Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Business
Nils Pratley

With strikes behind them, get ready for Royal Mail’s next battles

Royal Mail vans
After a year of strife and strikes, a deal on pay and working practices has been agreed. Photograph: Adam Vaughan/EPA

“We have grounds for optimism,” said Keith Williams, chair of Royal Mail’s parent company, adopting a tone that hasn’t been heard from the boardroom in a while. What’s more, you can see what he means. While a full-year “adjusted” operating loss of £419m at Royal Mail is nobody’s idea of a comfortable outcome, the number was no worse than advertised in January, which is something.

Meanwhile, after a year of strife and strikes, a deal on pay and working practices has been agreed with the leadership of the Communication Workers Union. The union’s members have yet to vote on the proposal – and some on social media sound less than enthused – but one assumes it will get over the line. The looming exit of the unpopular Royal Mail boss, Simon Thompson, may even be good for a few votes.

Plain sailing from here, then? Not quite. Royal Mail still has to secure the operational gains from the deal with the CWU, and targeted savings have had a habit of not materialising fully. The planned return to operating profit, ignoring voluntary redundancy costs, in the 2024-25 financial year is not secure yet. But, yes, the position definitely looks better than it was two months ago.

Do not, though, overlook two other factors that were subplots to the industrial dispute and have the potential to turn explosive in time. Neither has disappeared.

First, Williams made clear on Thursday that the idea of breaking up International Distributions Services (IDS), as the parent company is now known, is still on the table. In other words, GLS, the successful Amsterdam-based international parcels operator, could still be demerged to leave Royal Mail as a standalone company.

IDS could pitch a demerger as a plain-vanilla proposal since companies demerge all the time and GLS is Dutch, but, in practice, life probably would not be so straightforward. Political aggro in the UK would be the way to bet. Darren Jones, the Labour chair of the business select committee, was on the radio only this week sounding unhappy about the degree of internal separation and limits on cross-subsidy from GLS (profit-making to the tune of £348m last year) to Royal Mail that has already taken place. After a demerger, note, GLS would be free to compete in the UK against Royal Mail and its Parcelforce unit.

It’s not clear what IDS would regard as a trigger for a spin-off (the persistence of a mediocre share price?), but until it makes its intentions clear, it’s an issue that will bubble in the background.

The other potential battle is one where the group definitely knows what it wants: it thinks the Universal Service Obligation (USO), the requirement on Royal Mail to deliver letters six days a week to every address in the land if necessary, needs reform.

And it surely has a point. The USO, in its current form, was designed in an era before the volume of letters plunged, and many other European countries have watered down their equivalent regimes. About 97% of users in Ofcom’s last survey said their postal needs would be met by a five-day-a-week letter service (Saturday would be the day dropped). And the savings, last estimated by the regulator to be £125m-£225m, might be usefully recycled in strengthening the parcel-related provisions of the USO.

The company’s problem, though, is that only parliament can change the USO, and the government has said it has no current plans, while Labour has said next to nothing. Royal Mail is also poorly placed to plead for relief while its reported delivery standards, now being investigated by Ofcom, are so far short of the mark. Sooner or later, though, the USO issue will come centre stage. Royal Mail’s corporate life is not about to become dull.

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.