Confidential documents leaked to The Mail on Sunday reveal that the postal service has stopped giving priority to first-class letters and packages posted on Saturdays.

The move means that the company has already made an estimated £4 million from customers needlessly putting first-class stamps on post that has been treated the same as second class.

Second-rate: Letters posted first-class on a Saturday are being handled in the same way as second-class mail, according to leaked documents

Since the changes were secretly introduced in July, about 40 million 46p first-class stamps have been used when a 36p second-class stamp would have been just as fast.

On top of this, thousands of businesses have needlessly paid extra to ensure their mail is delivered as promptly as possible.

The changes were detailed in an eight-page document circulated to managers in mail centres and delivery offices, which said: ‘Second-class traffic posted Friday and Saturday will be processed along with first-class posted Saturday, using Saturday first-class labels.’

Last night MPs and business groups condemned the development.
Labour’s Shadow Business Secretary Chuka Umunna said: ‘The Royal Mail’s first-class service has always been sold as being quicker than sending mail by second class.

So if there is, in fact, no benefit in sending mail first-class at a particular point in the week, then that will inevitably undermine the trust which people have in the Royal Mail, which is a very serious matter. These are serious allegations, not least because of the potential legal ramifications.’

Lawyers said Royal Mail could be laying itself open to legal action over its change of policy.

Serious concern: Shadow Business Secretary Chuka Umunna

David Gordon, a commercial lawyer with DG Law in London, said: ‘This could amount to misrepresentation by the Royal Mail, and it might spark claims for compensation if people are sufficiently disadvantaged by it.’

The new policy was disclosed in a document entitled Under The Roof Changes, which explains measures aimed at saving the lossmaking part of the business millions of pounds by streamlining its weekend deliveries.

It states: ‘We want to move to a standardised way of dispatching our second-class Saturday-posted traffic and to also simplify and reduce cost in our network by removing under-utilised services.

‘Moving the traffic forward to a Saturday dispatch and ceasing Monday’s second-class dispatch is the most viable and cost-effective option that also protects quality.’

The Royal Mail said that while an average of 62 million letters were posted every weekday, that number fell to about 30 million on a Saturday.

It confirmed the vast majority of post on Saturdays was business bulk mail but it refused to confirm how many stamped letters were posted.

But industry experts estimated that about seven million letters with stamps were posted on Saturdays, of which up to three million were first class – generating the £4 million of unnecessary overpayment since July. Over a year, more than £10 million could be ‘wasted’ by customers.

Industry insiders believe it is not just private mail users who have been affected by the change.

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According to the Forum of Private Business, thousands of small firms spend extra on first-class post to ensure their letters would be delivered first thing on Monday, unaware that second-class mail was arriving at the same time.

A spokesman said: ‘Whether by error or design, Royal Mail customers have been cheated. Many firms are likely to have paid unnecessarily higher postal prices.’

Larger companies that negotiate a special business rate with the Royal Mail, and so do not use either the also suffer a knock-on effect because their Saturday post could end up at the back of a lengthening queue of other mail. It is estimated that because of the changes, more than one million extra letters will have to be delivered on a Monday.

The Federation of Small Businesses said: ‘This is of concern. Weare worried these changes could lead to delays in the delivery of letters.’

Dave Ward, deputy general secretary of the Communication Workers Union, said: ‘We’re concerned about what effect this could have on jobs and services. This could be the tip of the iceberg for consumers.

Spot the difference: Consumers have been needlessly buying first-class stamps when posting mail on Saturdays

Making no distinction between first and second-class mail at the weekend gives the wrong impression.’

The Royal Mail last night admitted that all first-class and second-class mail was now handled together on Saturday, but insisted it had not altered its policies.

A source said there had been no public announcement because the Royal Mail wanted to retain the distinction between first and second class post, even though they were treated the same at weekends.

A spokesman said: ‘The UK is one of the few countries in Europe that provides a six-day postal service.

Secret service: The Royal mail could now face compensation payouts for misrepresentation

That service is expensive to run and it has been losing significant amounts of money for some time.

‘To help reduce the losses, Royal Mail is no longer running a dedicated transport network for the small proportion of second-class mail posted on a Saturday.’ He disputed the £4 million losses figure, but said he could not provide an accurate estimate.

The Royal Mail has been able to merge its first and second-class operation on Saturdays because of spare capacity created by dramatic falls in mail volumes.

In 2005, it delivered about 80 million letters a day, but this has now slumped to 62 million a day as people increasingly communicate by email. Consumer mail accounts for just 12 per cent of the company’s business.

The group made a £39 million profit last year, ignoring ‘modernisation costs’, but the division dealing with letters, parcels and international business plunged into the red, losing £120 million compared with a £20 million profit in 2009.

Postal regulator Ofcom refused to comment on the changes, saying it was ‘an operational matter’.

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Billy Hayes, CWU general secretary, said: “These appear to be major deregulatory steps from Ofcom and we broadly welcome this signal of a radically different approach to regulation which has finally been recognised as a failure.

“We do have reservations over the impact on consumers, and we’ll be looking closely at the details of the proposals before making our submission to the consultation. The principle of a universal service with affordable and equal access to everyone is hugely important and we want to see it robustly maintained.”

