t Updated: Monday, 8 August 2005, 15:05 GMT 16:05 UK E-mail this...

t Updated: Monday, 8 August 2005, 15:05 GMT 16:05 UK

E-mail this to a friend Printable version

Could more jobs go at the Royal Mail?
Analysis
By Will Smale
BBC News business reporter



The Royal Mail denies that 30,000 jobs are at risk
Speculation that the Royal Mail wishes to shed another 30,000 front line workers has once more thrust the state-owned postal service into the headlines.
The job loss figure came in a report into the future of the Royal Mail commissioned by postal service regulator Postcomm.

And the regulator is also in dispute with the Royal Mail over stamp prices, with reports that Royal Mail wants to raise the price of a first class stamp from 34p to 48p.


Although Royal Mail disputes the job cuts figures, why is it credible that the company, which has already shed thousands of jobs, might need to cut some more? And why is the Royal Mail in dispute over the price of postage?

Competition dawn

The answer to both questions is simply the fact that the Royal Mail will lose its 350-year-old monopoly from the start of next year.

From 1 January 2006, any licensed company will be able to deliver to business or domestic customers.

Up until now, the Royal Mail's only competition comes in the bulk deliveries market, from companies handling bulk mail in batches of 4,000 letters or more.

And while the Royal Mail will continue to have to offer a universal service - for example, guaranteeing deliveries to homes in the Isles of Scilly and Outer Hebrides - its new competitors will not.

In addition, it is likely that most of the new mail companies will choose to concentrate solely upon business or "franked" mail, as this is by far the most lucrative sector of postal deliveries.

By contract, the Royal Mail claims it continues to lose money for every stamped or household letter that is posted, a service that is - at present - effectively subsidised by its business deliveries.

For this reason, the Royal Mail wants to be able to raise the price of a first class stamp to 48p by 2011, to help compensate for falling business delivery revenues post-market liberalisation.

Postcomm in turn says the Royal Mail needs no more than a 4p rise, and should easily be able to cope with the end of its monopoly.

The suggested 30,000 job losses at the Royal Mail could also be another direct consequence of the forthcoming arrival of competition.

Job losses

The estimated job losses came in a report for Postcomm carried out by consultancy LECG which predicted that the jobs will go over the next five years, "largely through natural attrition, avoiding redundancies and the potential for industrial action".

The Royal Mail, which has already cut some 50,000 positions since 2001, has denied the claims, calling the report "speculative" and "full of assumptions and projections".

By contrast, Postcomm stands by the 30,000 figure, insisting firstly, that it was gained from the Royal Mail's own strategic plan, and secondly, that a copy of the LECG report was given to the Royal Mail board before it was published.

"The Royal Mail saw the 30,000 figure beforehand, so it hasn't come as a surprise," said a Postcomm spokesman.

Financial turnaround

However, it is important to note that the Royal Mail has never been in better financial shape.

For the financial year ending 31 March 2005, it made record profits of £537m, up from £220m for the previous 12 months.

It might have been haemorrhaging cash in the past, but it has successfully turned itself around, already reducing its workforce from 218,000 in 2001 to today's 165,000.

Each member of the Royal Mail staff was this year given a bonus of £1,074, and chief executive Adam Crozier received a £2.2m bonus as his reward for leading the recovery.

But increased competition could lead to tougher times ahead.