Policy

Ensuring the future of the universal postal service and Post Office network services

Issue

The universal postal service - the 6-day-a-week, 1-price-goes-anywhere service to every address in the UK - is important for communities and the economy. The government is making sure the future of the service is secure and that everyone continues to have access to it.

The Post Office network is a unique national asset that provides convenient access to vital social and economic services to local communities across the UK. It needs to be maintained.

Actions

The government wholly owns Post Office Ltd (which runs the network of post offices) via its shareholding in the Postal Services Holdings Company plc (formerly Royal Mail Holdings plc). Following a sale of Royal Mail shares in October 2013, the government now owns a 30% stake in Royal Mail plc (which provides the universal postal service in the UK). These shareholdings are managed by the Shareholder Executive in the Department for Business, Innovation & Skills (BIS)

Royal Mail access to private capital

To help protect the future of the universal postal service, we ended Royal Mail’s dependence on unpredictable funding from the taxpayer and allowed them future access to private capital by selling shares in Royal Mail in October 2013. 60% of the company was sold to institutional and retail investors and 10% of the shares were allocated for free to eligible employees.

On 10 July 2013, the government announced its decision to sell shares in Royal Mail via a stock market flotation. On 12 September 2013, the government further announced its intention to float Royal Mail on the premium segment of the official list and the main market of the London Stock Exchange (LSE).

On 27 September 2013, the Initial Public Offering (IPO) was launched, giving financial institutions and members of the public (either through direct application to government or through intermediaries) the opportunity to buy shares. The offer closed on 8 October and conditional trading on the LSE began on Friday 12 October. Formal admission to the LSE took place on the 15 October and Royal Mail entered the FTSE 100 Group of companies in December 2013.

As part of the IPO, around 150,000 eligible Royal Mail employees were given a 10% stake in the company for free. This was the largest employee share scheme of any major privatisation for nearly 30 years.

Funding and modernising the Post Office network

The government has committed almost £2 billion in funding for the network for the period April 2011 to March 2018. This will enable the Post Office to maintain and modernise its network, helping ensure its long term sustainability.

Separating the Post Office and Royal Mail

Royal Mail and the Post Office are different businesses, facing different challenges. In order to maintain the Post Office in public ownership and enable private sector investment in the Royal Mail letters and parcels business, we separated Post Office Ltd from Royal Mail Group Ltd in April 2012.

This does not mean that the 2 companies will no longer work together. They compliment each other well and are natural business partners. The Chief Executive of Royal Mail has said it would be “unthinkable” that there would not always be a strong relationship between Royal Mail and the Post Office.

To ensure the continuation of their existing business relationship, at the time of separation, the management of Royal Mail and the Post Office put in place a commercial contract between the 2 parties (with the longest possible contract length permitted by law). This commercial agreement is the same as it was before the sale of Royal Mail shares.

Funding Royal Mail pensions

On 1 April 2012 we transferred Royal Mail’s historic liabilities of around £40 billion from Royal Mail’s pension scheme to a new public sector scheme (the Royal Mail Statutory Pension Scheme, RMSPS) to be administered by the government. At the same time around £28 billion of Royal Mail’s pension assets were transferred to government. The pension scheme left with Royal Mail was left with matching assets and liabilities.

Changing the regulator

From October 2011 we transferred regulatory responsibility for the postal market from Postcomm to Ofcom, the regulator responsible for the wider communications sector.

In March 2012 Ofcom put in place new regulations for postal services for the next 7 years. Ofcom’s primary duty is to make sure there continues to be a universal postal service.

Background

In the Coalition Agreement we said we would aim to inject private capital into Royal Mail, and explore opportunities for employee ownership. We also pledged to retain Post Office Ltd in public ownership.

At the request of the Business Secretary Vince Cable, Richard Hooper CBE, the former deputy chairman of Ofcom, updated his December 2008 report, Modernise or decline on the maintenance of the universal postal service in the UK.

Richard Hooper made 3 main recommendations in his September 2010 report, Saving the Royal Mail’s universal postal service in the digital age:

  • Royal Mail should have access to private sector capital
  • its historic pension deficit should be resolved; its deficit of £8 billion sapped cash from the business, making it difficult to compete with other operators
  • the way postal services are regulated needed to be better balanced so as to allow competition whilst ensuring the universal service remains available

We agreed and introduced the Postal Services Act 2011 to implement the recommendations.

Who we’ve consulted

In 2011 we consulted on the move towards an agreed model for a mutual Post Office. Our response to the consultation was published in July 2012.

Bills and legislation

Two Acts specifically cover postal services in the UK:

  1. The Postal Services Act 2011, which lifted restrictions on the ownership of Royal Mail, allowed for a future mutual ownership model for Post Office Limited (ownership across a mix of invested stakeholders, such as employees, subpostmasters and consumers, with no one party having an overall majority), enabled the transfer of the Royal Mail’s historic pension liabilities to government and put the framework in place to deliver a new regulatory regime.

  2. The Postal Services Act 2000 - some of which was replaced or amended by the 2011 Act - has a number of important provisions still in force. These include provisions relating to offences in relation to the mail, the schemes (setting out details of services’ terms and conditions) of universal service providers, application of customs and excise legislation to postal packets, and financing and restructuring of the Royal Mail group of companies.

The EU Postal Services Directives require member states to ensure the provision of a universal postal service. The requirements of the directives are implemented in UK law by the above Postal Services Acts.

Who we’re working with

Ofcom - the independent regulator and competition authority for the UK’s communications industries, and its responsibilities now include the postal sector.

Consumer Futures - creating Consumer Futures is part of the government’s wider consumer and competition reforms to help markets work better for consumers, improve consumer protection and give greater clarity about where consumers need to turn to for help and advice.

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