Press Release - Re-opening the post: Postcomm and the quality
of mail services
23 May 2006
Sir John Bourn, head of the National Audit Office, reported
today on the effectiveness of Postcomm’s regulation of quality of
service. His report, which follows up on his 2002 report Opening
the Post, finds that the overall value for money of regulation will
be improved as it reduces burdens on Royal Mail while enhancing
consumer protections.
Even in an age of increasing use of digital and electronic
communications, the postal service remains of vital and growing
importance to the UK economy. In this £9 billion market, the mail
service delivers items ranging from utility bills and bank
statements to promotional material and items purchased over the
internet.
Quality of service is crucial. Royal Mail’s performance against
its quality of service targets has recently improved. In 2003 – 04
it missed all its targets, in 2004 – 05 it met four, but in the
first half of 2005 – 06 performance was above target for all but
four products. Royal Mail’s underlying performance has also been
improving since regulation was introduced. For example in 2001 – 02
it delivered 89.9 per cent of first class letters within one day
against 93.9 per cent in the first half of 2005 – 06. Certain
postcode areas, for example North West London and South East
London, although showing improvement over the years, have not yet
achieved the licence target levels over a full reporting year.
Postcomm regulate quality of service by setting targets for
Royal Mail. It uses financial penalties to encourage Royal Mail to
maintain a good quality of service. These include automatic revenue
adjustments, compensation, and fines. In 2004-5, Royal Mail met
only four of its targets and suffered automatic revenue reductions
of £10 million and paid out compensation of £24 million. And
Postcomm has recently levied financial penalties of £13.8 million
on Royal Mail. Of this £271,000 was for poor quality of service at
postcode area level, with the remainder being for lost mail and
breaches in agreements that allow competitors access to its
network. Royal Mail is appealing against the penalties.
The overall value for money of the quality of service regime put
in place by Postcomm depends on the extent to which it protects
consumers and does not over-burden Royal Mail. The regime currently
in place (2001 - 2006) has shortcomings in protecting consumers and
some elements of it over burden Royal Mail. The proposed regime
(for 2006 – 2010) has an increased focus on quality from the
perspective of the consumer, for example by including a target and
associated financial incentive on mis-delivery of post. But there
remains scope to improve implementation, which would further reduce
regulatory burdens – for example, by reducing the length and detail
of its investigations into Royal Mail. And the long term success of
the regime will depend on its ability to cope with a rapidly
changing postal market, so that Postcomm withdraws from detailed
regulation where possible.
Sir John Bourn said today:
“The problem of regulating a monopoly such as Royal Mail
is that it tends to involve advocacy, litigation and dispute. That
is why competition is in the long run a less costly and burdensome
way of protecting consumers. This report encourages Postcomm to
minimise the costs and maximise the benefits in the short term
while withdrawing from detailed regulation in the medium term.
Later this week I will report on how the public sector can make
substantial savings by more efficient management and purchasing of
postal services.”
Notes for Editors
- The Postal Services Commission (Postcomm) was established as
the regulator for postal services under the Postal Services Act
2000. The Commissioners are appointed by the Secretary of State for
Trade and Industry. Its Chairman is Nigel Stapleton, and the Chief
Executive is Sarah Chambers.
- The Consumer Council for Postal Services (Postwatch), was
established by the Postal Services Act 2000. It is responsible for
representing the interests of users of postal services. Its
Chairman, Millie Bannerjee, and the other 13 Members of the Council
are appointed by the Secretary of State for Trade and Industry. Its
Chief Executive is Gregor McGregor.
- In March 2005 Postwatch challenged Postcomm by way of a
judicial review over its interpretation of Royal Mail's
compensation scheme for bulk mailers (mail sent by large customers
– eg businesses –may be pre-sorted to obtain a cheaper rate from
Royal Mail). Judgment was given in December 2005. The compensation
under review dated from 2003-04 when Royal Mail failed all 15 of
its standard of service targets. Bulk mail customers of Royal Mail
were due to receive automatic compensation of around £80 million.
However, Royal Mail withheld compensation of around £40 million on
the basis of the late payment of invoices in the year in question.
The High Court ruled that Postcomm had not interpreted the scheme
correctly. Royal Mail sought permission to appeal from the High
Court judge, but this was rejected. It is now seeking leave to
appeal directly to the Court of Appeal.
- In February 2006, Postcomm proposed financial penalties of
£13.8 million on Royal Mail, of which:
- £11.38 million is for Royal Mail's failure to meet its
obligations to protect the mail. During 2004-05, around 14.6
million letters, packets and parcels in Royal Mail's care were
lost, stolen, damaged or interfered with. The most significant
weakness was the poor management of the recruitment and training
process for non-contract (agency) staff; and
- £271,000 is for Royal Mail's poor mail delivery performance
across three London postcode areas SE, WC and E - where, during
2004-05, around two million letters were delivered late.
- £2.16 million is for breaches in agreements that allow
competitors access to its network.
Royal Mail is appealing against these financial penalties.
- Press notices and reports are available from the date of
publication on the NAO website at www.nao.org.uk.
Hard copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 22/06
All enquiries to Mark Strathdene, NAO Press Office:
Tel: 020 7798 7183
Mobile: 07748 181693