Postal Services - Parliament.uk

Postal Services - Parliament.uk

www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | papers@parliament.uk | @commonslibrary BRIEFING PAPER Number 06763, 6 July 2017 Postal Services By Jennifer Brown Lorraine Conway Lorna Booth Contents: 1. Overview of postal services in the UK 2. Frequently asked questions 3. Regulation of postal services 4. The letters market 5. Stamp prices 6. The parcels market 7. Impact of Brexit 8. Performance of Royal Mail 9. Annex: The Postal Services Act 2011

Postal Services - Parliament.uk

2 Postal Services Contents Summary 4 1. Overview of postal services in the UK 5 Ofcom 5 Royal Mail Group 6 UK Government (Department of Business, Energy and Industrial Strategy) 6 Other postal operators 7 Citizens Advice 7 Post Office 7 Unions 8 POSTRS 8 2.

Frequently asked questions 9 2.1 Receiving post 9 ‘Something for you’ cards 9 Receiving someone else’s post 9 Redirecting your post to your new address 9 Receiving nuisance or junk mail 10 Receiving damaged or unwanted goods 10 2.2 Sending post 11 Changes to collection times at post boxes 11 Lost mail 11 Prohibited items in the post network 11 2.3 Postcodes 12 Finding out what your postcode is 12 Changing your postcode or address 12 2.4 Making a complaining about postal services 13 Complaining about Royal Mail 13 Complaining about company other than Royal Mail 13 3. Regulation of postal services 15 3.1 The universal postal service 15 Regulatory conditions placed upon Royal Mail 16 3.2 Regulatory conditions placed on other postal operators 16 4.

The letters market 17 4.1 Trends in the letters market 17 Trends in type of operators 18 4.2 End-to-end market competition 18 5. Stamp prices 20 Historic stamp prices 20 6. The parcels market 22 6.1 Competition in the parcels market 22 6.2 Consumer problems in the UK parcels market 23 Parcel Surcharges 23 7. Impact of Brexit 27 7.1 Cross border deliveries 27 7.2 Regulation 28 8. Performance of Royal Mail 29

3 Commons Library Briefing, 6 July 2018 8.1 Five year summary of Royal Mail financial performance 29 8.2 Modernisation of Royal Mail 30 8.3 Royal Mail targets 31 8.4 Complaints to Royal Mail 32 9. Annex: The Postal Services Act 2011 33 Background to the Act 33 Provisions in the Act 34 The privatisation of Royal Mail 34

4 Postal Services Summary This note gives an overview of postal services in the UK. It discusses current regulation, market trends and consumer problems. Section 1 describes the key bodies in the UK postal market and the relationships between them.

This section also introduces key terminology used to describe the UK postal market. The UK postal market is dominated by Royal Mail which is both the largest operator and the ‘universal service provider’. Ofcom is the regulator of UK postal services and focuses much of its regulatory activity on Royal Mail as the universal service provider. Section 2 tackles frequently asked questions regarding postal services, with a particular focus on issues that constituents may face. Section 3 lays out the regulatory framework of UK postal services. Section 4 sets out trends in the UK letters market. UK letter volumes have been in decline since the mid-2000s.

Section 5 describes recent trends in stamp prices. Ofcom granted Royal Mail price flexibility over stamp prices in 2012. Soon after, the price of 1st class stamp rose substantially. A 1st class stamp is now priced at 67p, 72% higher than the face value of a stamp in 2010. Section 6 sets out trends in the UK parcels market. The UK parcels market is currently going through a period of growth. This growth has coincided in increasing competition. Poor quality of service and parcel surcharges in Scotland and Northern Ireland have caused consumer groups concern in recent years.

Section 7 explains the recent performance of Royal Mail. Royal Mail’s profits after tax have increased slightly over the last couple of years and were £454 million in 2017/18. Royal Mail missed several of its targets in 2017/18, some by quite a margin. It commented that its performance had been “significantly impacted by a number of exceptional events”. Ofcom are investigating. Post Office The Post Office is separate from Royal Mail. The Library publishes information regarding the Post Office in separate briefings:
  • The Post Office
  • Post Office Numbers Contributing Authors: Lorraine Conway, Consumer Affairs, Section 2.1 Cover page image copyright: Trevor King: Glossop mail vans, licence.

5 Commons Library Briefing, 6 July 2018 1. Overview of postal services in the UK Postal services was formerly a part-nationalised industry in which the (formerly) state owned Royal Mail had a monopoly over letter delivery with some competition in parcel delivery. The liberalisation of postal services in the UK began in the early 2000s with markets being opened up to competition. Royal Mail was subsequently privatised following the passing of the Postal Services Act 2011. The Post Office, now a separate business, remains entirely owned by the Government. Postal services are generally reserved, rather than being devolved to Scotland, Wales and Northern Ireland.

