Royal Mail could save up to £650m if it delivered letters just three days a week and £200m by stopping Saturday deliveries, the communications regulator has said.
The watchdog said a reduction from six to five days a week would save £100m to £200m, and going down to three days would save between £400m and £650m.
In a much-anticipated review, Ofcom laid out a series of options for the future of the universal service obligation (USO), which requires Royal Mail to deliver nationwide, six days a week, for a fixed price.
The regulator began gathering evidence to show how the future of the service may be reformed to better suit consumers’ needs last year, amid a long-term decline in letter volumes and a surge in the number of parcels sent as online shopping has grown.
Ofcom said there was an increasing risk that Royal Mail would become “financially and operationally unsustainable in the long term”, given the cost of delivering the USO.
The watchdog stressed that it was not consulting on specific proposals, but said the two “primary options” for reform were the cuts to the number of letter delivery days, or changes that could mean making first- and second-class deliveries take up to three days or longer. That would be accompanied by a next-day service for urgent letters, it said.
It has conducted consumer research and modelled Royal Mail’s finances in the review, and will seek views with a further update planned later this year.
Melanie Dawes, the chief executive of Ofcom, said: “Postal workers are part of the fabric of our society and are critical to communities up and down the country. But we’re sending half as many letters as we did in 2011, and receiving many more parcels. The universal service hasn’t changed since then, it’s getting out of date and will become unsustainable if we don’t take action.
“So we’ve set out options for reform, so there can be a national discussion about the future of universal post. In the meantime, we’re making sure prices will remain affordable by capping the price of second-class stamps.”
In consumer polling for Ofcom, 88% of respondents said reliability was important for letter deliveries, This compared with 58% who said a Saturday service was important , down from 63% when research was last conducted in 2020.
Interested parties have until 3 April to submit their views to the regulator.
Martin Seidenberg, the chief executive of Royal Mail’s parent company, International Distributions Services, said: “We have been calling on government and Ofcom to tackle this issue for four years, and the lack of action means that we are now facing a much more serious situation.
“While other countries have grasped the opportunity to change, the UK is being left behind. There has been a lot of discussion about dropping Saturday letter deliveries in the UK, but as other countries have shown, there are a range of options to consider.”
Royal Mail has long-pushed to be allowed to cut Saturday deliveries but the government rejected the proposal last year. It emerged last weekend that the move was being studied, and Downing Street indicated that it would oppose such a plan.
On Wednesday morning, the postal services minister, Kevin Hollinrake, said the government was committed to a six-day service from the Royal Mail.
He told Times Radio: “The prime minister been very clear on this, six-day delivery is really important for many people in this country, many of our citizens, but also for many of our businesses.”
The universal service has been unchanged since the rules were drawn up under the Postal Services Act 2011 and significant changes would need to be voted on by MPs.
It would ultimately be for the government to determine whether any changes are needed to the minimum requirements of the universal service, Ofcom said.
Seidenberg told MPs in a letter last week that the USO was “unsustainable” in its current form, and cited similar reforms in other European countries.
Dave Ward, the general secretary of the Communication Workers Union, said: “To produce a report without any input whatsoever from frontline workers of their union is an attempt to railroad through the failed agenda of the previous Royal Mail management team.”
“We will now launch an extensive engagement exercise and produce our own report on the future of Royal Mail,” he added.
This article was written by Alex Lawson from The Guardian and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.