COUNTER REVOLUTION AT THE POST OFFICE

The Post Office makes a profit but resists

attempts to privatise any of its parts. Michael Trend

argues that this is a damaging policy

DURING the general election the Prime Minister volunteered the information that any idea that the Royal Mail might be privatised was quite ruled out. She offered this public affirmation that the Royal Mail was 'safe with her' after ,a 'scare story' in one of the less serious parts of the daily press that there were proposals to replace the effigy of the Queen on the stamps. Mrs Thatcher, knowing what an emotional area this has always been, moved quickly to assure us that this was not even on the agenda. But it is impor- tant to mark her exact words: she said that pri- vatising the Royal Mail — which properly com- prises only the letters and parcels services — was not under consid- eration.

Carrying the post must be among those professions which claim to be the 'oldest in the world', clearly linked with the mainte- nance and advancement of political power. In Europe, it was not until the late 15th century that proper `national' services emerged — especially in the Holy Roman Empire where Charles V gave the von Taxis family hereditary control of the imperial post. A proper postal service in England was set up by our own Renaiss- ance autocrat, Henry VIII. His dynasty and that of the Stuarts — fearing treason and plotting — kept a very firm hand on the carriage of ideas and information by the posts.

During the 17th and 18th centuries the growing pressures of trade, the desire for greater ease in social communication and improved means of travel demanded a wider service. By the early 19th century, a substantial business had grown up in the carriage of letters, especially by post-boys, stage and mail coaches. Much of this trade was, strictly speaking, illegal, as well as insecure, unreliable and expensive, unless you enjoyed the privilege of being able to `frank' mail with your autograph — as MPs could. This system was open to huge abuse as when 'fifteen couples of hounds' were sent gratis to the King of the Romans.

Rowland Hill faced a tough battle against entrenched interest in his advocacy of the penny post. His campaign, however, met with extraordinary public support. He could show, for instance, that the real cost of delivering a letter from London to Edinburgh was only one thirty-sixth part of a penny, yet even the lightest single-sheet letter cost one shilling threepence halfpen- ny for the distance. The uniform penny post was a true revolution in the affairs of the nation and spread quickly throughout the world. Hill's reforms began at home in 1840; by the time of his death 30 years later 107 other countries had adopted schemes of cheap, uniform, prepaid postage.

In the years ahead the Post Office grew rapidly, always claiming, and usually main- taining, its long- established monopoly 'right' — as it believed — to control all means of communication. Over the years it came to con- trol the telegraphs and telephones; radio and television for some years also fell within the area of responsibility of the postmaster general. The Post Office vigorously fought law cases to pre- serve its monopoly: only 15 years ago it was still threatening legal action against entrepreneurs hoping to set up private messenger services. The 1981 British Telecom- munications Act, however, split up the electronic communications services from the other sides of the old organisation. At the same time the Government was able to define in law, much more precisely than had ever been the case before, the scope and limits of the 'new' Post Office.

Shorn of what was to become British Telecom (see The Spectator, 4 July), the Post Office was better able to concentrate on its traditional business. It has had some successes; all its four parts are now again in trading profit. Last year the group pre-tax profit was £170 million. While this is an improvement on its previous dismal finan- cial performance, a new question — or rather an extension of the old question about the size and structure of the Post Office — has to be faced. Should all four parts remain within the confines of a nationalised industry?

First, then, we can take the case of the Girobank. In the financial year 1986-87 Girobank's operating profit was a modest £23.1 million. It has over two million current account holders and is established as a separate plc within the Post Office. It is in fact a perfectly ordinary bank. It offers mortgages, higher-interest deposit accounts and is part of the Link national cash dispenser network along with other smaller banks, building societies and charge cards. It is becoming increasingly difficult to justify its remaining as part of the Post Office: the only grounds that can be advanced for its retention within the parent body is that the nation's post offices are its `offices'.

Counters, the actual street shops, were the object of a presentation by the Post Office last week, which while projecting a more `modern' image represented only a modest step forward. They have, however, been made into a separate limited com- pany like the Girobank. These post office high-street buildings must be the envy of all other shopkeepers. The 20,000 outlets — 1,500 Crown offices, the rest sub-offices — had a turnover last year of some £86 billion, with a trading profit of only £19.1 million. Their business on behalf of the Royal Mail accounts now for less than 30 percent of their total. They deal with 25 million customers per week.

The Post Office now tries to show that it has woken up to its missed retailing oppor- tunity. But progress is painfully slow and there is still vast potential for increasing the number and extent of the services that the counters could offer. The threat of real competition hangs over Counters. They carry out much of the Government's paperwork and serve as paymaster for the DHSS. But there is nothing to stop the Government from allowing and encourag- ing other agencies, such as banks or building societies, to pay benefits and collect licences. Stamps could easily be bought outside the Post Office, as in French tabacs. At present, stamps can in fact be sold in places other than post offices, but there has been been no real incentive as there has been absolutely no profit margin for the vendor. In recent months, however, the Post Office has been quietly experimenting in a very few places by allowing a modest mark-up to those who wish to sell stamps; but, Mr John Roberts, the managing director of Coun- ters told me, a review of progress will not be made for a year.