The figure below maps postal services in the UK – the elements are explained under the headings below. UK Postal Services Ofcom The Postal Services Act 2011 transferred regulatory powers over postal services from Postcomm to Ofcom. Under the Act, Ofcom must carry out its regulatory activity in a way that secures the universal postal service and, insofar as it does not undermine the universal postal service, promote competition in the postal market. Post offices Mail delivery Ofcom Regulator Citizens Advice Consumer watchdog Royal Mail Group Universal Service Provider Other ‘end-to-end’ operators UK Government Department of Business, Energy and Industrial Strategy Entirely owns Post Office PLC Unions Access operators In addition to end-to end deliveries Royal Mail provide final mile delivery to access operators

6 Postal Services In order to for fill its regulatory duty Ofcom performs a number of functions. Ofcom:
  • Monitors the postal services market producing an annual report on updates in the postal market.
  • Imposes conditions upon Royal Mail as the universal service provider and other postal operators where appropriate.
  • Levies fines where Royal Mail or other postal operators fail to meet the obligations imposed upon them via regulatory conditions.
  • Can ‘name and shame’ operators with poor practice. The regulatory framework of the postal market is set out in Section 3 of this note.

Royal Mail Group Royal Mail Group is the UK’s largest postal operator, the only postal operator currently providing UK wide end-to-end letter delivery services, and the UK’s universal service provider. Section 8 of this note discusses in detail the recent performance and modernisation of Royal Mail. UK Government (Department of Business, Energy and Industrial Strategy) The Department of Business, Energy and Industrial Strategy (BEIS) has Government responsibility for postal affairs. The current Minister with this portfolio is Andrew Griffiths MP, Parliamentary Under Secretary of State, Minister for Small Business, Consumers and Corporate Responsibility.

1 Royal Mail is required to deliver letters six days a week and parcels five days a week. See page 15 for details. The universal postal service The universal postal service is essentially the ‘one price goes anywhere’ principle of affordable postal services to all UK addresses. It requires Royal Mail (the universal service provider) to deliver to every address in the UK, six days a week, at a standard price.1 The legal basis for the universal service is the Postal Services Act 2011 and the Universal Postal Services Order.

  • The universal postal service is described in more detail in Section 3.1 of this note. Types of letter delivery There are two types of letter delivery services end-to-end services and access services.
  • End-to-end service is where the same postal operator undertakes the entire process of collecting, sorting and delivering mail.
  • Access service is where an operator collects and sorts the letters but then hands over final delivery to Royal Mail. Royal Mail is obliged to open its network to access providers. More information on the volume of letters delivered by these types of service can be found in Section 4 of this note.

7 Commons Library Briefing, 6 July 2018 The Government, with Parliament, is responsible for legislation on postal service but currently have no published plans for new legislation in this area. Royal Mail is a fully privatised company. It is for Ofcom, as the industry regulator, to monitor the performance of Royal Mail in line with current legislation. BEIS has responsibility for the Post Office which remains entirely in Government ownership (see below). Other postal operators Much of Royal Mail competition is in the parcels market rather than in the letters market. The parcel’s market is highly competitive and growing whereas Royal Mail operates a near monopoly over final mile letter deliveries in the UK.

There are a number of well-known brands which operate in competition to Royal Mail, for example Hermes, Yodel, DPD and Whistl. Citizens Advice Citizens Advice (a charity network that provides advice to people across the UK) assumed statutory responsibility to represent consumer interests for postal services in 2014, along with Citizens Advice Scotland and the General Consumer Council for Northern Ireland.2 Citizens Advice aim to ensure postal services and post offices meet the needs of consumers in a way that is fair and accessible for all, with particular regard for vulnerable consumers (for example disabled individuals, pensioners, individuals on low incomes).3 In order to protect and promote the interests of consumers Citizens Advice obtain and review information from the key actors regarding postal services and provide advice and information to ministers.

Citizens Advice regularly publishes research and updates about the performance of postal services on its website. Citizens Advice Scotland and the General Consumer Council for Northern Ireland also publish advice and analysis. Post Office The Post Office is a limited company entirely owned by the UK Government – it is separate from Royal Mail. The Post Office network is made up of roughly 11,500 branches. The Library publishes information on the Post Office in separate briefing notes:
  • The Post Office
  • Post Office Numbers 2 Through The Public Bodies (Abolition of the National Consumer Council and Transfer of the Office of Fair Trading’s Functions in relation to Estate Agents etc) Order 2014 3 Citizens Advice, Trends in the Postal Services Market, 18 May 2018 Details of the volumes of letter and parcel deliveries can be found in Sections 4 and 6 of this note.

8 Postal Services Unions In 2017, 9.5% of workers in the information and communication sector reported being a member of a Trade Union.4 Royal Mail estimate that a much higher proportion of their operational staff are a member of a union, 84% as of August 2016.5 The largest union in the sector is the Communication Workers Union (CWU) which represents 195,000 members in postal, telecom, mobile, administrative and financial companies, including Royal Mail and the Post Office.6 Recent major campaigns run by the CWU include a campaign on dangerous dogs to protect postal workers who fall victim to dog attacks, and the People’s Post Campaign which aims to...

defend postal services and decent employment standards in the postal industry - both of which are now under serious threat from privatisation and aggressive regulation.7 POSTRS POSTRS: is an independent body that mediates disputes between certain regulated postal operators – CMS Network (London) Ltd, Royal Mail Group, Secured Mail, The Mailing House Group – and their customers.8 4 Department of Business, Energy and Industrial Strategy, Trade Union Statistics: Table 1.8 5 Personal communication with Royal Mail 6 CWU, About the CWU [last accessed 3/72018] – figures are for ‘active members’ 7 CWU, Peoples Post Campaign [last accessed 16/06/17] 8 POSTRS Member companies [last accessed 3/7/18]; Ofcom, jargon buster, [last accessed 3/7/18]

9 Commons Library Briefing, 6 July 2018 2. Frequently asked questions 2.1 Receiving post ‘Something for you’ cards A ‘Something for you’ card is the common name for Royal Mail’s P739 form. This is the card that is left in the event that the Royal Mail is unable to deliver an item. Items that cannot be delivered are sent to a local Delivery Office to allow for collection by the recipient. Recipients must take both their ‘Something for you card’ and proof of identification in order to collect their undelivered post from the Delivery Office.9 If the recipients loses their ‘something for you card’ it is not always possible to collect from the Delivery Office but the recipient can rearrange delivery online.