Dave Ward, CWU deputy general secretary, said: “It’s positive to see the new regulator has taken on board the serious criticisms of previous regulatory failure. It was failures with regulation which put Royal Mail and the universal service at risk in the first place.

“It’s significant that Ofcom has recognised that price controls have not been effective and we welcome the removal of price controls on bulk mail as this should allow Royal Mail to operate in a fairer competitive environment.

“While we welcome greater flexibility for Royal Mail to set prices – stamp prices have been held artificially low for many years – we do have concerns about affordability for consumers. We also feel that the proposals on access headroom prices for competitor mail does not go far enough, but we’ll study this in more detail over the coming weeks.”

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2. Keep The Post Public
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UNITED KINGDOM – STATE AID MEASURES TO ROYAL MAIL

(SA 31479)

Introduction

1.    The Communication Workers Union (CWU) represents approximately 215,000 employees in the postal, telecoms and related industries in the UK and is the recognised union in Royal Mail for all non-management grades.

2.    The CWU welcomes the opportunity to contribute to the European Commission’s investigation into the UK government’s application to grant state aid measures to Royal Mail announced in the Official Journal of the European Union on 9 September 2011.

3.    Royal Mail and its employees have endured a challenging time in recent years. The company has faced an unprecedented set of circumstances: premature liberalisation, damaging regulation, the legacy of chronic underinvestment, a massive pension deficit, a declining market and a modernisation programme requiring unprecedented levels of change for workers. This has contributed to uncertainty for the company, its customers and the working lives of its employees.

4.    Moreover, uncertainty has stemmed from a political process which saw two postal services bills in two years, a stalling of the regulatory process and continues now with the application for state aid and the potential privatisation of Royal Mail.

5.    The CWU recognises Royal Mail’s financial position is very serious and is concerned that without intervention the company will be unable to continue to provide the universal postal service in the UK.

6.    The UK government is proposing a number of measures which will aid Royal Mail financially and has applied to the European Commission for state aid clearance. These include:

·         Relief of the historic pension deficit

·         Writing off up to £1.7bn of existing loans

·         Creation of a £200m rolling credit facility

7.    Action to relieve Royal Mail of its pension deficit has broad support among stakeholders and is the policy of both the current coalition government and of the last Labour government. The CWU supports government intervention on the pension deficit and on the refinancing of Royal Mail’s debts. This intervention is necessary to secure the company’s future; the need for it stems from the legacy of government policy on regulation and on pensions. The UK government has a duty now to intervene and its action should be supported by the Commission. However, it is vital that the Commission recognises that assistance should not bring with it interventions or conditions which may destabilise the balance that has been reached between stakeholders and make Royal Mail’s already problematic restructuring plans more difficult to achieve.

8.    The union remains strongly opposed to plans to privatise Royal Mail; we do not believe privatisation is necessary for the successful modernisation of the company and believe it would be damaging to Royal Mail’s future. Government intervention on pensions and the granting of European state aid to facilitate this should not be contingent on the privatisation of the company.

Royal Mail’s financial position

9.    The CWU welcomes the Commission’s acknowledgement that Royal Mail is facing significant financial difficulties and that the company is not in a position to overcome them without additional resources. While Royal Mail’s financial difficulties are clearly understood, we would like to emphasise the causes of these problems. These stem from a combination of the following: the size of the company’s pension deficit and the rate at which it is required by UK law to repay the deficit. Additionally, early liberalisation of the UK postal market, chronic under-investment, a declining market and damaging regulation have stripped Royal Mail of revenue and have made funding the crucial modernisation of Royal Mail extremely difficult. Finally, a changing postal market and falling mail volumes are serving to exacerbate Royal Mail’s position.

Royal Mail’s restructuring

10.  Royal Mail is currently undertaking a major restructuring plan to modernise its operations. The plan involves the reorganisation and closure of a very significant proportion of its mail centre network. It means the introduction of new machinery to sort mail and new equipment and delivery methods for postal delivery workers, resulting in the restructuring of all delivery duties. This is change on an unprecedented scale. Both Royal Mail’s current business plan and the recent Postal Services Act imply major changes for the business. The Act means the imminent separation of the Post Office from Royal Mail and the establishment of wide-reaching new arrangements to accommodate this, including a change of employer and a separate pension scheme for those workers affected.

11.  These changes are not part of a simple business cycle of investment and growth. They are huge and wide-ranging. Without modernisation Royal Mail’s future and that of the universal service is in doubt. There is no question that Royal Mail needs financial assistance. However, the Commission must recognise the difficult process Royal Mail, the government and its workers have undergone to get to the current position. While not all the changes are acceptable to all parties there are serious risks attached to external interventions that might make the process of transformation more difficult.

Pensions

12.  Royal Mail is struggling under a massive pension deficit. This stood at £10.3bn at its last triennial actuarial valuation in 2009. Annual deficit repayments of £300m dwarf the business’s annual profits of £39m in 2010/11. This is on top of ongoing annual pension contributions of approximately £440m.

