royal Mail Group views that the geography and spread of population in the Highlands makes the provision of mail services expensive. Services in such areas need particular consideration as competing postal services seek changes to the USO to assist with the development of more efficient and effective urban services. This point has already been recognised by the government with it s the development of a rural PO grant. This grant scheme received EU approval in May Royal Mail secured from PostComm a 1p price rise on both First and Second class mail on 3 rd May. This funding increase, it was argued, was needed to help fund investment. Royal Mail Ltd have highlighted that their services, even with the price increase, represents the lowest prices in Europe and provide best value for letters to be delivered anywhere in the UK The regulator has set a national target of 92.5% of letters being posted reaching their UK destination the next day. A slightly lesser figure is used within regional areas of the UK. Recent press releases have noted that the delivery of First Class mail across the UK by Royal Mail plc is falling well short of the national target. To encourage improved performance by companies delivering mail the Regulator has announced in one of its consultations that a customer compensation scheme is to be introduced Royal Mail Group last year determined that the Universal Service Obligation for non express parcels has been transferred to Royal Mail plc who guarantees the delivery of parcels across the UK via a basic parcel service at a fixed price dependent on weight. The more

3 specialised services associated with parcel posting such as tracking or guaranteed 24hr delivery, etc. now falls within the remit of Parcelforce. Postwatch has only very recently pressed Postcomm to investigate whether or not there has been any breach in terms of Royal Mail s licence at the sudden withdrawal of services and is also writing to businesses in the Highlands and Islands that have been refused goods from companies in the south to gather more information on their concerns. 3. Current PostComm Consultation During this period of change the Regulator has been publishing a series of consultations on the future of Postal Services and the opening of services to consultation. This report considers the current consultations on The Universal Postal Service in the UK: What Services Should Be Provided? The paper presents an analysis of a universal service and seeks responses to 16 Issues. The key points that the consultation raises are considered in turn The concept of a universal service is one that is open to everyone, everything, everywhere, an everyday service and a geographically uniform tariff. The later two features are particularly valued dimensions in the UK but are not common requirements within international or European standards. The Council may wish to respond to the consultation supporting all five elements noting that a uniform tariff is particularly valued in a rural area such as Highland. Our experience of non-uniformly priced services is not favourable. For example Royal Mail Group s Parcel Force service already has four pricing zones making service deliveries to Highland from other areas more expensive. For services under the banner of the USO the Council values the retention of a universal tariff The Regulator argues that the key characteristics that differentiate one postal service from another should be speed of delivery and security. Speed of delivery is then broken down into three heading, priority a fast service, non priority - a standard service and economy a slower service. Security is differentiated between secure and non secure. The Council it is suggested should support this categorisation however it may want to clarify the general definition of non secure as opposed to secure which is usually covered by the term special delivery or delivery guaranteed. The Council may wish to ensure that all levels of mail service provided under the USO or by other license has a high degree of security even if termed non-secure. In this sense the word secure should mean that post arrives within a time period and arrives undamaged and unopened. A letter or parcel posted with any mail service under any regime should have an extremely high percentage customer satisfaction rating in terms of being delivered with the set delivery period unopened and undamaged The consultation then asks if the universal service should cover a comprehensive range of postal services that meets a variety of customer needs as at present or should it apply to a more limited range of services that meets the basic needs of customers. Further if there is to be change to the USO should this be introduced now or introduced overtime as competition becomes established. It is clear that moving from a virtual monopoly where choice to the customer was dictated by a wide range of services from one supplier to a more competitive market where choice is generally covered by different suppliers will dictate that the USO should be less comprehensive. The key feature would seem to be to ensure that the reduced array of services offered under the USO should continue to offer good quality standards. In mail terms the USO should provided a standard and secure service at a uniform price, with the more open market seeing competition between service providers to provide faster, higher security or more economic services. The USO must not become the economic and a less secure service The Consultation highlights the implications of a postal service being designated as part of the Universal Service. These are: -