Receiving someone else’s post As stated on Royal Mail website, I’ve received someone else’s mail, people who receive post that has the recipients address but an incorrect name should: “... cross through the address and write on the item 'Not known at this address' or, 'No longer lives here' and post the item at your convenience - you won't need to apply any postage.”10 For mail that does not have the address of the recipient Royal Mail asks that the incorrect recipient re-posts the item at their earliest convenience. Again in this instance there is no need to apply postage. The Royal Mail webpage has a link to contact Royal Mail to inform them that the letter was delivered to the wrong address.

Citizens Advice offers the same advice on their webpage Stop getting someone else’s post. They add that if a forwarding address for the intended recipient is known you can write ‘no longer at this address, please forward’ and their new address on the front of the envelope, rather than just not known at this address.11 Redirecting your post to your new address Royal Mail recommends that those moving house get their post redirected to their new address. This ensures that customers always receive their mail.12 Royal Mail will redirect post to any UK or overseas address for up to 12 months.

Customers can apply to have their mail redirected on the Royal Mail website. Royal Mail charges for this service. 9 Royal Mail I haven’t got a ‘Something for you’ card [last accessed 20/06/17] 10 Royal Mail I’ve received someone else’s mail [last accessed 20/06/17] 11 Citizens Advice Stop getting someone else’s post [last accessed 20/06/17] 12 Royal Mail Redirection [last accessed 20/06/17]

10 Postal Services Receiving nuisance or junk mail Some individuals object to the amount of unsolicited direct marketing mail or promotions they receive through their letter box (often referred to as ‘junk mail’).

They find unsolicited mail intrusive and annoying. It is not illegal for a company to send unsolicited mail, unless the material is obscene or threatening. No legislation exists which can protect a householder from receiving it. If postage has been paid, Royal Mail is legally obliged to deliver all addressed mail, which includes mail that is addressed “to the occupier” as well as mail that is personally addressed. However, there are various options available to an individual who wishes to stop unwanted and unsolicited direct marketing mail. An individual can register free of charge with the Mailing Preference Service (MPS) and thereby have their details removed from direct marketing mailing lists.

This should reduce the amount of addressed advertising mail they receive; the MPS covers around 90 per cent of mailing lists. However, the MPS is not designed to stop unaddressed items of mail, direct mail delivered to the door or the delivery of free newspapers. It is also difficult to stop junk mail that is sent from abroad. Although mail addressed to the ‘occupant’, ‘resident’ or ‘homeowner’ is not covered by the MPS scheme, it may be possible for an individual to ‘opt out’ of receiving door-to-door mail items delivered by Royal Mail. This would involve contacting Royal Mail by email at: Optout@royalmail.com.

The opt-out will usually last for a period of two years from the date that Royal Mail receives the opt-out form. To extend the opt-out period beyond the usual two-year period would require completion of a new opt-out form.

Before opting-out, it is important to bear in mind that it is not possible for Royal Mail to separate material that the recipient may want from material that they do not want, such as advertising offers or leaflets from central and local government and other public bodies. Moreover, Royal Mail’s ‘door to door opt-out’ does not cover any other distributors, who will continue to deliver unaddressed mail items. A separate Commons briefing paper, “How can I stop junk mail and emails” (CBP 6033) provides more detailed information on what an individual can do to stop junk mail.

Receiving damaged or unwanted goods The Consumer Rights Act 2015, which came into force on 1 October 2015, states that the seller is responsible for goods up until they are delivered to the consumer.

It is the seller’s responsibility to make sure that the item is safely delivered to the consumer; any damage incurred in transit is the responsibility of the seller. Under the provisions of the Act, if a faulty good is delivered the consumer is entitled to a replacement or refund. It follows from this that a consumer should immediately contact the seller if a good they have ordered hasn't arrived or has arrived damaged. They should not be told by the seller to take up their complaint with the delivery company.

11 Commons Library Briefing, 6 July 2018 Sometimes, a person may be sent in the post goods they did not order or ask for (often referred to as “inertia selling”). The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 contains provisions which protect consumers from unsolicited sales and additional charges which have not been expressly agreed in advance. In addition, under the provisions of the Consumer Protection from Unfair Trading Regulations 2008, a consumer is not required to pay for the unsolicited supply of products. However, often goods have simply been delivered by mistake.

If goods have been delivered to a person by mistake (i.e. the order wasn’t meant for them), the goods still belong to the trader and the recipient should try to return them. This shouldn’t cost the recipient anything or inconvenience them. In practice, this would mean contacting whoever sent the goods, asking them to collect the goods within a reasonable deadline (usually 14 days), and making the goods available. 2.2 Sending post Changes to collection times at post boxes Royal Mail have changed the way they collect from post-boxes in response to falling letter volumes. 45,000-50,000 of Royal Mail’s 115,000 post-boxes are now collected by delivery postmen and women whilst they are on their rounds rather than a dedicated collection by van.