13.  The payments required to fund the pension deficit are unsustainable; Royal Mail cannot afford to continue these payments while facing a tough competitive environment, a declining market and investing heavily in modernisation to mitigate years of underinvestment. This strain on Royal Mail’s financial position threatens its ability to meet its universal service obligation, enshrined in UK and European law.

14.  The CWU has consistently called for government intervention on the pension deficit. Royal Mail must be relieved of this burden in order for the company to have a viable future. The members of the Royal Mail Pension Plan, who have contributed in good faith towards their retirement income, must have their benefits protected and their pensions honoured.

15.  Both the current coalition government and the previous Labour government endorsed the findings of the 2008 government-commissioned Hooper review of postal services that Royal Mail’s pension deficit is a significant constraint on the business and a threat to the universal service. Both accepted the review’s conclusion that the best long-term solution would be for the deficit to be managed by central government.

16.  The Royal Mail Pension Plan (RMPP) has its origins in the Post Office Staff Superannuation Scheme (POSSS) which was established in 1969 when the Post Office ceased to be a government department and became a public corporation. The scheme was in deficit shortly after being established and returned to surplus in 1988. The scheme was closed to new entrants in 1987 and the Post Office Pension Scheme (POPS) was created. POPS moved into deficit in 2000 in the same year that the two schemes were merged to create RMPP.

17.  Members of the RMPP have made a major contribution to the ongoing affordability of the scheme through reductions in their benefits introduced in 2008 and opposed by the CWU. The RMPP closed to new members in April 2008 and a defined-contribution scheme was established for new entrants. The remaining active members in the RMPP saw their benefits reduced through a move from a final-salary scheme to a career-average scheme and an increase in the pension age from 60 to 65.

18.  RMPP’s deficit has been affected by a number of factors, some common to all defined-benefit schemes, such as increased longevity, government legislation (affecting taxation on dividends to pension funds and increased regulation on funding requirements) and poor investment returns.

19.  The pension deficit was also in large part affected by a thirteen-year ‘pensions holiday’ between 1990 and 2003, a period during which the company ceased to pay pension contributions into the fund because the scheme was fully funded. This in turn was as a result of government policy at the time. Regarding its non-payment of contributions Royal Mail has stated that:

“Under the Prescribed Basis (set out in Schedule 22 to the Income and Corporations Taxes Act 1988) employers have to take action to utilise any surplus assets above the 105% funding level on this basis either to improve benefits or take a contributions holiday… It did not make sense to continue making contributions, only to take a contributions holiday enforced under this legislation.”[1]

20.  The government policy at the time, preventing companies from sustaining a pension surplus to mitigate the risk of future deficits, was very damaging. We believe the government has a duty to make good the impact of this policy. Moreover, the government took advantage of Royal Mail’s years of profit, preventing the company from undertaking the necessary restructuring and allowing investment levels to fall behind those found in other large companies. For many years Royal Mail was required to generate funds for the exchequer through its External Financing Limit (EFL) regime. The EFL ran between 1976/77 and 1998/99. A total of £2.48bn was generated for the government during this period. At today’s prices this would be worth well in excess of £4bn.

21.  There is no doubt that government action on the pension deficit is essential to secure the future of Royal Mail and with it the universal postal service in the UK. However, the detail of how this is implemented needs careful scrutiny and is a cause for concern, particularly whether the arrangements will adequately ensure the longevity of the scheme. Nevertheless, and notwithstanding our opposition to the government’s policy of privatisation, we welcome the UK government’s decision to take on the pension deficit and support its application for state aid to allow this policy to be implemented.

Liberalisation and regulation

22.  The liberalisation and regulation of the UK postal market has been a problem for many years. The CWU has campaigned during this time for the impact of regulatory decisions on Royal Mail and the postal market to be properly addressed. There is now significant consensus among stakeholders in the UK that change is needed to secure the future of Royal Mail and the universal postal service.

23.  The government has gone some way towards recognising this by enshrining in law the universal service provider’s entitlement to make a commercial rate of return on investments in connection with the universal service. The controversial and damaging downstream access regime is also being reviewed. We await the forthcoming consultation on the future of regulation from the new postal regulator Ofcom and hope the proposed new regime will offer Royal Mail the freedom it needs to compete fairly.

24.  The bulk mail market in the UK was opened to competition in 2003 and the first downstream access agreement was reached, under pressure from the regulator, in 2004. The UK postal market was then fully opened to competition in 2006, four years before the bulk of EU member states and six years before the remaining member states must open their markets to competition. Liberalisation happened in the UK before Royal Mail was ready to face competition. The company rapidly began losing market share and consequently revenues and has struggled to make up for the years of under-investment it has experienced. Unlike incumbents in France, Germany and the Netherlands, Royal Mail did not have the opportunity to modernise its infrastructure before the market was liberalised.

25.  Royal Mail needed to make significant investment in its infrastructure to meet the demands of the modern market and is now undergoing this process against a backdrop of competition propped up by an onerous regulatory regime and in a declining market exacerbated by the economic crisis. Beyond the premature liberalisation of the UK postal market, regulation by the regulator Postcomm has excessively constrained Royal Mail and led the company to its current weak position.

