Document-Genetics-GlobeRoyal Mail sell-off could end daily deliveries

11th January 2013

Privatising the Royal Mail could pave the way for relaxing the company’s legal obligation to provide daily deliveries at a flat price, sources have revealed.

Ministers discussing the sale of the Royal Mail are understood be considering whether the sale agreement for the company should make a clear legal provision for changes to the Universal Service Obligation (USO).

Under the USO, the company is legally required to deliver post to every address in the UK six days a week at "uniform and affordable prices".

The obligation is the basis of the Royal Mail’s cherished nationwide service, which means that the cost of posting a letter to any address in the UK is the same everywhere.

However, the requirement is extremely costly to fulfil, and some ministers believe that it will become untenable as the number of letters sent falls further.

Government sources say that the sale of the Royal Mail will have to address the prospect of future changes in the USO.

Any move to relax the obligation would be highly controversial, especially in rural areas, and would lead to allegations of a two-tier postal service.

However, it would also cut Royal Mail’s costs and make the company more profitable.

One option under consideration in Whitehall is for the sale contract for Royal Mail to contain clauses that would claw back a share of any increased profits the privatised company would make after the USO was relaxed.

Ministers are discussing plans to sell of the Royal Mail as early as next year in what would be the biggest privatisation of a state asset since the 1990s. Options include selling shares to the public, or a private sale to an existing private-sector postal company.

The sale was discussed earlier this month at the Cabinet sub-committee on asset sales, where Conservative and Liberal Democrat ministers agreed that the company is making good progress towards a potential sale.

A source close to the committee told the Daily Telegraph that Conservative ministers are thinking about future changes to the USO.

Any change in the obligation must be approved by MPs, and a change is unlikely to be approved in this Parliament. But an all-Conservative government could seek to relax the USO, a source said.

“It may be that the USO has to go in the next Parliament,” a source said. “If and when what happens, you would want something in the sale terms to ensure that taxpayer doesn’t lose out on the gains for the investors.”

Sources said the Lib Dems would be “extremely hostile” to any signal that the USO could be watered down after privatisation. Making explicit legal provision for such a change would “completely undermine public confidence” in the Royal Mail and hurt the business, a source said.

Ofcom, which regulates the Royal Mail, this year launched a review of the universal postal service, which could lead to major changes next year.

The regulator found that the number of letters and parcels sent by residential consumers each week has more than halved since 2006, from 3.5 items on average to 1.5.