This means that the post-boxes are emptied earlier in the day.13 Royal Mail have stated that they will ensure that there is a late-posting box within half-a-mile of each post box restricted to earlier collections, and that this is signposted clearly to customers.14 Royal Mail has also stated that the majority of post-boxes will keep a 4pm or later collection time.

Lost mail Royal Mail has a guide for customers who think their mail is lost. If a customer deems their item lost and it is not held at a Delivery Office than the customer can make a claim for a lost item on the Royal Mail website. The website states what information customers need to submit a claim, and what compensation they may be entitled to if their claim is successful. Prohibited items in the post network A number of items are prohibited from being sent through the UK postal network. Royal Mail prohibit these items in order... ...to comply with national and international regulations governing the carriage of mail, and ensure that mail in transport does not present a danger to the general public15 13 Royal Mail, Royal Mail's postbox network - your questions answered [accessed 3/7/2018] 14 House of Commons, PQ10286 15 Royal Mail, Prohibitions and restrictions in UK and international mail [last accessed 13/06/17]

12 Postal Services Items on the restricted list range from aerosols, controlled drugs, and electronic devices containing lithium batteries to hover boards. The complete list can be found in the Royal Mail leaflet on prohibited and restricted items. 2.3 Postcodes Postcodes are set and reviewed by Royal Mail. They maintain this information on the Postcode Address File (PAF). The Royal Mail states that the 1.8 million postcodes held on PAF are “...constantly updated and verified by ninety thousand postmen and women, making updated to 3,500 records each day.”16 The Royal Mail licences the information in PAF and this activity is regulated by the postal regulator Ofcom.

Details regarding licensing of PAF can be found on the Royal Mail’s PAF Licensing Centre. Ofcom conducted a review of PAF in March 2012. They made provisional conclusions which broadly maintained the status quo. Finding out what your postcode is The Royal Mail has a Postcode finder tool on its website. This allows you to type any part of an address and match it with a post code. You can use the postcode finder tool up to 50 times a day.17 Changing your postcode or address The Royal Mail agreed the PAF code of practice in 2010 which explains why and how postal addresses and postcodes may change.

This Royal Mail may occasionally they might need to change postcodes to maintain or improve the service offered by Royal Mail or to reflect customer demand. Local authorities are responsible for street names and house numbers.

The Code states that, in exceptional circumstances, Royal Mail will make changes to the last two characters of a postcode in response to customer demand. To do this, they require evidence that all those affected by the change are in favour of the changes– it is for the person requesting the change to provide this information.18 It is important to note that each case is decided on its own merits and that the overriding principle is that Royal Mail will only consider making changes if they will not materially affect the efficiency of its nationwide network of operations. This means that even if there were unanimous support for a postcode change, if Royal Mail held that the change would have a detrimental effect on the operations of its business, the request would be likely to be refused.

You can contact the address maintenance team for information or advice on changing a postcode by calling 08456 011110. 16 Royal Mail,Postcode Address File (PAF) [last accessed 3/7/18] 17 Royal Mail, Postcode FinderFind an Address [last accessed 13/06/17] 18 Royal Mail, PAF code of practice

  • 13 Commons Library Briefing, 6 July 2018 2.4 Making a complaining about postal services Complaining about Royal Mail Customers can complain to Royal Mail one of three ways.
  • Use the online form
  • Call the customer services team on 03457 740 740
  • Write to Royal Mail at Royal Mail customer services, Free post If the customer services team is unable to resolve the complaint Royal Mail escalates the complaint to the ‘Escalated Customer Resolution Team’.19 Customers who are still unhappy with the way in which their complaint has been handled can contact the Postal Review Panel. The Postal Review Panel is a ‘ring fenced team’ within Royal Mail but outside the customer services team and is empowered to impartially review complaints.20 The Postal Review Panel can be contacted by an online form or at their address: The Postal Review Panel, FREEPOST.

Customers who are still unsatisfied after complaining to the Postal Review Panel can contact POSTRS (Postal Redress Service). Complaints to POSTRS must be made within 12 months of Royal Mail being unable to resolve the complaint.21 Customers can download and upload their complaint form on the POSTRS website. Citizens Advice advises that those who have not received an initial response by Royal Mail within 90 days should take their complaint direct to POSTRS.22 Complaining about company other than Royal Mail Complaints to another postal operator other than Royal Mail must follow the individual company’s complaints procedure.

Ofcom requires postal operators to have a complaints procedure and for that procedure to be clearly published on the operators website.23 Many courier companies are not a member of the POSTRS and therefore POSTRS cannot arbitrate complaints to these companies. The following are current members of POSTRS:  CMS Network (London) Ltd  Royal Mail Group  Secured Mail 19 Royal Mail, How do I make a complaint [last accessed 3/8/18] 20 Royal Mail, Postal Review Panel, [last accessed 13/06/17] 21 POSTRS, Submit a claim [last accessed 13/06/17] 22 Citizens Advice, Complain about Royal Mail or a Post Office [last accessed 13/06/17] 23 Ofcom, Complain about postal services [last accessed 05/07/17] Information on the number of complaints received by the Royal Mail is in Section 8 of this briefing paper.