26.  The downstream access regime, which allows competitors to access Royal Mail’s network at prices lower than it costs Royal Mail to provide the service, coupled with the access headroom regime, which requires Royal Mail to keep an excessive margin between access prices and end-to-end prices, has prevented the company from competing, devastated its mail volumes and seriously weakened its financial position. The company has lost over half of its upstream bulk mail volumes, subsidising its competitors by an estimated 2.5p per item, and has been losing upward of £150m a year due directly to the downstream access subsidy alone. Downstream access is an artificial form of competition propped up by regulation and represents a marked distortion of the market in its own right. It has been allowed to develop in the UK in a form not seen in other European countries. Change to the regime is slowly happening – Ofcom is currently considering its future – but this will not win back the years of lost revenue. Nor will it undo the damage caused by a regime that forced Royal Mail to focus on stemming these losses rather than investing in the future and innovating to develop new products and services.

27.  Postcomm’s pricing regime has further held Royal Mail back. Before the arrival of the regulator stamp prices had not kept pace with inflation and since Postcomm’s original price control in 2001 Royal Mail has seen prices frozen and then linked to below inflation formulas which required Royal Mail to cut costs and restricted opportunities for investment. Moreover, the regulator vastly underestimated the extent of volume decline both in the market and to downstream access. Consequently, over the course of the last price control, Royal Mail has generated £3bn less in cash than the regulator anticipated.

28.  The union is encouraged to see a growing focus on the innovation of new products and services in Royal Mail’s business plan. Unfortunately it has taken a long time for the business to reach this point. We accept Royal Mail’s argument that regulation, such as that requiring the business to notify the market of its intention to release new products, acts as a disincentive on Royal Mail to innovate. However, we also believe an excessive focus on cost cutting and competition on price alone has also stifled innovation.  

29.  Regulation has been a major contributing factor in weakening Royal Mail’s financial position and consequently its ability to maintain the universal service. The early liberalisation of the UK postal market and the form and manner in which competition has been managed has led Royal Mail to a position where financial assistance from government is now essential.

Underinvestment

30.  The UK government’s policy of early liberalisation and regulation has disadvantaged Royal Mail relative to its competitors. The company has suffered many years of underinvestment, first as monopoly provider, when the government appropriated the company’s profits without investing in modernising the company’s infrastructure, and then as revenue has declined due to damaging regulatory decisions. The result has meant Royal Mail, unlike other European incumbents, trying to catch up and modernise its operations while simultaneously facing strong competition in a declining market.

31.  Both Deutsche Post and TNT were able to modernise their networks with the benefit of a reserved area. Deutsche Post and TNT undertook radical restructuring of their network is in the early 1990s before fully liberalising in 2008 and 2009 respectively. La Post underwent infrastructure modernisation between 2003 and 2007 under the ‘Efficiency and Convergence’ contract signed with the French government.

32.  The historic underinvestment in Royal Mail was recognised by the Hooper report into postal services which states that Deutsche Post invested £3bn in the 10 years between 1990 and 2000. Previously in 2006 this underinvestment relative to TNT and Deutsche Post was recognised by the regulator Postcomm in documents informing the 2006 price control. While Deutsche Post was receiving this major investment in its infrastructure, the UK government was doing the opposite and appropriating Royal Mail’s profits through the External Financing Limit.

Declining market

33.  Royal Mail’s investment programme comes at a time when the vast majority of postal administrations are facing a declining market. In the current market Royal Mail would need to cut costs simply to stay still; the company reported a 4% decline in mail volumes in 2010/11 and expects total mail volumes to decline at a rate of approximately 5% a year in coming years. The extent to which decline is structural or cyclical is unclear. Nevertheless, mail volumes have been falling steadily since 2006 and, as yet, show little sign of recovery. This is not to say that there is not a strong future for mail if we respond to changing customer behaviour and promote innovative products and services. Consumers value the universal service; the postal service remains essential to the economic functioning of the country and is a lifeline for many communities. The growth of the internet has brought with it greater flexibility for working arrangements and business location all of which depend on a reliable national postal network.

Modernisation

34.  The modernisation of Royal Mail’s infrastructure and operational practices is essential for the future of the company. The CWU accepts the need for modernisation and is working hard with Royal Mail to bring the company through this difficult period of transformation. However, it must be recognised that the prospect of privatisation is having a destabilising impact on the workforce.

35.  The union negotiated a ground-breaking agreement in 2010 which recognised the need to radically transform the business and set out the mechanisms through which change would be introduced. The agreement also recognised the challenging employment and industrial relations in Royal Mail. Both sides made strong commitments to building a new relationship between the union and management at all levels. The agreement stated that:

“Both parties agree that central to success is the need to fundamentally transform relationships and quickly build a culture of mutual interest between managers, union and employees.”

36.  The agreement built on the principle that change must be achieved through co-operation, stating that:

“A test of the agreement will be the extent to which the changes that are part of it are introduced on time and through joint cooperation to achieve the best possible outcome for customers, employees and the company.”

