5 September 2024

Securing the future of the universal postal service

·    National debate highlights need to reform UK's postal service to secure its long-term future

·    Ofcom to explore modifications to Second Class letter delivery, while leaving First Class unchanged

·    Following in-depth consumer research on whether this option meets postal users' needs, we expect to consult on proposed changes early next year

Ofcom will assess whether certain changes to Second Class letter delivery - while maintaining a next-day First Class service six days a week - would meet postal users' needs, ahead of consulting on proposals early next year.

Ofcom's job is to make sure there is a universal postal service that meets the needs of users and is affordable, efficient and financially sustainable.

In recent years, people have been sending far fewer letters, and Royal Mail has been losing hundreds of millions of pounds. If the universal postal service does not evolve to align with customer needs, it risks becoming unsustainable, and people could end up paying higher prices than necessary.

Earlier this year, we launched a national debate on the future of the universal service, to seek input from valued experts and consumers before we make any proposals. We are grateful for all the contributions we received. Today, we have set out our next steps.

Clear need for reform

We have heard from thousands of people and organisations, including consumer groups, unions, businesses, public services, Royal Mail and the wider postal industry, as well as from postal users directly, from right across the UK.

Overall, respondents and participants in our public events recognised that the way people and businesses use letters has changed, and acknowledged that changes to the obligations on Royal Mail will be required if we are to ensure the service remains sustainable, affordable and reliable.

There was strong support for maintaining the fundamental principles of universality, affordability and uniform pricing.

Evidence gathered so far

Our research shows that affordability is the most important feature to people when it comes to letter deliveries. We will therefore continue to ensure there is an affordable option available for consumers, on a 'one price goes anywhere' basis.^[1]

The evidence we have gathered so far also suggests people want a next-day service available six days a week for when they need to send the occasional urgent letter or card. However, people acknowledge that most letters are not urgent.

If Second Class letters continued to be delivered within three working days but not on Saturdays – and First Class remained unchanged at six days a week – it would enable Royal Mail to improve reliability, make substantial efficiency savings, and redeploy its existing resources to growth areas such as parcels. 

In its response to our call for input in January, Royal Mail set out its detailed plan for modernisation for the first time, which included a detailed proposal for such changes.

Next steps

We will now carry out further in-depth research among postal users to explore whether this option - which broadly aligns with one of the options we set out earlier this year - meets their needs. As we assess this, we will take full account of the issues and concerns raised by respondents to our national debate.

The changes we are assessing could be made through Ofcom's regulations, and would not require Parliament to make any changes to legislation. Following the conclusion of our further consumer research, we expect to consult on detailed proposals for reform in early 2025, with a view to publishing a decision in summer 2025.

Many other countries in Europe have already reformed their universal postal service, with some reducing delivery days more radically.

Improving reliability and efficiency

In recent years, Royal Mail's delivery performance has not been good enough. In the last five years, we have found it in breach of its quality of service obligations twice and fined it both times.^[2]

We have been pressing the company on what it is doing to turn things around, and we are currently investigating its latest failure to hit its annual delivery targets. Regardless of how the universal service evolves, Royal Mail's delivery performance must improve.

While it has made some progress recently, including in relation to efficiency improvements, there is more to do as it modernises its network. 

Lindsey Fussell, Ofcom's Group Director for Networks and Communications, said: "Postal users' needs are at the heart of our review. If we decide to propose changes to the universal service next year, we want to make sure we achieve the best outcome for consumers.

"So we're now looking at whether we can get the universal service back on an even keel in a way that meets people's needs. But this won't be a free pass for Royal Mail - under any scenario, it must invest in its network, become more efficient and improve its service levels."

Please visit the Ofcom website for further details on today's announcement:

https://www.ofcom.org.uk/post/royal-mail/the-future-of-the-universal-postal-service/

END

Notes to editors

1.    We set a safeguard cap on Second Class stamp prices.

2.    We measure Royal Mail's performance against annual delivery targets, from April to March. For example, it is required to deliver at least 93% of First Class post - across the UK - within one working day of collection, and 98.5% of Second Class post within three working days, over the whole financial year. If Royal Mail misses its targets, in considering whether it has complied with its regulatory obligations Ofcom can take into account evidence of any exceptional events beyond the company's control. We have found Royal Mail in breach of its regulatory obligations twice in recent years:

o  2023/24: We are currently investigating Royal Mail's failure to meet its delivery targets for 2023/24.

o  2022/23: We fined Royal Mail £5.6m for missing its First and Second Class delivery targets.

o  2020/21 and 2021/22: We did not find Royal Mail in breach of its regulatory obligations. The Covid-19 pandemic had a significant, pervasive and unprecedented impact on Royal Mail's operations.

o  2019/20: We did not find Royal Mail in breach of its regulatory obligations. Royal Mail was on track to meet its targets before the Covid-19 outbreak, which had an impact on its operations for the last few weeks of the financial year. Accordingly, we were satisfied that the company had met its regulatory obligations.

o  2018/19: We fined Royal Mail £1.5m for missing its First Class delivery target.