Universal Service

The third part of the plan is about working with the Regulator and Government on the Universal Service Obligation (USO).

Royal Mail has an unparalleled opportunity for growth in the demand for parcels and possibilities beyond, given our position in the market. Letters will always be important. But we need the flexibility to deliver what our customers want.

We have surveyed the views of thousands of people and small businesses about what they want from postal services. We have also held hundreds of sessions with colleagues up and down the country about how they think the USO may need to change for the future. The headline insights that we have gained are clear.

• First, our customers want to retain the ‘one price goes anywhere’ principle of the USO.
• Second, they want more ways to send letters and parcels – whether it’s online postage or parcel postboxes – and more frequent and convenient parcel deliveries. We want to look again at whether there is enough customer demand for a seven-day commercial parcel service.
• And thirdly, although they are posting fewer letters, and expect to be receiving more parcels in future, they still want an affordable next-day letters service so that they don’t have to rely on more expensive couriers. 

These findings tell us that the best way to ensure the Universal Service continues to meet our customers’ needs is to rebalance our service model more towards the growing parcels market, particularly urgent parcels, and urgent letters.

But to be clear, this does not mean following other countries such as New Zealand or Italy that have reduced letters delivery to three days a week in some areas, for example. We will keep delivering letters to every part of the UK, for one price. And we would like to deliver the items that customers want more often, not less.

But to do that, we need a regulatory system fit for the future rather than the past. In the last five years, the profits of the Reported Business of Royal Mail – the regulated entity – have fallen by around 95 per cent. It will be materially loss-making this financial year. The upcoming Ofcom review will be vital in securing a platform, which permits both the investment required to deliver the USO demanded by the public, and for that service to be delivered sustainably. 

It does not make sense for us to be obliged to allocate our resources to delivering what our customers don’t value highly, rather than what they do. So, we are currently exploring what a rebalanced Universal Service might look like.

Over the coming weeks, we will be meeting with more customers and other stakeholders to explore these issues in more detail. We will factor the findings into our thinking and share them with Ofcom and the Government in the Autumn. Any substantive change is a matter for the Regulator, Government and ultimately, Parliament. But we need to make sure this review process is considered swiftly, given the rapidly changing customer needs and the financial sustainability of the Universal Service.

One thing is very clear – we remain committed to the universal, affordable, ‘one price goes anywhere’ nature of the USO. Our unique responsibility began in 1840 when the world’s first adhesive postage stamp, the Penny Black, was used as payment to create a uniform postage service. Times may have changed a lot, but there remains a vitally important role for Royal Mail in UK society. The recent Covid-19 crisis has underlined this.

We need to work with our Government, Regulator, unions and people to ensure a financially-sustainable Royal Mail can meet changing customer demands through the 21st century.