POSTAL SERVICES ACT – POL SEPARATION AND MUTUALISATION

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LTB 726/11 Postal Services Act – Post Office Limited Separation and Mutualisation

TO: ALL BRANCHES WITH POSTAL MEMBERS

Dear Colleague

POSTAL SERVICES ACT – POST OFFICE LIMITED SEPARATION AND MUTUALISATION

As part of moving forward the Union’s main Annual Conference policy (Emergency Motion 3), the Postal Executive has been assessing, in detail, the likely implications of POL separation and mutualisation on CWU members.

It is important that CWU Branches and Representatives are fully aware that whereas other aspects of the Postal Services Act are linked to the outcome of the European State Aid process, there are no such hurdles to overcome to implement the separation of Post Office Limited from the Royal Mail Group.

Therefore, the purpose of this LTB is to provide Branches with a comprehensive report on all the issues associated with the Government’s plans for separation and mutualisation and explain the approach being taken by the Union.

The information provided is set out in the two attached documents.

Firstly, a report covering Government policy, the latest developments within the Royal Mail Group including, likely timescales for separation, also the issues highlighted by the Postal Executive as immediate priorities in talks with the business. Secondly, a report which explains the Government’s approach to mutualisation (this includes a CWU Research document).

We would ask Branches and Representatives to use the content of this LTB and the two attached documents as a briefing note for updating our POL members on the current position.

Any enquiries on the content of this LTB should be addressed to the DGS (P) Department quoting reference no 10008.


Yours sincerely

Dave Ward Andy Furey
Deputy General Secretary (P) Assistant Secretary

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Postal Services Act – POL Separation
Briefing Document for CWU Branches and Representatives

Introduction

This document provides a comprehensive update on the following:-

Information on Government policy.

The latest developments within the Royal Mail Group.

The issues highlighted by the Union as immediate priorities in talks with the company.


Government Policy

the Government’s policy statement, ‘Securing the Post Office Network in the Digital Age’, details the funding package for POL (£1.34bn) and sets out the Government’s vision for the network. The paper reiterates the Government’s proposals to separate POL from RMG, stating that this would enable each organisation to focus more effectively on their own challenges and that a strengthened board, with non-executives with wider expertise, will benefit POL. It envisages the long term relationship continuing between the two businesses on the basis of shared commercial interest.

The Government also intend to push through plans for the mutualisation of POL at a point in the future, if and when Post Office Limited can be become a sustainable organisation without the need for Government subsidy. Under pressure from the CWU the Government subsequently amended the Postal Services Act, which means that Parliament is now required to approve future mutualisation plans. Although it is clear that the Government still intend to press ahead with mutualisation and are currently exploring options through the report commissioned with Cooperatives UK, mutualisation is not guaranteed.

Latest Developments within the Royal Mail Group

It is clear that POL is enthusiastic about severing links with RMG. Moreover, plans for the separation of Post Office Limited from the Royal Mail Group are well underway.

Operational separation is expected to occur by the autumn, following the establishment of a new independent Post Office Board and two new inter-business agreements, one dealing with mails services and one with internal functions.

In the spring Post Office Ltd is expected to move from being a subsidiary of the Royal Mail Group, to being a sister company to the Group and a subsidiary of the parent company Royal Mail Holdings. This structure will remain until Royal Mail is privatised. Statutory TUPE consultation will apply ahead of any transfer. It is anticipated that the likely timescales for employees being formally transferred across to Post Office Limited, following TUPE consultation, will be around March 2012.

On 22nd July RMG announced that Alice Perkins has been appointed to the Board of POL, subsidiary of RMG. She will take the Chair following its next meeting in September 2011. Alice Perkins will succeed Donald Brydon, who continues as RMG Chair. It has been explained that the formulation of two separate Boards is a prerequisite to putting in place the necessary commercial agreements.

CWU Approach/Immediate Priorities

In order to protect the interests of CWU members and in recognition of the likely timescales involved, the Union must now consider the possible impact of POL separation on our POL members. The Union will now engage in talks with the company to put in place the necessary safeguards that will protect our members’ terms and conditions in the event of separation.