37.  The CWU remains fully committed to modernisation and the 2010 agreement. However, undertaking the steps necessary to transform the business has put enormous pressure on our members as their working lives undergo radical change. The introduction of new working methods, and particularly the consequent revisions in the delivery network, is very challenging and the pace at which these changes can be introduced is naturally limited.  The Commission should also recognise that whilst traditional mail volumes are falling, the current downstream access arrangements means that delivery workers do not always see the impact of falling mail volumes because they still deliver competitors’ mail. Furthermore, the mail centre rationalisation process is complex and raises significant people and quality of service issues.

38.  Royal Mail has recently introduced a new business plan which forms the basis of its application to the Commission for state aid. This plan differs from that which applied at the time that the 2010 Business Transformation agreement was reached. The new plan expects transformation to take longer than previously anticipated and has lower expectations for revenue and profit.

39.  While we welcome a more realistic appraisal of the transformation process, extending its length has implications for Royal Mail’s workers. Whereas previously the Business Transformation agreement went in tandem with the business plan, meaning remuneration was linked to changes and job security commitments were due to last for the length of the plan, now the implication is that change will continue outside of agreement.

40.  We therefore have concerns about the achievability of the extended business plan. Workers at Royal Mail are struggling with the level of change being introduced. The prospect of privatisation has to be recognised as a destabilising factor among the workforce. The business is yet to give its workforce the level of assurances necessary to secure this extended level and length of change. The workforce will be looking for assurances that current agreements will be honoured and that there is job security for those wishing to remain with the business; the union recognises that jobs will go as new technology changes the way Royal Mail works, but these changes must continue to be on a voluntary basis and the nature of the remaining jobs must reassure the workforce that there is value in undertaking change.  

41.  We continue to have concerns about the way Royal Mail is seeking to reduce costs. Too often the business’s approach means local managers are pushed to seek short-term costs with insufficient regard to producing long-term sustainable working practices. Workers have been promised fair and manageable workloads following proper resourcing procedures and the modernisation process must be consistent with these principles.

42.  Royal Mail made commitments in the Business Transformation agreement that workers would be rewarded for change through payments arising from the company’s Colleagueshare plan. The revised business plan means workers will no longer receive any payment from the scheme. Workers are therefore losing out on payments they had been led to believe would reward them for undertaking change. Royal Mail needs to ensure workers are properly rewarded, in order to meet the commitments of the agreement but also to incentivise the change that is so badly needed. At the moment there are far fewer incentives in place to encourage change than envisaged.

43.  The Postal Services Act clearly introduces significant change into the postal industry. A number of major issues will need to be addressed between the government, Royal Mail and the CWU. These include the implementation of an employee share scheme, the details of the transfer of the bulk of RMPP to the government and arrangements for future governance of Royal Mail. The CWU wishes to engage on these issues and to ensure that the interest of Royal Mail’s employees and those of the broader postal industry are consistently addressed.

44.  The business must ensure its commitments to transforming relationships and building a new positive industrial relations climate are met. This needs to start by reaching agreements with the union that reflect the terms of the new business plan. Under these circumstances and with the necessary hard work we believe the successful transformation of Royal Mail is achievable.

Addressing the Commission’s concerns

45.  In addition to protecting the interests of its members the CWU’s key concern is to ensure that Royal Mail gets the financial support necessary for the company to have a stable and successful future. Our concern as to the formal category of state aid deemed applicable by the Commission is only insofar as the conditions they might impose upon Royal Mail. The level of publicly available information on the application makes it difficult for us to fully assess the pros and cons of the forms of state aid under consideration.

46.  We would urge the Commission to consider limiting the conditions it applies to any state aid granted to Royal Mail. The business’s restructuring plan is already challenging and the consensus needed to achieve it fragile – the Commission should seek to understand this and resist applying conditions that will make this process more difficult.

47.  We believe there is a case for considering government’s proposed assistance as ‘legacy’ aid. If so doing will better help the Commission to grant state aid and limit potentially damaging conditions such as the divestment of assets, we would urge the Commission to consider this form of aid.

48.  If the Commission were to consider restructuring aid, it is essential that the Commission mitigate its guidelines to limit conditions which might be applied to the aid in order that Royal Mail can emerge on a sound financial footing. As we have made clear we do not support the privatisation of Royal Mail and do not believe aid to the company should be contingent on this process. Likewise we would not wish to see the Commission impose onerous conditions on Royal Mail in exchange for aid.

49.  The successful transformation of the business and achievement of financial security rests on the Royal Mail Group remaining a fully integrated end to end service provider. This also requires the contribution of all parts of the group-wide business, including the European parcels business GLS and Parcelforce Worldwide. Royal Mail would seriously struggle to meet the tough targets of its business plan were it forced to divest significant assets to meet state aid guidelines.

50.  Royal Mail is the only company in the UK which is capable of delivering the universal service as required under Directive 97/67/EC and we believe that the proposed measures are necessary to ensure the survival of the company and the continuance of postal services in the UK. We would submit that the Commission’s decision should reflect the importance of these EU objectives in granting the aid and in relation to any conditions which are placed on this, which could jeopardise these objectives going forward. This is particularly important in a declining market.

