Consignia in a dire mess

A monopoly is supposed to be secure and stable. With no competition to drive down prices, the theory is that it should become a cash-cow. This is why it is a surprise that Consignia, the UK's postal service, is in such a dire mess.

Last week, it announced its financial results for last year, and they did not make pretty reading. A £1.1bn loss is the sort of figure one would expect from a flaky, fly-by-night technology company, not a stable service like post that has been around for donkey's years.

It is perhaps coincidental that its financial woes started at around the time the Government mooted plans to introduce competition into the market. The trade unions, which still hold a lot of power over Consignia, have complained bitterly about competition.

It is not uncommon for the likes of Hays and Business Post to be blamed for the financial woes. This argument doesn't stand when new entrants to the market have barely set up shop yet.

Consignia's chairman, Allan Leighton, agrees with this, admitting its problems have built up over a decade, leading to the company's current parlous state. Mr Leighton is seen as the man to turn the company around, particularly after its chief executive of 10 years, John Roberts, announced his retirement last year.

Mr Leighton is on the boards of numerous companies such as Lastminute.com, Bhs and Leeds United. His big achievement was as a member of the team that regenerated the supermarket chain Asda, which was teetering on the brink of financial collapse in the early Nineties and was brought back from the dead to become the successful business it is.

His strategy is to cut hefty costs in the business, in ways that may not please the public, but which he says are vital to stop the rot. He will scrap the second post, which is said to account for 20 per cent of the company's costs, yet delivers only 4 per cent of the mail. This should save £350m a year. The parcels service will be scaled back, and more Post Office closures are expected.

And 30,000 people will lose their jobs, which is unlikely to please the unions. But plans for redeployment within the company and voluntary redundancy packages should quell any strikes, as should the vague promise to increase the wages of posties.

Meanwhile, PostComm, the industry regulator that was charged with the task of introducing competition, has scaled back its plans until Consignia sorts itself out.

Some semblance of a state-owned industry is needed. As profits at Consignia used to be so large, the Government has benefited greatly from large dividends over 20 years. Now it is going to give the money back, a cool £1.8bn.

One very welcome change is the end of the much-ridiculed brand, Consignia. Soon it will be known as plain old Royal Mail, hopefully producing plain old profits.