The Postal Executive has highlighted the following areas as immediate priorities in our talks with the company.

TUPE - Currently all members working in POL are employees of RMG on secondment to POL. With separation these employees will need to be formally transferred to POL. The Act stipulates that all employees working within RMG who will be required to transfer to POL will be covered under TUPE law.

HR Issues - There could potentially be a whole range of piecemeal changes to jobs following separation. We need to ensure that any HR issues arising out of separation are dealt with properly, with full protection of terms and conditions for our members.

Industrial Agreements – We need to ensure that all existing national agreements, including MTSF will be fully protected following POL separation.

Industrial Relations – We need to ensure that current industrial relations arrangements will continue and that a separated POL continues to recognise the CWU and the full authority of the Postal Executive, as the basis of our ongoing relationship.

Pensions – A recent LTB set out the approach the Union is taking on pensions. There are many technical and complex issues, which will need to be covered in future talks. As part of our overall pension talks we will need to address the arrangements that will apply for our POL members in the future.

Inter-Business Agreement – We will need to understand and influence, where appropriate, the arrangements that will be contained in any new inter-business agreements. The current inter-business agreement between POL and Royal Mail runs until 2014. POL, the Government and Royal Mail have all indicated that the relationship will continue, although it is not clear what terms this will be on. We understand that heads of agreement have been drawn up and that negotiations are currently taking place between the two businesses; the Government has stated that it hopes a new agreement will be signed in spring 2012.
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POST OFFICE LIMITED - MUTUALISATION

This document provides an overview of the approach the Government are taking on mutualisation. It also includes a CWU Research document providing information on the Co-operatives UK report.

The Act itself provides few restrictions on the sort of body a mutually owned Post Office would be and the Government commissioned Co-operatives UK to conduct a study into the options for a mutual model of ownership, which was published in May. The Government itself will formally consult on possible mutual models for the Post Office in the autumn this year.

Together with the Co-operatives UK report, the Government’s policy document on the Post Office network from November 2010 and its statements during the parliamentary process for the Act indicate that it favours employees, sub-postmasters and users of the Post Office all forming the membership, and having ultimate control, of the mutual. Whether this would involve a share of any profits is not clear.

With regard to timescale for mutualisation, the Government has stated that the business must be ‘sustainable’ and significantly reduce its dependence on subsidy before this could take place. The current business plan, which involves eradicating the losses made by the Crown network and replacing around 2,000 sub-post offices with a new operating model, is aimed at delivering this and the Government has suggested mutualisation could take place before the end of the current Parliament (May 2015).

While this is therefore a longer term policy aim, mutualisation would have a significant impact on our members and the Union’s role in the business. The Postal Executive has recognised the need to fully engage with the Government both on the terms of the formal consultation it will publish in the autumn and subsequently the issues raised within the consultation document.

The Postal Executive has agreed to produce a more detailed policy position in order to protect our members from the impact of mutualisation and safeguard the Union’s role in the business, should mutualisation take place.



Co-operatives UK Report on Mutualisation of the Post Office

A Report Produced by the CWU Research Department

Background

Co-operatives UK were tasked by the Government to explore the options for the mutualisation of the Post Office under the Postal Services Act. The Government believes the current ownership model ‘holds the network back’ because it ‘aligns poorly the interests of stakeholders’ (in particular subpostmasters with POL).

The Postal Services Act sets out three conditions (discussed below) for any mutual body which must be satisfied (and will continue to be so) before the Post Office can be transferred to it; the transfer must also be approved in advance by Parliament.

The Government has stated that it will carry out a full public consultation on mutualisation in the autumn of 2011. It has stated that the business must be ‘sustainable’ before mutualisation can take place, although it recognises that there is likely to be a continuing need for subsidy in the future. It has suggested it could take place by May 2015.

Co-operatives UK Report

The report, published on 18th May, considers three key issues: the purpose, ownership and governance structure of the mutual.

