Yahoo Finance Royal Mail warns taxpayer bailout may be needed to keep service afloat
Royal Mail has warned that it may need a taxpayer bailout to keep the postal service afloat amid a sharp decline in letter sending.
Martin Seidenberg, the chief executive, said it was “simply not sustainable” to maintain a delivery network built for 20bn letters when the company was now only delivering 7bn.
He added that this number would drop to 4bn within five years at the current rate of decline, while the number of addresses was also increasing. This means Royal Mail is now only delivering an average of four letters to each UK address per week.
Royal Mail has been campaigning for a relaxation of its universal service obligation (USO), which requires the company to deliver letters from Monday to Saturday.
But Mr Seidenberg warned that other options included “significantly” increasing prices or, in a more extreme scenario, seeking a “subsidy” from the Government.
In a letter to Liam Byrne, chairman of the business and trade select committee, Mr Seidenberg wrote: “Whilst we are doing all we can to transform, and the actions taken by us to date provide some breathing space to continue our journey, we also need Ofcom and the Government to do their bit.
“Delivering the current Universal Service requirements – in a financially sustainable way - is increasingly difficult, if not impossible, to achieve as the mix and number of parcels and letters changes.”
The rapid decline in sending letters, coupled with crippling strike action, have sparked a crisis at Royal Mail.
The company posted a £319m loss in the first half of its financial year, an increase of £100m compared to the same period in 2022.
Meanwhile, its quality of service has deteriorated sharply. Royal Mail paid out £26m in compensation to customers last year amid rising complaints, while in November it was hit with a record £5.6m fine after it failed to deliver more than a quarter of first-class post on time.
Royal Mail has argued that its performance is being hampered by its universal services obligations. Ofcom is currently reviewing the rules but any changes will ultimately require government approval.
Mr Seidenberg drew comparisons with measures taken in other European countries.
Germany is moving to deliver letters on alternate days with a target of 95pc of letters to be delivered within three days.
In France, letters are also delivered within three days against a target of 95pc, while the French government has handed postal operator La Poste a subsidy of €2.6bn (£2.2bn) to cover the five years to 2025.
Royal Mail insiders insisted that the company was focused on USO reform and did not want to pursue a taxpayer bailout unless absolutely necessary.
A Royal Mail spokesman said: “We are proud to be the Universal Service provider and remain committed to providing an affordable and sustainable ‘one price goes anywhere’ service for letters and parcels across the UK.
“We are transforming our business every day, but we can’t do it all on our own. We also need the regulator and the Government to do their bit.”
The Department for Business and Trade has been contacted for comment.
