Consignia to compensate for lost and late letters

Consignia is facing the threat of financial penalties running into millions of pounds after breaching its licence and admitting that Royal Mail is losing half a million letters a week.

The postal regulator Postcomm criticised Consignia yesterday and disclosed that it could have fined the company £8m for failing to achieve its performance targets last year. But the regulator decided that this would be counter-productive in view of the £1.5m Consignia is losing each day.

Instead, Postcomm now intends to introduce a scheme whereby Consignia will pay compensation to customers rather than fines to the Government for failing to meet its targets. The details of the scheme will be announced in the next month alongside proposed price controls on Consignia.

Postcomm said it was concerned at the Royal Mail's failure to meet standards of service to customers in the 2001-02 financial year. The proportion of first-class letters arriving the next day was 91.5 per cent against a target of 92.1 per cent, but in some individual postcode areas it was considerably worse.

In many parts of London and the Home Counties, only 85 per cent of first-class letters are arriving on time. The worst performing district was east London with a rate of 83.2 per cent.

Even though Royal Mail failed to hit its targets, Postcomm decided that it had not breached its licence because it had made "reasonable endeavours" to improve its performance.

However, Postcomm said that in the case of two business services – first- and second-class response mail – Consignia had breached its licence and should therefore be liable to pay financial penalties.

Royal Mail's managing director for service delivery, Mick Linsell, said the two services accounted for only 2 per cent of total mail volumes which averaged 82 million letters every working day.

He also said that new research carried out by the company showed that an estimated 500,000 letters were going astray each week, mainly due to being delivered to the wrong address.

However, Mr Linsell said this represented just 0.1 per cent of total letter deliveries which amounted to 21 billion a year. He also argued that Royal Mail delivered 15 million misaddressed letters a week to the correct person.

"Our people accomplish some real feats in delivering badly addressed mail on time. Some have directions instead of addresses and even descriptions of the intended recipient," he said.

However, the consumer group Postwatch said that Royal Mail needed to halve the number of letters which were lost or mis-directed. Gregor McGregor, the organisation's chief executive, said: "We are pleased that Royal Mail has now acknowledged that it has a major problem. This admission is the necessary, if long overdue, first step towards fixing it."

Postcomm's warning follows the uproar which Consignia sparked last month by announcing that households would have to pay £14 a week if they wanted their mail delivered before 9am.

The announcement was made without the knowledge of Consignia's chairman Allan Leighton, who subsequently intervened and told Royal Mail to cut the level of the new charges. Trials being conducted in different parts of the country with people paying different prices for guaranteed early delivery have been a flop, with only one household signing up for the new service.