Royal Mail could save up to £650m if it delivered letters just three days a week and £200m by stopping Saturday deliveries, the communications regulator has said in its much-anticipated review of the postal service.
Ofcom laid out a series of options for the future of the universal service obligation (USO) – which requires Royal Mail to deliver countrywide, six days a week for a fixed price – including saving an estimated £100m-£200m by going from six to five days a week, or cutting costs by £400m-£650m with a reduction to three days.
The regulator began gathering evidence last year to show how the future of the service might be changed to better suit consumers’ needs, amid a long-term decline in letter volumes and a surge in the number of parcels sent as online shopping has grown.
Ofcom said there was an increasing risk that Royal Mail would become “financially and operationally unsustainable in the long term” given the cost of delivering the USO.
Ofcom stressed it was not recommending specific proposals, but said the two “primary options” on the table were cuts to the number of letter delivery days, or changes that could mean making first- and second-class deliveries take up to three days or longer. That would be accompanied by a next-day service for urgent letters, it said.
The first option would require parliamentary approval, but the second change is within the regulator’s gift. Ofcom has conducted consumer research and modelled Royal Mail’s finances in the review, and will now seek views from interested parties until 3 April.
In consumer polling for Ofcom, 88% of respondents said reliability was important for letter deliveries. This compared with 58% who said a Saturday service was important, down from 63% when research was last conducted in 2020.
Royal Mail has long pushed to be allowed to cut Saturday deliveries, but the government rejected the proposal last year. It emerged last weekend that the move was being studied, and Downing Street indicated it would oppose such a plan. Rishi Sunak reiterated that stance on Wednesday, saying the government was “absolutely committed to ensuring that [the USO] remains as it is”.
Martin Seidenberg, the chief executive of Royal Mail’s parent company, International Distributions Services (IDS), said: “We have been calling on government and Ofcom to tackle this issue for four years, and the lack of action means that we are now facing a much more serious situation.
“While other countries have grasped the opportunity to change, the UK is being left behind. There has been a lot of discussion about dropping Saturday letter deliveries in the UK, but as other countries have shown, there are a range of options to consider.”
In a letter last week to the Commons business and trade committee chair, the Labour MP Liam Byrne, Seidenberg wrote that the USO was “unsustainable” in its current form, and cited similar changes in other European countries.
On Wednesday, Byrne said: “Let’s be absolutely clear: the USO is a vital public service, which is why we’ve called for government to get serious about talks with Royal Mail to agree a plan to secure its future.”
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Dave Ward, the general secretary of the Communication Workers Union, said: “We are not resistant to change, but we will not sign up to a three-day universal service obligation, which would destroy Royal Mail as we know and would impact on thousands of jobs.”
Tina McKenzie, the policy and advocacy chair at the Federation of Small Businesses, said: “Trading essential services for short-term savings is a slippery slope that may compromise the trust small businesses place in Royal Mail.”
The Liberal Democrats’ Treasury spokesperson, Sarah Olney, said: “This feels like a slap in the face for so many who already have the pain of delayed deliveries.”
It had been speculated that Ofcom could suggest state subsidies for Royal Mail, but that option was not contained in the review. The company was privatised in 2013, with the government’s final stake sold in 2015. Shares in IDS rose by 4% on Wednesday morning after the review’s publication.
Melanie Dawes, the chief executive of Ofcom, said: “We’re sending half as many letters as we did in 2011, and receiving many more parcels. The universal service hasn’t changed since then; it’s getting out of date and will become unsustainable if we don’t take action.
“So, we’ve set out options for reform so there can be a national discussion about the future of universal post. In the meantime, we’re making sure prices will remain affordable by capping the price of second-class stamps.”
