Consuming Issues: The Royal Mail is still delivering first-class service

Where are the bargains in 21st-century Britain? While bloated banks and energy suppliers offer poor service and high prices, there are plenty of excellent value goods and services, although they often benefit from dubious discounts such as free environmental damage or sweatshop labour. Among them are low-cost airlines which fly people at 36,000ft for the price of a DVD box set. Last year, an average Ryanair flight cost £44.93, from which the carrier made about £5.

Other bargains are cars (because of a global glut) and consumer electronics made by low-paid Chinese – a good 32-inch HD TV set can be had for £400; a decade ago an inferior set would have cost £1,000.

On a smaller scale is the 41p first-class stamp. Charles I created the postal service in 1635 but not many people have a good word to say about it in 2010. The second daily delivery was scrapped six years ago, resulting in letters often arriving in the afternoon. Second, the price of a stamp has kept rising, and went up another 2p in April. Third, the business has been in a state of constant industrial strife which erupted in a strike that sealed pillar boxes last year. Finally, many people find it quicker and cheaper to email; the number of letters sent is falling annually. So why is a 24mm x 21mm stamp a bargain?

It's helpful to admire the logistics of the postal system. Using a network of sorting offices, trains, trucks and bicycles, 140,000 staff deliver 75 million letters and parcels to 28 million homes and businesses daily. The post is also a universal service. Delivering a letter to a rural area costs more than delivering one in a city, yet a stamp costs 41p regardless of whether a letter is sent 87 yards or 874 miles from Cornwall to the nothern tip of Scotland. Email is quicker, but electronic messages don't display the personal touch of a letter, a 50th birthday card or a seaside postcard, and nor can the versatile internet deliver parcels.

OK, you might say, all postal systems work like this, but is Britain's any better or worse than, say, Germany or Spain's? It probably depends whether you view Royal Mail as customer or owner. In December 2008, an Ofcom executive, Richard Hooper, published his Government-commissioned review of the business, which is owned 100 per cent by the taxpayer. He concluded that while we should retain the universal service, which he described as "part of our economic and social glue", the Royal Mail needed reform by a private-sector partner. He said it used too little sorting technology and was less efficient and less profitable than its European peers.

Now this inefficiency and low profitability sounds pretty bad, doesn't it? But despite the moans, the customer gets a pretty good deal. In March, Germany's Deutsche Post released a comparison of European postal services. The UK's first-class stamp was the ninth-cheapest of 29 European nations – dearer only than Austria, Italy, the Czech Republic, Spain, Estonia, Cyprus, Romania and Malta. Adding in labour costs which take account of the relative national wealth, Royal Mail was the fourth-cheapest service in Europe.

This cheapness is partly because of the low pay of its workforce: the average postie earns £17,726, way below the UK median wage of £25,428. Admittedly, it is low skilled work, but it requires rising at dawn and working in all weathers. Rival firms such as TNT and UKMail, which cream off business mail while leaving Royal Mail carrying the burden of "last mile" delivery – pay their non-unionised people less, according to the Communication Workers' Union.

As to performance, the Royal Mail regularly hits the regulator Postcomm's target of delivering 93 per cent of first-class post by the next day and 98.5 per cent of second-class letters within three days. Ninety-nine in 100 letters are delivered correctly.

How long we keep this low-cost performance is in doubt, though. There is a feeling in Whitehall that the Royal Mail isn't up to much. This autumn, the Coalition is expected to press ahead with plans for "an injection of private capital", while retaining the universal service, and keeping the post office network in public hands. In calling for semi-privatisation two years ago, Mr Hooper published a table showing Royal Mail's 2007 operating margin of 0 per cent was the lowest of 13 western European countries. Undoubtedly, it needs modernisation, on which the CWU and management agree.

Instead of expecting the Royal Mail to perform like a private firm, perhaps we should view it as a public service like the NHS: a communications rather a health service staffed by low-paid workers who do a great job, cheaply. Probably as many people whinge about the mail as they do about the NHS, but sometimes you don't know the value of something until it's gone.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

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