In a summer when picket lines have become a familiar sight, the casual observer could be forgiven for mistaking Friday’s strike at Royal Mail as a cookie-cutter pay dispute. In fact, the strike, the first of four, represents the culmination of years of simmering tensions between executives and its main union. If Royal Mail’s board takes the nuclear option, it could result in the break up of a 500-year-old postal service still struggling to find its feet nearly a decade after privatisation.
The corporate drama intensified on Thursday when the government said it would step in to review the billionaire Daniel Křetínský’s stake in the company. The investor, known as the Czech Sphinx owing to his inscrutable public persona, hopes to raise his Vesa Equity Investment’s shareholding in Royal Mail from 22% to above 25%, sparking speculation he may launch a full takeover bid.
The union dispute provides a pugnacious backdrop for the shareholder manoeuvres. In the red (and yellow) corner is Keith Williams, Royal Mail’s non-executive chair, who says his clashes with unions while running British Airways readied him for a role he has held since 2019. In the opposite corner is the Communication Workers Union, self-described as the “strongest union in the UK”. With an unassuming presence, casually dressed in light brown slacks and trainers, Williams cuts an unlikely figure for a board room union-buster. But he does not mince his words. His message to the company’s 115,000 employees is simple: “Without modernisation we die.”
Royal Mail employees began 24 hours of strike action at 4am on Friday, and will strike again on Wednesday, before further action on 8-9 September. It has been estimated the four days of strikes will cost Royal Mail £100m, with each day worth £10m and £15m in lost letter and parcel revenue respectively. The knock-on effect for businesses will be notable too: eBay has informed buyers that Royal Mail and Parcelforce deliveries may be delayed and advised sellers to switch couriers.
Photograph: John Davidson Photos/Alamy
Royal Mail workers have been offered a 2% pay rise, backdated to April, and further benefits equivalent to a 3.5% increase if they agree to changes in working practices to support the growth of its parcels business, says the company. Staff stand opposed to these changes and argue they should receive a pay increase in line with inflation with no strings attached after keeping deliveries to locked-down Britons flowing during the Covid-19 pandemic.
Williams response: “The amount of change you could put through this business is absolutely enormous. But they want to do a no-strings pay deal and we can’t agree to that. We have no choice.”
With the growth in online shopping, the business has changed dramatically since 2013. Back then, Royal Mail delivered 17bn letters a year, but that number has fallen to 7.8bn. Parcels have gone the other way, reaching 1.7bn, and Royal Mail has held on to a 40% share of the UK parcels market.
To remain competitive, management want to invest in a series of “super hubs”, such as the massive sorting centre opened in Warrington this summer that can process 800,000 parcels a day. The hubs are designed to process orders made online in the evening, for delivery within 24 hours. They can automate the scanning and sorting processes, which means fewer staff are needed at a smaller number of local delivery offices. Unions representing staff at those 1,200 local offices are concerned.
Williams has taken the unusual step of threatening to break up the group if the CWU blocks reorganisation. Under this doomsday scenario, Royal Mail would be split off from its international arm, GLS, which has provided the engine room for profits in recent years. “We will look for significant operational change or split the company,” says Williams. It has been estimated GLS is worth £4bn as a standalone company, but on the London Stock Exchange the entire group is valued at just £2.5bn excluding debts by investors, suggesting Royal Mail has a negative value.
The UK rump would be left with mounting losses, and a costly universal service obligation to deliver parcels and letters to the most remote parts of the UK, leaving it hamstrung against competitors, the largest of which, such as Amazon and Evri – formerly Hermes – are foreign owned.
Executives have said the success of GLS should not be used to fund Royal Mail, unless reforms are agreed with unions. But is it not practical to use the benefits of operating as a group to have stronger divisions support others?
Williams says: “Even if you did cross-subsidise, if you don’t get the change in the business, what’s the point? This is a dispute about the future of the company. It’s about can you change into being a parcels business. There are a lot of strikes across the country right now, but what I want to be clear about is this one is different.”
This is not his first head-to-head with the CWU since joining the company. In late 2020, after ousting the chief executive Rico Back – who failed to cultivate good relations with the union – Williams ended a two-year dispute with a pay and hours deal in return for plans to automate processes and offer longer delivery windows. However, despite implementing the pay rise, executives argue they have not seen the change they demanded at its delivery offices.
“The union have to come along primarily to the idea of change and pay which recognises that, rather than the other way round. Every other agreement we did we have paid the pay and never got the change,” he says.
Williams says he wants to preserve what has made Royal Mail part of the fabric of British life: posties in shorts whistling up garden paths, Postman Pat-style vans climbing country roads and cheery morning retorts. However, competition for parcel delivery has intensified since the start of the pandemic and rivals including Amazon and DPD have beefed up their services, delivering later until the evening and weekends.
Williams wants Royal Mail to match these services. “The union says it won’t accept hours later into the night but we’re up against competition that delivers until 10pm,” he says.
“We pay 40% more than the market. Unless we become more efficient we will run into trouble. This is not a race to the bottom. But we’ve got to be as or more efficient than other companies. We are not that today.”
He adds: “Since privatisation the union effectively won 26% pay increases for its membership. Nurses have had 14%. That’s not bad.”
Dave Ward, the CWU general secretary, said this week: “Postal workers in this country are being pushed to the edge, but there can be no doubt that they will fight the planned erosion of their workplace rights with determination. Right now, this country is growing sick of a business elite who are completely out of touch with ordinary people and their lives.”
Friday’s strike is the opening salvo in a dispute that could reshape a British institution and – if it is not resolved quickly – threaten deliveries this Christmas.
