'No significant benefit' from open mail market

Opening up the postal market to competition has seen "no significant benefit" for consumers and smaller businesses, according to an official report today.

A review of liberalisation also found there was a "substantial threat" to the financial stability of the Royal Mail and the universal postal service.

"We have come to the conclusion, based on evidence submitted so far, that the status quo is not tenable. It will not deliver our shared vision for the postal sector," said the report.

The panel carrying out the review said in its initial findings that there was now a "strong case" for taking action to make sure the Royal Mail has a sustainable future.

"As we see rapid changes in the way people communicate, the way in which the postal sector is regulated will also need to change, and we need to establish how best to create the incentives for Royal Mail to modernise its operation, providing a stable, financial future."

The report said the postal market was changing and faced an "uncertain future", especially as firms looked to cut costs in the face of challenging economic conditions.

In the past two years, competition in the collection, sorting and transportation of bulk mail from businesses has expanded rapidly and much more quickly than was anticipated, the report found.

But there was virtually no competition to the Royal Mail in the delivery of letters despite a belief that some rival firms could invest in deliveries, perhaps twice a week, in urban centres.

"Others point out significant barriers to entry. We will need to consider this further, along with the risk that more extensive competition could make the universal service unsustainable."

Large firms had seen clear benefits from liberalisation, including more choice, lower prices and more assurance about the quality of the mail service, said the report.

But there had been no significant benefits for consumers and smaller businesses, who believed that Royal Mail's service offered good value for money as it stood.

The report added: "But they have no choice in provider and are paying higher stamp prices. The introduction of a pricing methodology based on weight and dimensions makes life more difficult."

Abolishing Sunday collections and the move to a single daily delivery were more visible to consumers and small firms and were seen as a reduction in services.

The Royal Mail faced "many challenges", but modernising its services will be more difficult as volumes fall.

Industrial action and a £3.4bn pension deficit also posed constraints, said the report.

A Royal Mail spokesman said: "We welcome this report and Royal Mail absolutely agrees with the report's conclusion that the one-price-goes-anywhere universal service to the UK's 28 million addresses is at the heart of a successful postal service.

"The report identifies the ways in which the open postal market is clearly not working and Royal Mail looks forward to submitting its further views on the changes that are required in the market, with the way it is regulated and on how the universal service can be sustained and financed going forward."

Chris Hannant, head of policy at the British Chambers of Commerce, said: "Whilst large firms are able to use alternatives to Royal Mail following the liberalisation of the postal service, many smaller businesses remain heavily reliant on them for final mile delivery.

"The only way to improve its service and win back lost business is by pushing ahead with modernisation. Firms want an efficient, value-for-money and reliable service, which Royal Mail must be able to deliver without the fear of more industrial action."