  • 14 Postal Services  The Mailing House Group Further information on complaining about Postal Services
  • Royal Mail: How do I make a complaint
  • Citizens Advice: ─ Complain about Royal Mail or a Post Office ─ Complaining about a courier company
  • Ofcom: Complain about postal services
  • POSTRS: Frequently Asked Questions
15 Commons Library Briefing, 6 July 2018 3. Regulation of postal services The Postal Services Act 2011 transferred regulatory powers of postal services from Postcomm to Ofcom. Ofcom must carry out its functions in a way which will secure the provision of the universal postal service. They also have a secondary obligation to promote competition in the postal services market.24 3.1 The universal postal service Royal Mail is the UK’s universal Postal Service provider. The universal postal services is essentially the ‘one price goes anywhere’ principle of affordable postal service to all UK addresses. It requires Royal Mail (the universal service provider) to deliver to every address in the UK, six days a week, at a standard price. The statutory basis for the universal service is set out in the Postal Services Act 2011. The Postal Services Act 2011 required Ofcom to make a ‘Universal Postal Services Order’. The Universal Services Order defines what should be considered part of the universal postal service and sets standards which Royal Mail, as the universal service provider, must comply. 25 The Postal Services Act stipulated that this definition must contain the following minimum standards:
  • at least one delivery of letters every Monday to Saturday and at least one delivery of other postal packets every Monday to Friday;
  • at least one collection of letters and other postal packets every Monday to Saturday;
  • a service of conveying postal packets from one place to another by post at affordable, geographically uniform prices throughout the UK;
  • a registered item service at affordable, geographically uniform prices throughout the UK.
  • an insured items service at affordable prices
  • free end-to-end services for legislative petitions and certain services to blind and partially sighted people26 Ofcom made the Universal Postal Services Order in March 2012. This order was then modified in December 2013 – a consolidated version of the Order is available that includes the changes. The Order provides more detail about the minimum requirements set out in the Postal Services Act 2011 and includes some additional requirements upon 24 Postal Services Act 2011 25 Ofcom, Universal postal service order, 12 July 2013 26 Postal Services Act 2011 Section 31

16 Postal Services Royal Mail as the universal service provider, for example to provide redirection services. 27 Ofcom review of the Universal Postal Service Ofcom has been monitoring Royal Mail’s performance, since the introduction of the Universal Postal Services Order. Ofcom published its review of Royal Mail regulation in March 2017. Ofcom’s key findings were that Royal Mail’s performance has improved and that consumers are largely happy with postal services. On this basis Ofcom announced that they would “retain the current framework for postal regulation – which had been due to expire in 2019 – until 2022.”28 Regulatory conditions placed upon Royal Mail Royal Mail has three broad types of regulatory conditions imposed upon it by Ofcom.

  • Designated universal service provider conditions; which require Royal Mail to provide the universal postal service.
  • Universal service provider access conditions; which require Royal Mail to give access to its postal network to other postal operators and report these services separately to Ofcom. This facilitates ‘access competition’ whereby a postal operator other than Royal Mail collects and sorts mail before handing over to Royal Mail for final delivery.
  • Universal service provider accounting conditions; which require Royal Mail to comply with the accounting conditions set by Ofcom.29 Royal Mail is also required to comply with regulations Ofcom imposes upon all postal operators.

3.2 Regulatory conditions placed on other postal operators Operators may provide postal services without the need for any licence or prior authorisation by Ofcom. Any postal operator must have a complaints procedure that is “transparent, simple and inexpensive.30 Postal operators delivering letters should follow a code for misdirected or mis-collected mail.31 Postal operators delivering letters should take reasonable steps to minimise the risk of the loss, theft, damage or interference of post. In order to do this postal operators delivering mail should implement and adhere to appropriate policies and procedures.32 27 Statutory Instruments 2013 No.3108 Postal Services 28 Ofcom, Ofcom concludes review of Royal Mail regulation, [last accessed 19/06/17] 29 Ofcom, Conditions imposed on postal operators [last accessed 19/06/17] 30 Ofcom, Conditions imposed on postal operators; Ofcom Consumer protection condition 3 31 Ofcom, CONSUMER PROTECTION CONDITION 2: POSTAL COMMON OPERATIONAL PROCEDURES, p5 32 Ofcom, Essential Condition 1.2 E1.3.2 to E1.3.5, p4-7

17 Commons Library Briefing, 6 July 2018 4. The letters market Ofcom designated Royal Mail as the universal service provider in March 2012.33 As the universal service provider Royal Mail is the largest operator in the letter market. The UK letters market is fully open to competition. There are two main forms of competition in the letters market, end-to-end competition and access competition. End-to-end competition is where a postal operator undertakes the entire process of collecting, sorting and delivering mail. Access competition is where an operator other than Royal Mail collects and sorts the letters but then hands over final delivery to Royal Mail.

4.1 Trends in the letters market As the chart below shows, the volume of letters delivered has been in decline since the mid-2000s.

The decline in the total volume of letters has been marked in recent years – they fell by around 20% in the five years to 2016/17.34 Future trends in letter volumes In 2013 Royal Mail commissioned PWC to provide an independent view of the long-term outlook for UK mail volumes. PWC made projections up to 2023 for the letters market and predicted that its decline would continue. PWC predicted that the total of volume of letters would fall a 33 Ofcom, Securing universal postal service, 2 December 2014 34 Ofcom, Annual monitoring update on the postal market reports: 2011-12 to 2016- 17 5 10 15 20 25 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 UK Total Letter Volume Billions Source: Postal museum historical statistics, Ofcom annual monitoring update on the postal market Notes: Data for the year 2001 is not available, figure here assumes a decline of 1.6% from 2000 levels as estimated by the Postal Museum.