51.  In relation to the impact of the proposed aid on competition, while Royal Mail has a dominant position in end-to-end markets in the UK and provides the final delivery stage for 98% of mail volumes, this reflects the way competition has been encouraged through the access regime and rival operators now have over 50% of the addressed mail market by volumes as a result of this. It is clear that Royal Mail’s survival is essential to their business models. We would therefore argue that the measures will not distort competition and are clearly in the broader Community interest.

Rescue and restructuring aid

52.  In its letter to the UK government, the Commission stated that “where a state aid measure falls within the scope of the [rescue and restructuring aid] guidelines, the Commission believes that in the first instance it should be assessed against them” noting that in Royal Mail’s case “the measure accompanies a significant restructuring”. We would question whether the accompaniment of restructuring necessarily means the aid should be considered as restructuring aid rather than relating to legacy costs. In the case of La Poste in 2008 and the Greek telecommunications operator OTE in 2006, state aid was granted as ‘legacy’ or ‘stranded’ costs while accompanying significant company restructuring. Again, our primary concern is the mitigation of guidelines which will impose onerous conditions on Royal Mail which threaten the achievability of the restructuring plan and the business’s ability to provide a universal service.

53.  The Commission will initially consider the application for aid under rescue and restructuring aid under the following criteria.

54.  Financial difficulty: We welcome the Commission’s acknowledgement that Royal Mail is a firm in financial difficulty. As stated above, we do not believe there is any doubt about this position.

55.  Long-term viability: The Commission questions whether Royal Mail’s plan will return the company to long-term viability and has particular concerns regarding the length of the business plan and its sensitivity to external factors such as volume decline. We would urge the Commission to consider this in more detail. As we have stated we believe there remains an element of doubt around the achievability of the company’s business plan. However, this relates primarily to the manner through which management chooses to implement change. While we would like to see modernisation happen as swiftly as possible, we do not believe the length of the plan is necessarily in itself a problem and instead potentially indicates a more realistic assessment of the challenges faced by the company. The plan needs the financial support outlined by the UK government as well as a better regulatory position. Uncertainty over future market conditions is to some degree inescapable.

56.  Distortion of competition: A condition of rescue and restructuring aid is that it should not cause ‘undue’ distortion of competition and that where this is the case a limitation of the company’s presence in the relevant markets may be required as compensation to its competitors.

57.  The Commission recognises that the regulatory requirements on the company in its domestic market may make it difficult for the company to divest assets. However, the Commission notes that GLS operates in unregulated markets outside of the UK and questions whether the aid will give GLS an advantage in these markets.

58.  Firstly, the Commission must recognise that the current status of the postal market in the UK itself represents a distortion of competition. Downstream access providers have had their business models subsidised by Royal Mail and have thus enjoyed the benefits of this distorted competition. It is this artificial form of competition that has left Royal Mail struggling to compete and it is from this distortion that the UK postal market is yet to recover.

59.  Before seeking to compensate competitors, we would urge the Commission to consider the importance of the contribution made by all parts of Royal Mail, including GLS to the achievement of the business plan. Moreover, we would urge the Commission to give due regard to the importance of a healthy and modernised Royal Mail for the overall postal market, including for its competitors.

60.  We would also question the extent to which Royal Mail’s operation on foreign markets distorts competition. The envisaged aid will not directly affect GLS’s costs or prices. GLS employees are not members of the RMPP and therefore pension deficit relief will not affect the business’s costs. We would therefore argue that this change will not affect GLS’s relationship with its competitors.

61.  Aid limited to minimum and own contribution: The Commission is yet to take a position on whether the application meets the conditions of being the minimum necessary and whether Royal Mail is in a position to meet conditions on its own contribution. We reiterate our position that we do not accept that the granting of state aid should be contingent on the sale of the company. Royal Mail’s major restructuring is being undertaken regardless of any future sale. The suggestion that Royal Mail should contribute up to 50% of the value of the aid implies the only means by which it could achieve this would be through the sale of the business or taking measures which would jeopardise its financial sustainability and an already tight business plan. We would urge the Commission to reconsider this position and where necessary mitigate its guidelines.

62.  One-time-last-time: The Commission rightly recognises that Royal Mail has not previously received state aid under rescue and restructuring guidelines and therefore fulfils the ‘one time last time’ condition.

Pension relief as compensation for ‘legacy’ costs

63.  The UK government has argued that part of the pension relief can be allowed on the basis of the ‘legacy’ or ‘abnormal’ costs that the business experienced as a result of its former status as a monopoly provider. The UK government argues that this claim is analogous with the aid granted to the French operator La Poste in 2009 for £76bn in pension relief.

64.  The Commission has questioned this, arguing that La Poste’s pension costs stemmed from those in the French civil service, which were distinct from those in the private sector. In France, unlike the UK, there is a general pension system in the private sector with which the state operator’s costs can be compared. The Commission argues that the same comparison cannot be made in the UK as no general pension system exists in the UK.

65.  While it is regrettably true that no general pension system exists in the UK, this does not detract from the fact that former state-owned companies generally operate superior pension schemes to those found in the private sector. Defined-benefit schemes such as that operated by Royal Mail are rare in the private sector in the UK and tend to exist mainly in former state-owned utilities.

