Examining the 2007 Royal Mail dispute

Rob Ray explains the introduction of competition to the postal service, and why it will be the government, not postal workers, who the public have to thank for the loss of cheap post and the universal service.

Submitted by Freedom on November 5, 2007

The problem, according to headlines in the mainstream press, was a 2.5% pay rise being offered by Royal Mail to its 190,000 workers, along with some vague problems to do with ‘terms and conditions’.

The reality of what is being faced by the postal workers is far more complex and vastly more damaging, not just for them, but for everyone who wants to be sure of getting their mail.

In a recent talk to trade unionists, Nigel Kemp from the CWU explained the full situation: “During the 80s and 90s the post office was making a healthy profit. The Tories, instead of investing they kept clawing the money out to fund other projects. We came to a point in 1998 where our machinery was out of date and we needed investment and a campaign was run to ask for the funds.

“This was achieved but a regulator was attached. They were supposed to oversee the public services, but there had also been an agreement to open up the markets in Europe.”

In the UK, the postal regulator, appointed in 2000, would be the body tasked with delivering a privatisation the Tories had been unable to accomplish. The original 1997 EU agreement on postal services was a masterwork of neo-liberalism. It agreed to the introduction of competition across the EU zone, with the idea being to gradually destroy publicly-owned postal monopolies across the bloc, thus putting them in a position to be sold off in an orgy of privatisation by 2009.

The EU debates on how to implement this scheme however were more complex than originally envisaged, with only Blair’s Labour government strongly backing an immediate introduction of partial competition.
It wasn’t until five years later, in 2002 that the agreement would be signed off and published as directive 2002/39/EC. The deal would only affect Britain in the first instance, and would only affect the movement of high-profit items such as packages and business post – where most of the real money is made - along with all outgoing cross-border mail services.

Nigel explained: “In the end Europe set up a new system and everyone had to have a licence for the EU area. As part of the new agreement, which is designed to eventually privatise the mail across Europe, our government opened UK markets in 2006, while the rest of Europe agreed to do it two years later.”

The agreement bound Royal Mail hand and foot. Under it, all the major European monopolies, secure within their own borders, could compete for Royal Mail business but Royal Mail was banned from competing in a similar way in European markets.

To add insult to injury, under the new law of competition, Royal Mail’s public service monopoly position was considered to be too powerful for newcomers to compete with, so it was placed under severe restrictions to stop it from overwhelming its new competitors.

“We had to allow competitors to come in and use our facilities, as they didn't, and still don't have an infrastructure capable of covering Britain themselves.” Nigel added. “We also had price constraints placed on us. That led to a decrease in revenue for the post office. At present, a customer can post something with TNT, and all they do is collect it. We then deliver TNT's mail for them, charging a set price of 13p. We have to charge 30p to do the same job direct, but TNT can charge 25p an item while making us do it. It's a suicidal agreement, why pay 30p when you can pay 25p for exactly the same job?”

Effectively, the Royal Mail has been forced into not just a position of equal competition, but an unsustainable, anti-competitive one. The company is even banned from making special offers such as temporary bulk mail discounts, for fear they will draw people back to the Royal Mail rather than promoting a continued haemorrhaging of custom. It is in this context that Royal Mail bosses Allan Leighton, Adam Crozier, the government and the press were saying the strikers should be condemned for potentially losing Royal Mail its customers.

Meanwhile other EU members have since decided that rather than open their own markets as promised they will put off the decision on whether to do so until 2011. Leighton and Crozier have been staunch supporters of this agreement, which has seen revenues fall off a cliff since it was introduced. Royal Mail’s half-year figures for 2007 showed an 86% collapse in profits to £22 million.

In an effort to push Royal Mail workers towards their way of thinking, they offered bonus payments and ‘phantom shares’ worth 20% of the company to workers, setting them up for one-off payouts should job cuts go through unopposed and privatisation happen without a hitch.

The pair have also presided over an increasingly murky financial picture. Last year a deal was made with the government to take a £900m loan to ‘plug the pensions gap’. Another loan in 2001 was used, according to the company, to finance overseas acquisitions at a time when he company was starting to fall into heavy debt

The result today? “When we put in for our pay rise we were told there was no money, and now we are also having trouble with pensions, where they want to get rid of final salary payments to pay for their mistakes. People could see their pensions reduced by between £60,000-£100,000 if that happens. Each.

“They are also after our terms and conditions. Totally flexible attendances, changing terms and conditions at a moment's notice, changing our pay to a yearly total – with 30 hour weeks in the summer and long shifts in the winter effectively wiping out overtime payments. In addition, they want performance targets for attendance, turnover… “They did take a loan from the government, we are trying to get a Freedom of Information Act request in to find out what has happened to that money.”

While these attacks on workers’ wages, terms and conditions, and retirement savings have been taking place, and are likely to be ongoing over the next few years, a five-year restructuring plan has also been gathering pace, which would see up to 40,000 workers laid off. The cuts follow 53,000 layoffs already accomplished since 2000, and would represent a total loss of nearly half of all Royal Mail employees over the course of this decade if carried through.

While the workforce faces cuts, unionists have become increasingly furious about the payouts top managers at Royal Mail have been receiving for carrying out this hatchet job. Allan Leighton got £800,000 this year and a bonus of £165,000, while his deputy Adam Crozier saw a £370,000 bonus on top of his £615,000 salary. In 2005, hitting targets netted Crozier a cool £2.2 million bonus for his role in axing 33,000 jobs over the previous three years.

Although the profitable sectors of the post are being removed from Royal Mail, they are still expected to provide a universal service, which often includes delivering to rural areas at a loss. Private operators have expressed no interest in taking on the unprofitable task, and look set to charge far more to build a profit if they do, creating a two-tier system of delivery and further disadvantaging the rural poor.

Nigel added: “The longer the rules in Europe continue the more things will go downhill and we are having to pay for it. Our members have no choice but to fight. If we lose everyone pays. We have a responsibility to deliver to rural areas at cost, but private companies don't.”

It is the government who have been the architects of the downfall of the post office over the last ten years, aided by a postal regulator whose sole role has been to remove all barriers to a free-market sacking of the service.

The union leadership have been little better in their belated response, bringing out the workers on a series of one-day rolling actions which have severely stunted their impact, and calling off the strikes altogether for a prolonged period to enter into negotiations which were highly unlikely to succeed given Leighton’s stated intent to make this his “miner’s strike”.

The postal workers are fighting an uphill battle. In the press they have been labelled greedy, lazy, thieving scroungers who need to fall into line with the rest of the market. Yet is it the workforce, not the government, who stood up to be counted and demanded that a universal post run to the best of its ability and not be driven into the ground.

The recent deal, while staving off the worst of the changes that Royal Mail originally mooted, does nothing to solve these long-term problems. And the regulator will return for the kill.