4 the universal service requirement for daily collection and delivery of mail to every address in the UK the requirement that prices of universal services are geographically uniform in the UK the possibility that these requirements may impose a cost. the fact that these requirements constitute a regulatory impact on the USO provider the USO sets the regulatory framework and the ability of the regulator to safeguard provision of universal services through licensing. The Council fully acknowledges the implications of the universal service framework, which if lost or removed would no longer require the postal services licensed outwith the USO framework to be provided universally on a uniform tariff. For this reason the Council would urge the regulator to ensure that the universal service is retained on key services offering mail services of good standard and at secure levels of service delivery The final section of the consultation then begins to look at the range of services within the current Royal Mail USO and asks which key elements ought to be retained within the USO. How important is it that people should be able to have a choice between 1 st and 2 nd class mail services? Is the current universal service for parcels i.e. Royal Mail s standard parcel service sufficient, or should there be a faster universal service available? Can 1 st class post, which technically handle parcels as well as letters, be regarded as a fast universal service for parcels? Where Royal Mail has a number of product variants of the same service, i.e. Mailsort, Walk sort and Cleanmail, do they all need to be required to be provided as part of the universal service or just some of them? Should the universal service include a requirement to provide a specialised newspaper service? Current services are limited to certain users. Should economy mail service which is a seven day service available to largescale users be treated as a universal service. Do the current services for parcels and international mail provision adequately meet the requirements of the universal service? Are there add on services such as redirection or keepsafe that should be provided on a universal service basis? The Regulator in asking these questions anticipates that competition will bring about service improvements and change that therefore lessens the requirement of a more rigid universal service. He recognises that post is no longer the only means of communication that enable social cohesion and many vulnerable groups in society have other readily accessible means of communicating phone, fax, e mail, etc. The vast majority of mail customers are businesses who rely on the provision of a reliable and secure postal service. He does not assume that the universal service is simply there to protect social users of mail as it is businesses that are the main senders of post and who largely pay for the service The above views do not seem unreasonable although for many in society, especially the vulnerable, postal services remain the cheapest form of communication, one of the easiest to understand and hold a high level of consumer trust. Clearly competition can bring to business users a variety in choice and price however it is vital that the Universal Service remains a valuable and useful service that should not be eroded or usurped by the introduction of competition and competitive practices. For example it is clear that the changes by Royal Mail Group Ltd with regard to Parcelforce services and the retention of the standard parcel service last year brought conflict of interest for Royal Mail Group Ltd who was keen to promote its specialised service over the core USO service. The sudden withdrawal of its standard parcel service late last year, often at 14 days notice, was a considerable shock to many business

5 customers. Nor did Royal Mail notify users that they were, through a different arm of Royal Mail Group Ltd, continuing with the USO service. Such slights of hand, in the interests of promoting a particular non Universal Service should not be done at the expense of a Universal Service. The Council expects that both PostComm and PostWatch should seek to ensure that such problems do not recur Returning to the specific issues being asked by the Regulator it is suggested that the Council may wish to convey the following views in response. Some of the issues would seem straightforward others are more complex and relate to more specific business users. What is important to remember and to secure is that the universal service obligation is particularly important for rural areas such as Highland in that it secures daily services on a uniform tariff. The universal service obligation need not secure a choice between 1 st and 2 nd class mail services, provided that the core service retained under the USO is of a good standard, secure and reliable. The regulator must ensure that a licensed mail company or companies must not be allowed to undermine in any way the services provided under the Universal Service Obligation. The current universal service for parcels i.e. Royal Mail s standard parcel service would seem sufficient for the Universal Service. It would seem likely that other service may in time emerge across parts of the UK that may have a higher cost / premium price that will deliver an express or more secure service. However retention of a good and strong service standard within the Universal Service Obligation would safeguard the needs of rural businesses and residents. Where Royal Mail has a number of product variants of the same service the universal service obligation should be secured on a single solid core product whose performance specification most users could utilise All services that offer a distinct service, such as a newspaper service or an economy service, should retain a core element under the universal service obligation. From the Council s perspective not to do so would inevitably lead to a reduction of such services being applied at the same tariff universally. The current USO for parcels and international mail do seem appropriate and adequate. Add on services such as re-direction, keep safe, recorded delivery are a real advantage for customers. Whilst they need not form part of the universal service they ought to form part of the core services provided by any mail operator, whether within the USO or not. The Council should seek to encourage the Regulator to adopt such services as an industrial standard. Recommendation Members are asked to support a submission being made by the Council to PostComm on the key elements of the Universal Postal Service in the UK and seek safeguards as set out in this report. Signature Designation Chief Executive Date 19 June, 2003 Background Papers1 PostComm Consultation Paper The Universal Service April PostComm Consultation Paper Access to Royal Mail services by UK Mail May 03 Author/Reference Kenneth D McCorquodale Policy Officer x2512