TISC PN19 0506



Telephone: 020 7219 5777/5779

PN 19 of Session 2005-06


on Tuesday 20 December


Inquiry into Royal Mail after Liberalisation

The Trade and Industry Committee will publish its Second Report of Session 2005-06, Royal Mail after Liberalisation (HC 570-I) on Tuesday 20 December 2004 at 00.01am.

Royal Mail has held a monopoly over mail services in the UK for the last 350 years and continues to dominate the postal services market. The Postal Services Commission (Postcomm) began to introduce limited competition to the postal services market in 2003 and will end Royal Mail's monopoly by fully liberalising the market from 1 January 2006. In these circumstances, the Committee decided to undertake a review of the impact liberalisation would have on the postal service market and, in particular, the impact on Royal Mail. The main conclusions of the Committee are:

  • Postcomm's date for the move to full liberalisation in the UK postal services market is an untimely one as Royal Mail has been asked to prepare for competition at a time of great commercial uncertainty. Postcomm is reviewing the price Royal Mail can charge for its regulated services and the company also faces huge challenges in addressing its pensions deficit and investment needs. Although the review process is now nearing conclusion, the difficulties for Royal Mail have already been caused.

  • Opening up the UK postal services market to competition poses no immediate threat to the universal service. However, the regulator must remain vigilant to ensure that competition in the postal services market does not come at the cost of the universal service. This is, after all, the regulator's statutory duty.

  • The universal service is rightly valued as a public service, especially in remote rural areas. Postcomm should have regard to the views of the Secretary of State, and, through him, of the Government, on what the definition of a universal service in the UK should be. In particular, the Committee emphasises that a 'universal service' is not worthy of the name if it allows for any geographical exemptions.

  • There has been insufficient time during the inquiry to investigate the pension fund deficit in sufficient detail to come to firm conclusions about the responsibility for the deficit. The lack of investment in Royal Mail's infrastructure, however, has been due to decisions made by Royal Mail's management and in particular its shareholder over the last twenty years. The Government, as the lone shareholder, has received over £2,300 million in dividends (or the External Financing Limit) from Royal Mail since 1984, even though these dividends have been waived since 1999.

  • Postcomm, in its initial proposals for the price controls, had already taken account of Royal Mail's need to make pension fund contributions and invest in new capital operations. In its revised proposals, Postcomm has made further allowances of an average £320 million per annum to enable Royal Mail to clear its pension fund deficit and an investment of £1.2 billion for new capital operations. The Committee approves of these increases.

Speaking about these conclusions, the Chairman of the Committee, Mr Peter Luff, said: "We understand Postcomm's acceptance that at least some of Royal Mail's pension fund deficit and new capital investment should be funded by users through higher postage prices. We welcome Postcomm's amended price control proposals, which we understand are based on an agreement between Royal Mail and Postcomm. We note that there has to be a further three month consultation period but look forward to the adoption of proposals broadly in line with the current agreement. However, we do not think that the customer alone should foot the pension fund deficit and new investment 'bill'. These should also be funded by the other main stakeholders: the shareholder, the Government, through a continued commitment to take nil-dividends; and Royal Mail itself through improved management efficiencies. We may wish to return to these subjects at some point in the future, once Postcomm's price control proposals have been enacted."

The report will be published at 00.01 am on Tuesday 20 December and may be purchased from the Stationery Office (inquiries: 0870 600 5522). It will also be available on our website at the address below soon after publication.

For further information please call the Committee Office on 020 7219 5777/5779.

19 December 2005