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Substantial savings, in addition to the significant improvements already achieved, could be made by more efficient management and purchasing of postal services by the public sector, according to a report by Parliament’s spending watchdog. The National Audit Office has found that an estimated £31 million a year could be saved across the public sector by 2008-09. 

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The public sector spends almost £650 million a year on post, ten per cent of the total licensed UK mail market. Around £250 million of this is spent by central government departments, with the Department for Work and Pensions and HM Revenue and Customs responsible for more than half of this total. Despite the growth in the use of internet and email, at least for the foreseeable future conventional mail will remain essential to the way public bodies communicate with the public.

Significant improvements have already been made. For example, the DVLA claims savings of some £3 million a year by doing more of the mail sorting themselves and HM Revenue and Customs is aiming to save £2 million a year by improving its address data, so reducing the amount of mail returned as undeliverable.

But there is a wide range of performance across the public sector. The average cost of mail per item varies from 31.1p to 21.5p, and the average cost across the public sector at 28p per item is a quarter higher than that paid by the financial services sector, at 22p per item, and higher still than the utilities sector, at 20.4p per item. Some of these differences can be explained by greater volume of weightier items, such as application forms, or the need to use first class post, but there is still significant scope for savings.

On top of the savings already made, the NAO estimates that a further £31 million can be saved annually by 2008-09 in four main areas:

  • £9 million through increased use of discounted ‘work share’ products, where customers receive discounts for performing activities such as preparing or sorting mail.
  • £9 million through increased use of second class mail or mail products with longer delivery times.
  • £8.5 million through increased use of competitive tendering. To assist this, is setting up framework agreements to help public sector buyers.
  • £4.5 million through a reduction in the amount of undeliverable mail which saves postage costs and time in processing mail.

These savings are estimates across the public sector, including the health, education and local government sectors, and many of the improvements can be introduced at low cost and within a short timescale. This is particularly true of changing to second class mail, competitive tendering, reducing undeliverable mail and switching to more efficient mail products. Of the £31 million total, £15 million can be saved by central government, around £8 million by local government, and £4 million each in the health and education sectors. Often, the crucial first step is working closely with existing suppliers.

In addition, there is scope for public sector organisations to improve the efficiency of their use of postal services, by switching to the internet or telephone as an alternative or departments sending out joint mailings.

The NAO has produced a guide to help public sector organisations improve efficiency, drawing on examples of good practice in both the public and private sectors of how to reduce costs while at least maintaining customer service levels.

"Although much work has already been done to reduce costs, there is much still to do if public bodies are to be smarter customers, both of Royal Mail and of the new entrants in the liberalised market. There is scope for significant savings by taking some relatively straight-forward measures, and there is no reason why the public sector cannot achieve the £31 million annual savings identified in the report, representing five per cent of their total mail costs, and aspire to cost levels closer to those enjoyed by the best of the private sector."

Sir John Bourn, head of the NAO


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