Consignia may be another Railtrack, warns watchdog

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Consignia could turn into "another Railtrack", the Government has been warned, after a report said increased competition posed serious risks to Britain's postal service.

The National Audit Office found the nationwide delivery of letters and packages at a uniform price was in jeopardy unless the regulator, Postcomm, handled the issue effectively.

The NAO warned that Postcomm, set up last year, had to balance the need for real competition with the risk to the country's long-held tradition of a universal service.

In a report to Parliament, the financial watchdog said the fact mail delivery was not privatised meant that Consignia has insufficient competition to force it improve its performance.

The firm has failed to meet its target for 92 per cent of first-class mail to arrive the next day, and in London its record is much worse, the NAO found.

However, if Consignia were to lose significant custom as part of the Government's plans to end its monopoly, it could fail in its statutory duty to offer a universal service at the same price across the UK.

Yesterday, Edward Leigh, a Tory MP and chairman of the Public Accounts Committee, said there was a "very real danger" that the Government's handling of Consignia could turn it into another Railtrack.

Consignia could not meet letter delivery targets, lost 60,000 working days to industrial action last year and made an operating loss of £100m in the first six months of the financial year, Mr Leigh pointed out.

"This is a company that is in serious trouble. It will be a real challenge to the regulator to open up competition without making Consignia's weaknesses much worse," he said.

"When I post a letter, I expect a service that is inexpensive and punctual. But how much longer before the public lose their trust? I used to expect the same of the trains."

In his report, Sir John Bourn, the head of the NAO, made clear that the current hybrid arrangements, with Consignia not fully privatised but regulated as if it were in the private sector, posed significant difficulties for Postcomm.

Sir John said introducing competition to other formerly monopoly markets such as gas and telecoms had proved effective for consumers but similar benefits were not likely as long as Consignia was wholly owned by the Government.

He said: "The Department of Trade and Industry, as the principal shareholder, may not apply sufficient pressure on Consignia to improve its performance and respond to competition. The Department may not be in a position to apply the same disciplines to Consignia as private-sector shareholders would."

Consignia said competition was already building up and it recognised that a tough market would inevitably get tougher.

A spokesman said: "The report makes clear that there are major risks for Consignia in the approach Postcomm is developing."