Progressive Vision: Looking forward to freedom

The Post Office is not a service that deserve special protection from the choices of the public, nor should it be forced to provide uneconomic operations.

Britain’s creaking and inefficient postal service has at last been exposed to competitive forces. For this, the Labour government deserves credit – the Royal Mail was left untouched and unreformed by the Conservatives even at the height of Thatcherism. Sadly, however, such liberalisation[i] as there has been seems merely motivated by the reality that Royal Mail is no longer the cash cow for the Treasury it once was, rather than by a genuine commitment to root and branch reform. Much more radical reform is needed than that which has been implemented - or even seriously considered - so far. Full-blown privatisation would lead to greater choice and lower prices and would be a considerable boon for businesses. After salaries, mailing costs are the largest single expense faced by British companies.[ii]

The Royal Mail remains a classic example of the woes and inefficiencies of publicly protected companies – displaying a lack of innovation, boasting a poor record of industrial relations and woeful levels of productivity. Its chief executive, Adam Crozier, asserts that – compared to the workers in the growing private sector – Royal Mail postal workers are paid 25% more and are 40% less efficient – in other words, they are less than half as productive. Despite this, private sector penetration in postal delivery remains limited, with Royal Mail continuing to account for more than 97% of deliveries.

Postal communication has not withered as a result of the internet boom as some expected – Royal Mail continues to deliver 84 million letters a day[iii]. But it is no longer as fundamental to our lives as it once was. The Victorians received up to eight deliveries a day, but in the era of mobile phones and email, the postal service is now a relatively inefficient and expense means of communication. Robert Burns’ adage that the only really urgent letters are love letters and cheques, has less truth about it in a world of SMS texting and electronic banking

With so many cheaper and faster communications means available, it is now appropriate to consider slaying the sacred cow of “universal service”. Whilst Royal Mail has many legal protections – for example, the Postal Services Act 2000 exempts them from any formal contractual obligations to actually deliver most items of mail – its entire pricing strategy is skewed by its obligation to provide universal service.

This statutory obligation means that every address in the country must be able to receive and deliver post every day and pricing is uniform. It is stating the obvious that sending a letter from Penzance to the Orkneys is a considerably more costly exercise than sending the same item from Hammersmith to Hackney. Yet wherever you wish to send a letter from and to, the price is a flat rate of 24p. The inefficiencies are obvious – and extreme. Imagine, for example, the impact on the market for licensed cabs if any journey between two points in the United Kingdom was charged at a flat rate.

The retention of the universal service obligation is often cited as the biggest barrier to fully opening the market. But this is a reason to abolish the obligation rather than to fail to liberalise postal deliveries. The universal service obligation is effectively a substantial subsidy to those who choose to live or work in rural areas from those who live and work in urban areas. Even if the government wishes to retain such an extraordinary subsidy, it should do so openly. It would certainly be more efficient to do so as a direct transfer payment rather than through this bizarre stealth tax. At the very least, the universal service obligation should be relaxed – in the modern world, no remotely serious company can claim that it is (a) incapable of relocating and (b) its business depends on sending and receiving post each and every day.

The issue of inefficient rural communities being supported by their more urban counterparts has recently come to the fore with the controversy surrounding the impending closure of hundreds – and probably eventually, thousands – of small post office branches. The concern expressed here does not, of course, directly relate to postal deliveries but principally to people who access welfare benefits through their local post office branch. The cost of providing benefits in this fashion is vast – it being about one hundred times more expensive than paying benefits directly into a bank account. Needless to say, this cost is borne by the taxpayer, not by the welfare recipient.

The backlash at grassroots level has been substantial – but also confused. The Liberal Democrats, for example, put forward the truly bizarre argument that rural post offices have what they call an “existence value”. Whatever this means, the party claims that this is an attribute also shared by village pubs[iv]. But with the post office network losing money hand over fist, this “existence value” would have to be enormously high to warrant keeping so many post offices open – some smaller post office branches only have sixteen customers a week, at an absurd hypothecated cost of £17 per visit. In any event, it’s not clear who benefits from the so-called “existence value” of such amenities. If residents in small rural communities wish to spend their own money on keeping post offices, pubs or other amenities open, no city dweller should stand in their way. But if they wish the bill to be borne by national purse, that’s another matter.

[i] From 1^st January 2006, Royal Mail was opened up to competition from the private sector
[ii] Institute of Economic Affairs
[iii] Royal Mail annual report for year ending March 2006
[iv] Liberal Democrats website http://www.libdems.org.uk/commerce/issues/

POSTAL SERVICES