Royal Mail 'scaremongering' over threat to universal service

The boss of Royal Mail has been accused of "scaremongering" by the business secretary, after telling MPs that there is a threat to the universal service.

Moya Greene said that competitors were "cherry-picking" Royal Mail's most profitable business.

She says that makes the universal service uneconomic. Business secretary Vince Cable said there was no threat.

The universal service means Royal Mail has to deliver across the UK, six days a week, and all for the same price.

Competitors such as Whistl and UK Mail are under no such obligation.

"If you allow cherry-picking in the urban areas, it syphons off a lot of revenue," Moya Greene told MPs on the Business, Innovation and Skills Committee.

"It makes the universal service unfinanceable and uneconomic," she claimed.

But Vince Cable, the business secretary, said that Royal Mail was guilty of "scaremongering".

He said both houses of parliament would have to vote to change the law to get rid of the universal service.

"There's absolutely no question of that change," he told the BBC.

'Fair price'

Some of the Royal Mail's competitors denied that they were stealing the profitable part of the business.

Guy Buswell, the chief executive of rival UK Mail, said all 15m items they handle a day are delivered by Royal Mail.

"It all ends up in the postman's sack, so effectively there is no cherry-picking whatsoever," he told MPs.

UK Mail collects its own mail, but uses Royal Mail to deliver to individual addresses, paying an access fee for the privilege.

But competitors given a licence can also carry out their own deliveries as well, a process known as end-to-end competition.

Whistl, formerly known as TNT Post, has been making deliveries in urban areas like London and Manchester since 2012, but relies on Royal Mail to deliver in rural areas, where costs are higher.

"We pay Royal Mail a fair and reflective price to cover the rural areas, which takes out any opportunity for cherry-picking," said Nick Wells, the chief executive of Whistl.

Moya Greene wants the regulator to review the universal service now

Review

Ms Green told MPs that the universal service cost £7.2bn a year to finance, so needed cross-subsidy from profitable urban deliveries.

She said Royal Mail had already seen a "structural" decline of between 4% and 6% in the volume of letters it handles every year.

Mr Wells said it was that structural decline - rather than unfair competition - which was hurting Royal Mail.

Ms Greene called for the regulator, Ofcom, to bring forward a review of the universal service, which it is planning for next year.

"We need to accelerate that review," she said. "Don't wait."

The government has guaranteed that the universal service will continue at least until 2021.

Scotland business correspondent Douglas Fraser writes:

Delivering a letter to the further flung parts of the Britannic realm costs the Royal Mail a lot more if it has to go by air or ferry, and then up long farm tracks.

So it's clear who would lose out if Royal Mail is allowed to drop its Universal Service Obligation.

Small businesses, in particular, depend on equalised postage costs if they are to compete for custom, and they are vital to the survival of many rural communities.

While Royal Mail has opened up a campaign to remove its own competitive disadvantage, it will meet political obstacles.

One of the arguments made against Scottish independence earlier this year was that postal costs would go up if there was no cross-subsidy from England's big cities. And if Scotland stayed in the union, it was argued the obligation for a UK-wide delivery service, at the same prices, would remain. Westminster ministers will want to stick to that assurance, or face accusations of betrayal from the Scottish government.

Meanwhile, the price of delivering parcels to online shoppers in the sparsely-populated parts of Britain is already a bone of contention. Ministers at Holyrood have urged a set of principles on retailers to ensure that rural customers don't face discrimination, unfair charges or nasty surprises as they're about to pay.