Data from 2011 onwards comes from Ofcom reports and reflects the total volume of letters in the postal market rather than just Royal Mail deliveries.

18 Postal Services further 4.3 billion to 8.3 billion by 2023. They attributed the decline to growth in e-substitutions, low GDP growth and price rises.35 Trends in type of operators There has been a slow growth in the percentage of letters being handled by access operators; those operators who collect and sort letters but hand over final delivery to Royal Mail. Access operators now handle over 60% of UK letter volumes.

Most access mail is bulk mail, for example an access operator may have a contract with a large company to collect all its mail, sort it and hand it to Royal Mail for delivery.

4.2 End-to-end market competition Competition in the end-to-end market is very small. Royal Mail delivers the majority of end-to-end deliveries with other end-to-end operators delivering 0.1% of mail in 2016/17.36 There was a growth in other end-to-end operators between 2011 and 2015. This can be attributed to the arrival of Whistl (formally known as TNT Post) as a competitor to Royal Mail. Non Royal Mail operators (mainly Whistl) increased their delivery volume from 8 million letters to 170 million, reaching a peak of 1.32% of all letter deliveries in 2014/15. This was the first time operators other than Royal Mail delivered a greater than 1% share by volume of addressed letter mail end-to-end.37 Whistl operated in the end-to-end market between 2012 and 2015 in London, Liverpool and Manchester.

Whistl primarily dealt in post 35 PWC, 15 July 2013, The outlook for UK mail volumes to 2023 36 Ofcom, Annual monitoring update on the postal market, Financial year 2016-2017, p34 37 Ofcom, Annual monitoring update on the postal market, Financial year 2014-2015, p37 0% 20% 40% 60% 80% 100% 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Royal Mail end-to-end Royal Mail access Other end-to-end Pecentage of addressed letters by type of operator Source: Ofcom, Annual monitoring update on the postal market 2011/12-2016/17

19 Commons Library Briefing, 6 July 2018 collected directly from businesses and parts of the public sector and delivered to customers. Whistl withdrew from the end-to-end market in 2015 when it failed to attract private capital to fund growth.38 Royal Mail submitted a regulatory submission to Ofcom in June 2014 stating that direct competition in the end-to-end market by Whistl was a threat to the universal postal service. Royal Mail stated that direct competition in lucrative urban markets undermined Royal Mail’s ability to subsidise less profitable rural deliveries.39 In December 2014 Ofcom published its Review of end-to-end competition in the postal sector.

In this document Ofcom concluded that they did not consider end-to-end competitors as posing a threat to the financial sustainability of the universal service. Therefore Ofcom did not feel it necessary to impose regulatory conditions on end-to-end competitors to Royal Mail. 40 The withdrawal of Whistl from the end-to-end market saw a decline in the market share of non Royal Mail postal operators in end-to-end deliveries from the 1.32% peak in 2014/15 to 0.12% in 2016/17. 38 Plimmer, Gill, 15 May 2015, 2,000 jobs at risk as Whistl halts ‘end-to-end’ delivery service, Financial Times 39 Royal Mail, 20 June 2014, Direct Delivery: A Threat to the Universal Postal Service, Regulatory Submission to Ofcom 40 Ofcom, 02 December 2014, Review of end-to-end competition in the postal sector

20 Postal Services 5. Stamp prices The current price of a 1st Class stamp is 67p, and a 2nd Class stamp is 58p. Both stamps increased in price by two pence in March 2018. Royal Mail stated that they were raising the price in order to help maintain the sustainability of the universal service.41 Royal Mail have had the freedom to set the price of their stamps since 2012, though the price of a 2nd Class stamp is still subject to price cap set by Ofcom. 42 Soon after Royal Mail were given freedom in setting stamp prices, the face value of 1st Class and 2nd Class stamps rose sharply – since then rises have been more gradual.

Historic stamp prices Historically the price of a stamp has varied. The below graphs show stamp prices back to 1839 in 2018 prices.43 The charts show that stamp prices are near an historic high. In the immediate post war era the price of a stamp fell from the equivalent of 40p to 22p. Between 1965 and the early nineties the price rose back up to the equivalent of 40p. The price of a stamp was fairly stable in the nineties and the first decade of the 21st Century. Since 2010 the price of a stamp has risen in real terms from the equivalent of 45p to 67p in 2018.

41 Royal Mail, First and second class stamp prices, 16 February 2018 42 2nd Class stamps must be capped at the equivalent of 55p in 2015 prices, in line with inflation.

Ofcom, Regulated prices [accessed 6/7/18[ 43 Figures have been adjusted using CPI measure of inflation. 2018 measure taken from March 2018 whilst previous years refer to April. 1st Class 2nd Class 2009/10 39 30 2010/11 41 32 2011/12 46 36 2012/13 60 50 2013/14 60 50 2014/15 62 53 2015/16 63 54 2016/17 64 55 2017/18 65 56 2018/19 67 58 % change since 2009/2010 72% 93% Source: Ofcom Annual monitoring update on the postal market 2011/12- 2015/16 & Royal Mail: First and Second Class Stamp Prices.

