Postal workers are set to strike as part of a dispute about pay, modernisation and working conditions at the Royal Mail. But why is the Royal Mail in trouble and how has the postal market changed in recent years?
Although there are around 30 other postal services in the UK, the Royal Mail remains by far the largest. It delivers 99 per cent of all the letters in the UK, which in 2009 meant that it handled 75 million letters each day.
However, the postal market in the UK is now in decline. The volume of letters delivered by the Royal mail has fallen from a record high of 84 million a day in 2005.
Fewer letters are being delivered now than at the start of the decade and one of the biggest factors has been the rapid increase of internet access. Seventy per cent of homes in the UK are now online.
The use of email and social network sites has already greatly reduced the number of personal letters sent each year.
But perhaps more worrying for the Royal Mail is the move to online 'paperless' banking and other business transactions which make up the majority of its deliveries.
The impact of the internet and other communication technologies, such as mobile phones, has been so great that it has actually severed the link between the postal market and economic growth.
Previously, fluctuations in the amount of post each year followed the changes in economic growth and general wealth in the UK. Since 2002, that link has been broken and the adoption of the new technologies means that is unlikely it will be restored.
As a result the Royal Mail finds itself as the biggest fish in a shrinking pool. The Royal Mail letters and packages business has the largest turnover among the businesses that make up Royal Mail Group and employs the most people.
There have already been large cuts as part of the company's modernisation plans and both Royal Mail Group and the Communication Workers Union agree that further job cuts are needed to streamline the mail service. The proposed strike is over the size of the cuts and how it will affect those who stay.
However, even following the proposed cuts the Royal Mail Group has another problem that threatens its profitability: its pension deficit. The Royal Mail's pension scheme covers 450,000 past and present staff and the current deficit is estimated to be around £8bn.
As a result, Royal Mail is likely to have to increase the payments it currently makes of £270m a year to fill the gap. The scheme is now closed and all existing members are paying into a 'career average' scheme, rather than the old final-salary version.
However, the pension deficit has been a factor in the government's failure to find a partner for its planned part-privatisation of the Royal Mail, and it may now be forced to underwrite the scheme with public funds.
