Following on from its investigation into the long-term viability of Royal Mail being able to continue to fully meet the requirements of the Universal Postal Service going forward, Ofcom is now considering its findings.
It will assess whether certain changes to Second Class letter delivery – while maintaining a next-day First Class service six days a week – would meet postal users’ needs, ahead of consulting on proposals early next year.
Ofcom’s job is to make sure there is a universal postal service that meets the needs of users and is affordable, efficient and financially sustainable.
In recent years, people have been sending far fewer letters, and Royal Mail has been losing hundreds of millions of pounds. If the universal postal service does not evolve to align with customer needs, it risks becoming unsustainable, and people could end up paying higher prices than necessary.
Earlier this year, Ofcom launched a national debate on the future of the universal service, to seek input from valued experts and consumers before we make any proposals. This included in-person consultation with DCA members during a DCA conference and an invitation to all DCA members to submit their views.
Ofcom has now set out its next steps.
Clear need for reform
It has heard from thousands of people and organisations, including consumer groups, unions, businesses, public services, Royal Mail and the wider postal industry, as well as from postal users directly, from right across the UK.
Overall, respondents and participants in its public events recognised that the way people and businesses use letters has changed and acknowledged that changes to the obligations on Royal Mail will be required if it is to ensure the service remains sustainable, affordable and reliable.
There was strong support for maintaining the fundamental principles of universality, affordability and uniform pricing.
Evidence gathered so far
Ofcom’s research shows that affordability is the most important feature to people when it comes to letter deliveries. It will therefore continue to ensure there is an affordable option available for consumers, on a ‘one price goes anywhere’ basis.
The evidence it has gathered so far also suggests people want a next-day service available six days a week for when they need to send the occasional urgent letter or card. However, people acknowledge that most letters are not urgent.
If Second Class letters continued to be delivered within three working days but not on Saturdays – and First Class remained unchanged at six days a week – it would enable Royal Mail to improve reliability, make substantial efficiency savings, and redeploy its existing resources to growth areas such as parcels.
In its response to Ofcom’s call for input in January, Royal Mail set out its detailed plan for modernisation for the first time, which included a detailed proposal for such changes.
Next steps
Ofcom will now carry out further in-depth research among postal users to explore whether this option – which broadly aligns with one of the options it set out earlier this year – meets their needs. As this is assessed, it will take full account of the issues and concerns raised by respondents to Ofcom’s national debate.
The changes it is assessing could be made through Ofcom’s regulations. This would not require Parliament to make any changes to legislation. Following the conclusion of its further consumer research, it expects to consult on detailed proposals for reform in early 2025, with a view to publishing a decision in summer 2025.
Many other countries in Europe have already reformed their universal postal service, with some reducing delivery days more radically.
In recent years, Royal Mail’s delivery performance has not been good enough. In the last five years, Ofcom has found it in breach of its quality-of-service obligations twice and fined it both times.
It has been pressing the company on what it is doing to turn things around, and Ofcom is currently investigating the latest failure to hit its annual delivery targets. Regardless of how the universal service evolves, Royal Mail’s delivery performance must improve.
While Royal Mail has made some progress recently, including in relation to efficiency improvements, there is more to do as it modernises its network.
“Postal users’ needs are at the heart of Ofcom’s review. If we decide to propose changes to the universal service next year, we want to make sure we achieve the best outcome for consumers.
“So we’re now looking at whether we can get the universal service back on an even keel in a way that meets people’s needs. But this won’t be a free pass for Royal Mail – under any scenario, it must invest in its network, become more efficient and improve its service levels,” said Lindsey Fussell, Ofcom’s group director for networks and communications.
As an aside, Royal Mail is lobbying for its tracked parcel delivery service to form part of the Universal Postal Service which would enable it not to charge VAT whilst also offering a single rate for every UK address.
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