2010 to 2015 government policy: postal service reform
Updated 8 May 2015
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This publication is available at https://www.gov.uk/government/publications/2010-to-2015-government-policy-postal-service-reform/2010-to-2015-government-policy-postal-service-reform
This is a copy of a document that stated a policy of the 2010 to 2015 Conservative and Liberal Democrat coalition government. The previous URL of this page was https://www.gov.uk/government/policies/ensuring-the-future-of-the-universal-postal-service-and-post-office-network-services. Current policies can be found at the GOV.UK policies list.
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:
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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.
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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.
Appendix 1: Royal Mail future access to private capital
This was a supporting detail page of the main policy document.
To help protect the future of the universal postal service we gave Royal Mail access to private sector capital and associated commercial disciplines through a sale of shares in October 2013. Royal Mail is the only postal operator in the UK that is able to provide the universal postal service. A healthy sustainable Royal Mail will ensure the maintenance of the universal postal service.
The Secretary of State laid a report ‘Royal Mail: Sale of Shares’ in Parliament on 10 July 2013 setting out the government’s decision to float shares on the London Stock Exchange (LSE) via an Initial Public Offering an IPO.
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 took place on the 15 October. 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.
There were some myths about what would happen as a result of the sale of shares in Royal Mail. The facts are set out in Royal Mail: mythbusters.
Objectives for the sale of Royal Mail shares
To sustain the universal postal service for the benefit of all users by securing Royal Mail’s future through the introduction of private sector capital and associated commercial disciplines.
We will achieve this through:
- delivering a sale of shares in Royal Mail within this Parliament
- creating an employee share scheme that, as Parliament has decided, will lead to at least 10% of the company in employee ownership, to drive stronger staff engagement
- delivering a financial outcome for the taxpayer, which when considered in the context of the overarching policy objective, represents overall value for money
Royal Mail Pension Plan
The Postal Services Act 2011 enabled the government to take on the historic deficit in the Royal Mail Pension Plan (RMPP). The pension deficit was a heavy burden on Royal Mail, taking up cash needed to modernise and become more efficient.
On 1 April 2012 we transferred the historic liabilities of the RMPP into a new government scheme, the Royal Mail Statutory Pension Scheme (RMSPS). This covers only the historic deficit, and not any new pension benefits, rights and obligations that accrue for members under the continuing RMPP.
These measures apply to all members of the RMPP, whether or not they are already drawing their pension and regardless of whether they work for Royal Mail or the Post Office. Future pension accruals remain the responsibility of Royal Mail, the Post Office and the RMPP Trustee.
Appendix 2: funding and modernising the Post Office network
This was a supporting detail page of the main policy document.
The government’s strategic policy for the future of the Post Office network sees a network with minimum of 11,500 post office branches being maintained with the company becoming more sustainable and viable.
Since 2010 the government has committed almost £2.billion in funding for the network which will help Post Office Ltd to maintain and protect a network of at least 11,500 branches and to provide funding for the modernisation of thousands of branches under the Network Transformation Programme.
The government also believes that a mutually owned Post Office Ltd, with employees, subpostmasters, and communities all working together could be ideally suited to the economic and social role that post offices play in communities up and down the country.
In 2011 the government on the move towards an agreed model for a mutual Post Office. Our response to the consultation was published in July 2012. Since then, the Post Office has established the Stakeholder Forum to help define the public benefit purpose of the Post Office. The Post Office will shortly publish further details of the steps it is taking to build a mutual future.
The Post Office network strategy
The Department for Business, Innovation and Skills is responsible for setting the strategic policy for the Post Office network and for agreeing Post Office Ltd’s business plan.
Post Office Ltd is responsible for managing the network of around 11,800 post office branches in the UK. The vast majority (around 97%) are operated by franchise partners or subpostmasters, who are independent business people. Only a small number of post offices are directly managed by Post Office Ltd.
Post Office Ltd provides access to around 170 products, including mail, financial, government and telephony services.
The government believes the Post Office needs to adapt to changing customers needs by offering customers what they want - longer opening hours, quicker service, high retail standards and convenient locations. To achieve this, Post Office Ltd is introducing new ways of working that will improve the customer experience, reduce operating costs and improve the financial sustainability of the network.
The government’s £2 billion funding package includes support for Post Office Ltd’s Network Transformation Programme, which will see all branches either modernised or protected by 2018. The government has made a clear commitment that the will be no programme of closures.
In return for this funding, the Post Office is required to maintain a network of at least 11,500 branches, and continue to meet the strict government-set access criteria that see, for example, 99% of the population living within three miles of a post office outlet.
The government’s detailed statement on the future of the post office network ‘Securing the Post Office Network in the Digital Age’ was published on 9 November 2010 and explains our plans to secure its future.
The Postal Services Act 2011 requires the Post Office to produce an annual report on its network, which is laid before Parliament. A copy of Post Office Ltd’s latest report, the - The Post Office Network Report 2013 can be found on its website