Face value of standard stamps Pence 10 20 30 40 50 60 70 2009/10 2012/13 2015/16 2018/19 1st Class 2nd Class

21 Commons Library Briefing, 6 July 2018 20 40 60 80 1839 1859 1879 1899 1919 1939 1959 1979 1999 Price of a 1st Class Stamp Pence, 2018 prices 20 40 60 80 1945 1955 1965 1975 1985 1995 2005 2015 Source: Postal Museum, Historical statistics, Ofcom Annual monitoring update on the postal market Notes: Face value prices prior to decimalisation in 1971 have been converted to ‘new money’ values the exchange rate in 1971 of 1 Shilling to 5p

22 Postal Services 6.

The parcels market The parcels market has seen growth in recent years. This can be largely attributed to the popularity of online retail. In 2016/17, 2.1 billion parcels were sent in the UK – up 7% on the previous year. Associated revenue was £8.7 billion – up 3%.44 6.1 Competition in the parcels market The parcels market, and in particular the business to consumer delivery market, is extremely competitive, in part due to the strong growth in the UK online retail market. In their ‘Market overview 2017’ Royal Mail highlighted that the UK parcels market is growing by around four percent a year.

45 Strong competition has contributed to falling per-parcel revenue on average for operators. Ofcom reported that in 2016/17 the average unit revenue for a parcel decreased by 4% over the year, from £4.24 to £4.07.46 There are two major market trends which have increased market competition in recent years; the growth in retailers bringing deliveries ‘in house’ and the growth in ‘click and collect’ services. In 2014 Amazon launched its in house delivery service.47 It was reported that within a month Amazon had captured 3% of the UK parcel market.48 The move to bring deliveries ‘in house’ by retailers has the effect of leaving less economically viable deliveries to parcel carriers.49 ‘Click and collect’ services, whereby the courier delivers the parcel to an access point or shop for the consumer to collect, has seen growth in recent years.

Many postal operators, including Royal Mail, are developing their ‘click and collect’ services. Though ‘click and collect’ offers growth opportunities for postal operators it does result in delivery direct to consumers homes of businesses being bypassed. Royal Mail estimate that there is roughly 25% overcapacity in the UK parcels market (on average, through the year). Parcel carriers are continuing to invest in new capacity, resulting in increased pressure on prices. Traditional retailers are improving their in-store collection and delivery services.50 44 Ofcom, Annual monitoring update on the postal market 2016-17 – see Page 38 for more on the definition of these numbers and how they were collected.

45 Royal Mail, Annual Report 2017/18 (Market Overview) 46 Ofcom, Annual monitoring update on the postal market 2016-17, p43 47 Plimmer, Gill, 15 October 2014 Amazon launches same-day delivery service in the UK, Financial Times 48 Plimmer, Gill, 19 November 2015 Royal Mail blames Amazon network for fall in profits, Financial Times 49 Ofcom, Annual monitoring update on the postal market 2015-16, p33 50 Royal Mail, Annual Report 2017/18 (Market Overview)

23 Commons Library Briefing, 6 July 2018 6.2 Consumer problems in the UK parcels market There has been concern about the quality of service of parcel deliveries, particular for those shopping online. The Department of Business Innovation and Skills (now Department of Business, Energy and Industrial Strategy) published a Statement of principles for parcel deliveries in 2014. This document is not a code of practice or a form of regulation but offers a set of principles which retailers can voluntarily follow.

The document includes six principles which can be summarised as encouraging retailers and delivery companies provide the consumer with full information about the delivery, and encouraging retailers and delivery companied to provide a consistent service across the UK (both in terms of price and speed of delivery). Citizens Advice (the consumer watchdog) published research in June 2017 which indicated that two thirds of online shoppers had suffered problems with their parcel delivery. Their research showed:
  • 38% of people have had a parcel arrive late - including more than one in ten (16%) who paid for premium delivery service.
  • More than 1 in 10 have received damaged items.
  • More than 1 in 5 had a parcel go missing
  • 28% had a parcel left in an unsecure location
  • 28% were at home but had a note through the door saying the parcel couldn’t be delivered.51 Citizens Advice made three recommendations for further investigation. They recommended that:
  • Failed deliveries could be reduced by investing in community pickup points, and requiring new builds to have a parcel locker.
  • A voluntary certification scheme to indicate which companies adopt and apply the Statement of principles for parcel deliveries could be created.

There could be a case for stronger regulatory intervention. Parcel Surcharges There has been concern that prices for parcel deliveries in the Highlands and Islands of Scotland and in Northern Ireland are unfairly high. Citizens Advice Scotland and the Consumer Council for Northern Ireland have produced a number of reports regarding parcel surcharging and longer waits for parcels in the Highlands and Northern Ireland. 52 The latest report published by Citizens Advice Scotland is entitled The Postcode Penalty: Delivering Solutions.

