Small firms enjoy no great ‘benefits’ from postal competition

Small businesses have gained no significant advantages from the opening up of the postal service to private competition, a new report has said.

Liberalisation of the postal market has, however, jeopardised the future of Royal Mail, the report concluded.

The independent review was carried out on behalf of the government by a panel led by former Ofcom deputy chairman, Richard Hooper.

Royal Mail lost its monopoly on postal deliveries in 2006, and the initial findings of the review, with the full report due in the summer, suggested that a thorough overhaul of the way the postal delivery is regulated will be needed to guarantee a strong and cost-effective service.

The review found that large firms, which often deal in bulk mailings, have benefited from the new competition, taking advantage of lower prices and wider choice.

However, small businesses and consumers have not enjoyed similar benefits.

Small firms still tend to use Royal Mail for handling their post because there is almost no competition when it comes to delivering letters in the final mile to letterboxes.

The danger is that Royal Mail, having lost lucrative business to its rivals in the collection and sorting of bulk deliveries, may no longer be able to ensure a universal, one-price, next-day delivery service for the whole of the UK.

The report said: “There is now a substantial threat to Royal Mail’s financial stability and, therefore, the universal service. We have come to the conclusion, based on evidence submitted so far, that the status quo is not tenable. It will not deliver our shared vision for the postal sector.”

It continued: “As we see rapid changes in the way people communicate, the way in which the postal sector is regulated will also need to change, and we need to establish how best to create the incentives for Royal Mail to modernise its operation, providing a stable, financial future.”

A Royal Mail spokesman said: “We welcome this report and Royal Mail absolutely agrees with the report’s conclusion that the one-price-goes-anywhere universal service to the UK’s 28 million addresses is at the heart of a successful postal service.”

Responding to the interim review, the Forum of Private Business (FPB) said that it was essential that the government restore the postal services that have been lost to many small businesses.

The FPB cited the closing of some 2,500 post offices across the country, a policy that has already disrupted lines of communication for many smaller firms.

The FPB said it believed that the traditional service offered by Royal Mail provides small businesses with better value for money.

Phil Orford, the FPB’s chief executive, commented: “The report appears to substantiate fears that the postal services relied upon by many small businesses, particularly those in rural areas, have been critically eroded.”

Mr Orford added: “Following the announcement that so many branches are to close, it is important that these services are restored as quickly as possible, and that suggested measures, such as locating post offices in alternative locations and introducing mobile units, are put into practice as a matter of urgency.”