66.  In 2009 there were only 2.4m workers in the UK who were active members of defined-benefit schemes in the private sector; this includes schemes that are closed to new members. Moreover, research shows that average employer contributions to defined-benefit schemes in 2009 were 29.5% as compared with average employer contributions to defined-contribution schemes of just 11%. As far as we are aware none of Royal Mail’s competitors in the UK operate defined-benefit pension schemes and nor do most other private sector companies. Royal Mail and La Poste’s positions with regard to pensions are comparable; the absence of a general private-sector pension scheme comparator in the UK does not mean the positions of the French and British incumbent postal operators are not analogous.

67.  We would question the point made in paragraph 146 of the Commission’s letter which states that according to the UK government Royal Mail decided to use up the deficit in the 1990s to grant enhanced benefits to members. A number of minor improvements were made to the scheme in 1990 at the point when the POPS and POSSS schemes were merged. These minor improvements were paid for by savings made by merging the administration of the two schemes. They do not relate to any surplus in the scheme.

Services for General Economic Interest

68.  The CWU believes that the current application for assistance should be considered under the category of Services for General Economic Interest. We believe postal services constitute a service in the general economic interest. The value of the universal service is recognised by the EU in the Postal Services Directive and by the UK government in the Postal Services Act 2011. It provides an important service to citizens that would not exist without government intervention. The current aid proposed by the UK government is aimed at securing Royal Mail’s future as the universal service provider and recognises that it is the only company capable of providing this service.

69.  As the Commission notes, Royal Mail operates under a public service mission. The majority of Royal Mail’s operation is based around the provision of the universal service. Non-universal service products are possible only because of the infrastructure in place to ensure the one-price-goes-anywhere daily delivery of the universal service.

70.  Relief of the pension deficit is essential for Royal Mail to be able to continue to provide the universal service. We would therefore urge the Commission to consider granting state aid under this category and free Royal Mail of any potentially onerous conditions that might otherwise apply.

For further information on the view of the CWU contact:

Billy Hayes

General Secretary

Communication Workers Union

150 The Broadway

London

SW19 1RX

Tel: 020 8971 7251                                                                            

Fax: 020 8971 7430                                                                           

Email: bhayes@cwu.org

5 October 2011

Please click the following link to download your own copy.

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Punitive actions by the company, linked to its introduction of new work planning appliances (WPA) are at the heart of the long-running dispute

But, in a move that CWU assistant secretary Ray Ellisdescribes as “significant,” Romec has agreed to halt these actions “in order to create the appropriate climate for meaningful and substantive negotiations to proceed.”

In response to the move by the company, the union has agreed to suspend the scheduled two-day stoppage and to lift the ongoing callout and overtime restriction.

Welcoming today’s developments, Ray said: “There’s a long way to go and at this time we are still technically in dispute, but it’s our hope – and also the hope of the company – that these joint ‘acts of good faith’ will create the right environment for a full and comprehensive settlement.”

The breakthrough came after informal discussions between senior Romec managers and the union, with the help and assistance of arbitration service ACAS and leading individuals from Royal Mail Group.

CWU deputy general secretary Dave Ward - who has personally assisted in the search for a solution – said that he was “hopeful that Romec will now engage in sensible negotiations with us and that we can reach a fair agreement as soon as possible.”

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People who joined the scheme before 1987 will have their future payments calculated in accordance with the consumer price index (CPI), which averages some 1 to 1.5 per cent below the retail price index (RPI).

A campaign urging the trustees to retain the RPI criteria has been gathering support from thousands of postal workers at hundreds of workplaces around the country and the CWU is determined that the voice of the workers is heard.

Speaking at the central London protest, London divisional rep Martin Walsh said that he was not surprised by the strength of feeling around the subject, which is, he insisted “a massive issue for our members.”

Trustees have, Martin continued “told us they’ve got no choice about these changes, but we’re saying there is an alternative.

“They could have delayed the change, put the issue out to consultation and, subject to that, they could then have legally stayed with the RPI system,” he explained.

There are ongoing discussions taking place involving the CWU, the trustees, the Government’s Postal Affairs Minister Ed Davey and Royal Mail and the union is determined to continue to press its case against the change.

via | Media | News Archive | CWU members protest over pensions changes.

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In a further exchange, the company then indicated that they were again in the process of adjusting their Business Plan.  This is part of the process seeking Government support to achieve European State Aid approval on removing the historic pension deficit.  The company explained that some of these latest adjustments to their plan may yet improve the final valuation of Colleagueshare, due to take place around May 2012.  However, the company were still of the view that there was little prospect of the shares reaching anything like their previous value.

In response the Union reiterated our previous policy and this was subsequently strengthened by the Emergency Motion at Annual Conference. The current position is that following the settlement to the London dispute, Royal Mail and CWU have agreed to re-engage in structured national talks to address the legitimate concerns of CWU members – Colleagueshare will feature in these discussions.  In the circumstances, we would ask all CWU Branches to convey to our members that CWU has not accepted Royal Mail’s position on Colleagueshare.  The matter of Colleagueshare is subject to ongoing discussions during which the Union will be pursuing our policy alongside the other issues contained in the Emergency Motion.

