Royal Mail should be partly privatised if it is to keep services afloat, the mail regulator Postcomm said.
In an independent review of postal services, Postcomm said Royal Mail’s business model is unsustainable and that, “unless some bold actions are taken very quickly, it is highly likely that its letters business will move to a position of managed – but accelerating – decline”.
The company recently announced that its universal service – which delivers letters all over the country at a uniform price – made a loss for the first time.
Royal Mail said at the time that the service is vital to the UK economy but needed a new way of being financed.
According to Postcomm, a radical transformation is needed and Royal Mail needs access to private capital to make it profitable.
Postcomm chairman Nigel Stapleton said: “Postcomm’s primary duty is to protect a universal postal service.
“Postcomm wants to see the government and Royal Mail embrace a partnership approach with the private sector to secure a universal service valued by all users and provided at least cost, without public funding.”
The watchdog also said artificial barriers to entry to the mail market, such as the exemption on VAT that Royal Mail benefits from, should be removed.
In addition, Postcomm criticised Royal Mail for paying substantial performance bonuses when the company has not achieved its efficiency targets for the year.
Royal Mail no longer has a monopoly since other operators where given the right to collect and deliver mail in 2006.
But it is still obliged to deliver letters at a universal price all over the country – regardless of the cost.
With competition eating into the margins of its profitable, parcel delivery business and the rising expense of maintaining universal delivery, Royal Mail announced a loss of £279 million in the year to the end of March.
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