There is no reason why Counters should not trade in a vast multiplicity of goods and services. Post offices have begun to sell cards, paper and writing equipment. This could go much further. They could act as the major high-street ticket agency; they could become the place where Mrs Thatch- er's army of new shareholders could effec- tively enter into share dealing; they could be the privatised Girobank's main — but not necessarily exclusive — agent, thereby breaking the argument that the Girobank cannot be physically separated from the Post Office. And the restriction on opening hours for sub-post offices — which up until now have not been allowed to open for any hours more than those of their big sisters — works for the benefit of unions and against the public. (Another quiet Post Office experiment has been going on in this area and there is now one sub-office in Reading which is being allowed to keep longer hours: the position, the Counters' managing director told me, would `be reviewed in a year's time'.) In many areas of the business covered by Counters, change is cautious and slow. And the Government itself is cautious too. It maintains restrictions, for example, on precisely what services Post Office coun- ters are allowed to offer — a very narrow range at present. When asked what plans there were to liberalise this arrangement a spokesman for the DTI said that 'submis- sions on the subject were flapping about' and that `ministers are exploring the possi- bilities'.

The third area of the Post Office is Parcels. In recent years here, and in the courier market with which it is closely linked, some degree of competition has been allowed. The Post Office, however, has a substantial built-in advantage in that competitors are restricted in the minimum charge that they can make for carriage. The new competitors have shown that even with this major disadvantage they have been able to set up a simple hub-and- spoke system of sorting, distribution and delivery that makes them profits. The Post Office has responded to this challenge with much greater efficiency and modernisation of its old infrastructure, showing that there is no real reason to believe that many parts of the parcels section — especially the Datapost service — should not enter into competition with these new companies.

The fourth area of the Post Office is Letters, where a uniform postage system has existed from the very start. It is interesting to note that this was not in fact Hill's original intention. He envisaged a uniform charge only for carriage between major towns and cities with a higher charge for the other, more rural, areas. The intense — and nation-wide — tide of public pressure, supported by Queen Victoria, that greeted his proposed reforms, howev- er, swept away this possibility. The uni- form penny postage system became an object of fierce national pride, almost of idealism. Anthony Trollope, for example, who served for much of his working life in the Post Office, tells us in his autobiogra- phy that 'it was the ambition of my life to cover the country with rural letter- carriers'. The public today has the clear view that in many respects — reliability and speed of delivery of letters, for example — the level of service is not high enough. The Post Office still fails, although only by a narrow margin, to meet its target of delivering 90 per cent of all first-class letters on the day following postage. More letters are posted today than at any time in the Post Office's history: this is partly due to the vast increase in `junk mail', and the huge growth in post generated by the paperwork that banks, mortgage and credit card com- panies send out and receive. In the past five years there has been a 25 per cent increase in letters carried. The annual total now stands at some 1.5 billion letters. But there are still good reasons to think that the delivery of letters should — and could — be done better. My own enquiries, for example, showed that a huge number of mis-sorts per night — up to 70,000 in one case in Middlesex — are tolerated.

Sir Ron Dearing, who retired as Post Office chairman last week, oversaw a period during which the economic basis of the letters and parcels business was res- tored. He went for a firm policy of low prices bringing about high volume; and was proved right. Dearing also oversaw tough negotiations with the unions involved at a national level in his desire to bring in more flexible working practices, especially in terms of new part-time and casual staff. (Staff costs are by far the greatest part of the Post Office's £3.34 billion annual oper- ating costs.) There is now the prospect of a serious, national strike during the Christmas rush over the question of the number of hours worked in the week. The leading figures in this dispute are all hard fighters and negotiators with, however, a reasonable record of making progress with each other. The main union involved is the Union of Communication Workers, whose leader Mr Alan Tuffin is a `new realist' and supporter of wider share ownership. The managing director of Letters is Mr Bill Cockburn who has recently begun to get much tougher with his employees. He told me that the letters monopoly was a `pri- vilege rather than a right. It must be earned'. The new head of the Post Office is Sir Bryan Nicholson who has moved from success at the Manpower Services Commis- sion. He is close to Lord Young at the DTI (a former boss of the MSC himself), who now has the statutory power to suspend the Post Office's monopoly of delivering let- ters without needing to consult Parliament.

The present Post Office is still much bigger than it needs to be: it has already discovered how much better it can run its businesses by splitting them up into their natural parts. Britain led the world in the 19th century in developing this vital nation- al service: cannot the Prime Minister now lead the world again by exposing the indivisibility argument as the expression of vested interest that it really is?