Posties’ choice: modernisation or privatisation

[TrueBlueTerrier]

http://www.timesonline.co.uk/tol/commen ... 866932.ece" onclick="window.open(this.href);return false;

This strike is a kamikaze action in a business where volumes are falling by 10 per cent a year. Best to do a deal quickly

It was, perhaps, symbolic of how poor relations are between Royal Mail and the Communication Workers Union that neither side could agree yesterday on how powerful a mandate the union’s leadership had achieved for a national postal strike.

The CWU declared that a 76 per cent “yes” vote in a 67 per cent turnout was an overwhelming endorsement of its hardball negotiating stance. Royal Mail argued that, as 20,000 postal workers are not union members, along with those who abstained or voted no, only a minority of posties supported a strike.

Either way, Britain’s postal service is in crisis, and that is only likely to be exacerbated by a lengthy strike. Royal Mail’s most important stakeholders, its customers, are voting with their feet. While reports that Amazon has removed a key contract from Royal Mail were denied yesterday, both it and eBay, which has urged users to seek alternatives, have been drawing up contingency plans. Such plans, especially those prepared by smaller and medium-sized companies, are likely to become permanent in time.

They can hardly be blamed. The last national strike, in 2007, cost companies in London alone about £300 million. The timing of this one, with Christmas 11 weeks away and Britain only slowly clawing its way out of recession, means that the damage to businesses and the wider economy will be much greater.

Ironically, the cause of the dispute is something else on which neither Royal Mail nor the union can agree — but essentially it boils down to the former’s desire to modernise and the latter’s desire to protect pay, working conditions and job security.

Royal Mail argues that the union has reneged on commitments made after the 2007 dispute that would involve job losses, and it is true that the union’s deputy general secretary, Dave Ward, wrote to branch members in April advising them not to take part in “savings initiatives”.

The union’s response is that, while it agreed to modernisation, it did not make specific promises and wants more discussions. It also grumbles, probably with justification, that many Royal Mail managers are not particularly good, and there certainly appears to be an atmosphere of intimidation at many sorting centres.

But for the typical household customer, nicknamed “Granny Smith” by generations of postal workers, it scarcely matters. Customers are simply unhappy at changes to the service in recent years, even though some, such as abolishing the second delivery and closing loss-making post offices, were sensible. All they really care about is getting their mail on time.

Many customers may also take the view that, with many people — certainly nearly all of those in the private sector — having to accept pay freezes, tougher working conditions and greater job insecurity, the union is being unreasonable in trying to retain the status quo. The jobs-for-life culture at Royal Mail looks difficult to defend with 2.5 million people unemployed and desperate for work.

There can be no doubt that modernisation is required. Royal Mail’s pension deficit, put at £3.4 billion at the last actuarial valuation, is likely to have ballooned to something like £10 billion at the next. The pensions deficit is the biggest single problem for Adam Crozier, Royal Mail’s chief executive. It led to a cash outflow of £800 million last year and, while all four parts of Royal Mail (Royal Mail letters and packages, the Post Office, Parcelforce and General Logistics) all made a profit last year for the first time in two decades, they are simply not making enough.

Inept regulation has not helped. The universal service obligation, which requires Royal Mail to deliver post to every UK address every working day at the same rate, with the insistence by the regulator, PostComm, that stamp prices be held at one of the lowest levels in Europe, has hamstrung Royal Mail’s ability to make profits.

Added to this are structural changes in the market. With more people and businesses switching to e-mail and the internet, mail volumes are dropping by something like 10 per cent every year. Deregulation means that Royal Mail’s competitors are better placed to cherry-pick the most profitable parts of its business. That’s why, when you look at your post, the top right corner is often franked with names such as TNT and UK Mail.

The union disputes the extent of the decline and, with many more people buying online, it must seem to most posties lifting up a bag groaning with goods purchased on the internet that volumes are not falling to the extent that Royal Mail suggests. But the company’s results certainly point to such a fall. And what is inescapable is that for every 1 per cent drop in volumes Royal Mail suffers a £70 million fall in revenues. The case for more efficient working is beyond dispute and was spelt out in Sir Richard Hooper’s report for the Government last year.

That report formed the main justification for Lord Mandelson’s Bill proposing part-privatisation of Royal Mail this year. The Bill was somewhat optimistic — it is questionable whether professional investors would want to put money into a business making a pre-tax profit of just £49 million on revenues of £9.6 billion — but had plenty of merit. It sought, for example, to tackle the pensions deficit, the issue identified by the CWU general secretary, Billy Hayes, as causing most concern to ordinary workers.

However, the Bill was scuppered by Labour backbenchers, despite enthusiastic Conservative support.

That is partly why the dog that has not so far barked is the Government. As Royal Mail’s single shareholder, it has an interest in seeing the dispute resolved, but seems likely to stay on the sidelines for the foreseeable future. Royal Mail executives concede privately that there is no chance of the Mandelson Bill being revived this side of a general election.

But that doesn’t mean that the union — flushed with euphoria at seeing off the Bill — can rest easy.

The only view on Royal Mail offered by Ken Clarke, the Shadow Business Secretary, has been surprise that it has avoided insolvency for as long as it has. One senior Shadow Cabinet member, speaking on the fringe at the Conservative Party conference in Manchester this week, revealed that the Mandelson Bill is likely to be revived if the Tories win next year.

That alone should be a justification for the union to pull back from what would be a kamikaze strike action — and try to cut a decent deal with the Royal Mail while it still can.

Ian King is deputy business editor