(1) Purpose


The report’s starting point is to identify the ‘purpose’ for which the Post Office exists, which is provided for in Condition A in section 7 of the Postal Services Act:

‘the purpose (or main purpose) for which the body exists is to act for the public benefit by promoting the use by the public of services provided by a Post Office company or at its post office.’

The report notes the precise meaning of ‘the public benefit’ is for the Secretary of State to determine. It suggests whether a mutual body meets this will depend on who its owners are and whether its constitution provides legal requirements for it to act in the public benefit or restrictions on what it might do.


(2) Ownership

Ownership in mutual bodies does not provide a transferable share in the business members can sell on, but provides certain rights to control how it is run. The report states the role of owners in a mutual is to use these rights to ensure its purpose is delivered. In the case of the Post Office this will be to act in the public benefit.


Condition B in section 7 of the Postal Services Act also requires that members are:

‘(a) persons who have an interest in the use by the public of [the Post Office’s] services (including employees of the Post Office company and other persons engaged in the provision of post offices), or (b) persons who act on behalf of, or represent, persons within paragraph (a).’

The report does not present this as mandating employees or sub-postmasters being members of the mutual and assesses that a balanced mix of providers (including employees, subpostmasters and large multiples) and users of the service (such as customers and community bodies) would be best placed to protect the purpose of the mutual to act in the public benefit. It states that ownership by employees alone would be more likely to further their own private interest than the public benefit.

With regard to Government and Royal Mail, it states that mutualisation is intended to provide independence for POL; it therefore states that the relationship with both bodies would be contractual, but that it could be possible for devolved administrations to be members of the mutual and recommends this be considered.


(3) Governance

The report states that a separation of ownership and control is ‘at the heart of governance’ – i.e. ‘those who own the organisation do not have control over its day-to-day affairs.’ The governance model it recommends has a three tier structure with:

(i) members: the ultimate owners of the company who vote for representatives to the representative body and would be required to approve any changes to the constitution of the mutual;

(ii) a representative body: this would appoint at least some of the board of directors and hold it to account on behalf of the membership. Its powers would depend on the constitution of the mutual, but could include powers to remove members from the board, to make recommendations to the board and to require information from it; and

(iii) a board of directors: the board would be responsible for day to day operations in the business.

The report states that the representative body needs to have ‘real teeth’ to control the board, but that this needs to be balanced with the need to ensure the business can operate effectively. With regard to the make up of the representative body, the report recommends that it has a majority which is elected both by and from the membership constituencies (such as employees), but states that it could include a minority of appointed individuals, for instance from consumer groups or charities. It does not discuss whether there should be a formal role for the Unions or NFSP.

Safeguarding the future of the Post Office

The final condition in section 7 of the Postal Services Act (condition C) stipulates:

‘arrangements [must be in place] for the prevention of disposals of property or rights by the Post Office company that would be inconsistent with the purpose (or main purpose) for which the body exists.’

In relation to this condition and the possibility of sharing profits among members, the report suggests a ‘give-away’ of profits would be difficult to reconcile with the purpose of the mutual to act in the public benefit and that the decision making process to make a distribution – if this was provided for in the constitution – would need to adequately safeguard the purpose of the mutual. However, it suggests ‘contractual performance-related payments to employees sub-postmasters or multiples’, which are conditional upon the business being profitable, or making customer loyalty payments, would not fall under condition C and would be permissible.

Future steps on mutualisation

The Government has welcomed the Co-operatives UK Report with Ed Davey saying ‘a radical shakeup to combine elements of John Lewis and Co-operative Group’s ownership arrangements would give those who know the Post Office best – subpostmasters, franchise partners, staff and the communities they serve – a real say in how the Post Office is run.’ The Government press release also suggested there could be more than one stage of mutualisation, with customers themselves (and not just their representatives) becoming members at a later stage, although this is not discussed in the report itself.

The Government intends to conduct a full public consultation on mutualisation in the Autumn. Staff within BIS and the Shareholder Executive have indicated that the issues for consultation will decided upon over the summer and that stakeholders have an opportunity to have an input into these at the current time.