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The Sunday Times article claimed that “Royal Mail is drawing up plans to cut one in four of its workforce – 40,000 people – in the next five years in a radical downsizing designed to cope with tumbling postal volumes and the onset of privatisation.” The figure has apparently been arrived at by claiming the Business Transformation agreement will bring 8,000 job losses a year for three years (totalling 24,000 jobs) and adding to that the claim that Royal Mail chief executive Moya Greene wants an additional 15,000 job losses by 2016.

“40 000 posties to face the sack” said the Daily Mirror in response, saying “union chiefs warned such numbers could only be found through compulsory redundancies” and said the union would threaten a national strike if that happened. “Royal Mail set to reveal the size of job losses” said The Times, echoed by City A.M and The Independent.

The Financial Times quoted a government aide linking the cuts to privatisation. “we need to make sure Royal Mail is privatised and we can get private capital into it” said the aide, adding “we don’t want unnecessary job cuts but the business will have to be smaller and more efficient”. The FT also quoted an official CWU spokesperson who reflected the union’s policy by saying “the union will fight non-voluntary job losses”. The CWU spokesperson added “we are not going to tolerate compulsory redundancies and we will make that clear to the company.”

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Committing the CWU to join forces with other trade unions and campaigning organisations in the fight against Coalition Government attempts to make working people pay for a crisis caused by bankers, delegates at the union’s Annual Conference in Bournemouth unanimously called on the CWU’s leadership to seek to co-ordinate campaigns and strikes with other unions.

Faced with an unprecedented ideological attack on workers’ rights – amplified by yesterday’s thinly veiled threat by Business Secretary Vince Cable (pictured) to curtail the right to strike by UK workers – delegates agreed that only strike action on a scale already seen in France and Greece will force the Cameron Government to change tack and urged the TUC to co-ordinate a 24-hour general strike.

Pointing out that, left unchallenged, the Government’s current policies will see a return to levels of inequality in Britain which haven’t been seen since Victorian times, Eastern regional secretary Paul Moffat (pictured) told Conference: “We’ve seen cuts on vulnerable groups, youth services, the elderly, the NHS, schools, teachers, education, police officers, prison services and all local services – in fact all areas of state provision and services in this country – without any regard for the long-term consequences.

“These attacks are not determined by mere economic choice but by a clear ideological policy. It will lead to mass unemployment, irreversible damage to public services including Royal Mail and exploitation of ordinary people in favour of the privileged few in this country.”

Paul Garraway of South Central No 1 branch stressed: “It’s imperative that we fight these cuts and defend these services before we lose them. They say we’re all in this together, but are they suffering? The bankers continue to get their bonuses and the champagne continues to flow for the rich, and what do we get? A bigger share of the poverty! I don’t remember the good times being that good, yet now we are expected to foot the bill for a crisis we did not create.

“It’s time to unite and fight back. On June 30 the PCS, UCU, NUT and ATL unions will be taking action against these cuts. Over 800 000 workers will be on strike. On that day I will be stood alongside my partner outside her school. This is our fight, and we must all be doing our part.”

Rob Wotherspoon of Bristol branch cited the “sickening” statistic revealed in the Sunday Times ‘rich list’ that, at a time when workers are seeing their real incomes reduce for the fourth year running, the collective fortunes of the richest 1,000 people in Britain actually increased by 18% last year – something which hasn’t happened since the 1870s.

“There’s no recession for the rich…but this Government of millionaires isn’t satisfied with that,” he said. “They want more and they want to get more by attacking our public services and our employment rights.

“Without a general strike we’re not going to beat back these attacks.”

With the strike of June 30 now looming, Midlands Regional Secretary Lee Baron (pictured) stressed the importance of all trade unionists standing united and refusing to cross each others picket lines.

“When we do that we break the law…but it’s a simple principle. We’d rather break the law than break their pickets any day of the week.

“If this generation is remembered for anything it has got to be the generation that put and end to the politics of greed and reintroduced into this country the politics of fairness once again.”

Mark Taggart of Manchester Clerical agreed: “A 24 hour strike in the public and private sector will be met by writs, challenges from the Government, the CBI and businesses. It potentially propels the trade union movement into a legal quagmire, but that is not an excuse for not supporting it.

“We have responsibility as a trade union to aspire for working people in the UK. We have a responsibility to fight for their interests, and we need to fulfil that responsibility.”

Supporting the motion, senior deputy general secretary Tony Kearns (pictured) warned of the “trickery of the law which talks about when you can and cannot take industrial action”, but stressed: “This is a ‘make your mind up time’ for this union. We’re sick and tired of hearing David Cameron saying ‘we’re all in this together’, because the reason he says that is that if we’re all in this together as part of the solution we must have been all part of the problem – and that simply isn’t the case.

“What we’re seeing is an ideological attack by this Government. This is the systematic deconstruction of the society that we live in – there is no other way of describing it.

“George Osborne’s mantra that everything can be privatised is a threat to every single thing that we hold dear and the very fabric of the society that we have enjoyed living in for the past 60, 70 or in some cases 80 years.”

Ultimately, Tony concluded, the CWU has no option but to stand up and be counted in the fight against “a race to the right”.

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