51 Citizens Advice Parcel Delivery: Delivery services in the online shopping market, June 2017 52 Ofcom Annual monitoring update on the postal market 2015-16

24 Postal Services In this report Citizens Advice Scotland reported that on average they delivery charge was at least 30% higher for customers in the Highlands and around 40% higher for those in the Scottish Islands and Northern Ireland compared to the rest of the UK. 53 The table below, taken from the Citizen’s Advice Scotland report, shows the average delivery price for different areas tested. Source: Citizens Advice Scotland, The Postcode Penalty: Delivering Solutions. p6 Explanations for parcel surcharges Ofcom investigated parcel surcharging in 2015/16 and 2016/17. They gathered data from a number of postal operators (DPD, Hermes, Royal Mail, Parcelforce) and found that there was some correlation between the areas where at least one provider used of a third party operator to deliver and the areas where operators were applying surcharges. Ofcom found that operators were paying varying prices per parcel to third party groups, from £2.32 to £4.56 per parcel.54 However Ofcom concluded that in most cases the surcharge applied to bulk retail customers was greater than the cost incurred by the parcel operator from the third party company. Ofcom stated that it was... “...therefore not clear that costs incurred in reliance on third parties and transport companies fully account for the surcharges applied by parcel operators to their bulk retail customers. However, we note that it is likely that other factors beyond a reliance on third parties and air and ferry transport companies also contribute to additional costs in certain areas”55 Parcel operators who gave evidence to Ofcom highlighted three main factors which determine their decision to introduce parcel surcharges:
  • An area has a low ‘drop density’. Drop density refers to the frequency of deliveries in one area.

An area requires the transportation over water. 53 Citizens Advice Scotland The Postcode Penalty: Delivering Solutions p4 54 Ofcom, Annual monitoring update on the postal market 2016-17, p52 55 Ofcom, Annual monitoring update on the postal market 2016-17, p52

  • 25 Commons Library Briefing, 6 July 2018
  • An area is a long distance from the nearest network hub, where the operator sorts and distributes parcels. Citizens Advice Scotland said that they... ...did not find any evidence that higher prices are the result of systematic profiteering, but it is not fully accurate to say that prices merely represent higher costs incurred. Rather, the price difference is the result of national delivery operators deciding to cross-subsidise costs over some areas, but not others.57 Citizens Advice Scotland recommendations Citizens Advice Scotland have recommended that public and private sectors co-operate to help reduce costs. They suggest “pick up and drop off” locations like parcel lockers, convenience stores and post offices can help reduce costs for delivery companies. They have suggested that the extension of Scotland’s network of “pick-up drop off” locations should be explored.58 Citizens Advice Scotland have called upon the Government to improve education about Consumer Contracts Regulations, increase the voluntary uptake of the Statement of principles on parcel deliveries, and consider revising key postal regulation to “take account of the increased importance of parcels in the modern world”.59 Government position A Westminster Hall debate on this issue took place on the 20th December 2017 in which (then) Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy Margot James responded to concerns over parcel surcharging. Margot James said: The Government’s view is that regulating prices, or intervening in how businesses and retailers establish their pricing structures, would not overall be in consumers’ best interests, because they are commercial matters. The market is highly competitive and innovative, with many different types of companies being selected 56 House of Commons Scottish Affairs Committee, one off evidence session on the 28th February 2018, see also Tamebay, Scottish Affairs Committee examines excessive courier surcharges, 2 March 2018 57 Citizens Advice Scotland The Postcode Penalty: The Distance Travelled p6 58 Ibid p 6 and 7 59 Citizens Advice Scotland The Postcode Penalty: The Distance Travelled p6 Scottish Affairs Committee Inquiry The House of Commons Scottish Affairs Committee looked into Delivery charges in Scotland, undertaking a one off evidence session on the 28th February 2018. In this session they took evidence from both online retailers and courier companies. Online retailers including eBay, Amazon and Argos all said they had adopted policies to reduce or eliminate surcharges. Amazon and eBay said they would intervene if consumers were to complain about sellers in their marketplace charging extra delivery fees.

Couriers giving evidence (DPD, JBT and Menzies couriers) argued that where they charged higher prices this was proportionate given the extra costs associated with delivering to remote areas. It was noted by a number of those giving evidence that small online sellers and retailers do not have access to the rates available to larger companies sending more items in bulk.56

26 Postal Services by online retailers to provide delivery solutions. That has given rise to new ways of receiving packages, such as collecting them from more secure and more convenient locations and post offices.

The issues involve a three-way relationship between consumers, online retailers and delivery companies. As Members stated in the debate, the postal sector regulator, Ofcom, has just concluded a two-year study of parcel delivery surcharges that reflect the cost to operators and go beyond them. It found that some retailers apply a surcharge to consumers for delivery to certain locations, while others do not. It is therefore not clear that surcharges applied by parcel operators to online retailers are automatically passed on to consumers in all cases. The Government will consult Ofcom further on what might be done to improve competition.

As highlighted by my hon. Friend the Member for Moray, the Consumer Protection Partnership, which brings together enforcement bodies and advice providers and is chaired by my Department, recognises that this is a priority that requires further work. 60 Advertising Standards Agency enforcement notice On the 12 April 2018 the Advertising Standards Agency (ASA) announced an Enforcement Notice on Advertised Delivery Restrictions and Surcharges. The enforcement notice states that advertisers must not make misleading claims about “UK delivery” if the charge or service does not apply across the UK, including the Scottish Highlands and Islands and Northern Ireland (but not Crown Dependencies).

The ASA states that if there are delivery restrictions or exclusions advertisers need to make this clear to the consumer. Advertisers must make sure that their ads comply with this enforcement notice by the 31st May 2018, after which the ASA compliance team will take action to ensure there is a level playing field.61 60 House of Commons, Delivery Charges (Scotland) 20th December 2017, Column 447WH 61 Advertising Standards Agency, Advertised delivery restrictions and surcharges, 12th April 2018

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