Penny on the Post: Too Little, Too Late, Too Intrusive Says New IEA Paper


Press Release

IEA authors make radical proposals to improve the state of our cities
In a new publication by the Institute of Economic Affairs, postal economist Ian Senior, describes the additional 1p on the price of first and second class stamps starting on 8 May as “too little, too late and too intrusive”.

The Royal Mail’s current financial predicament results entirely from bad management and its historic desire to maintain the letter monopoly at all costs. Postcomm should immediately permit an increase of 3p on first and second-class letters. This will restore Royal Mail to profitability so that it can restructure quickly, get rid of the dead wood managers who brought about the present crisis, eliminate inefficient working practices, reduce its workforce and build good relations with its remaining staff.

Royal Mail Group (RMG), the holding company, is redundant. Its final function should be to separate its three operations of letters, parcels and counters into freestanding companies and then wind itself up. The government should impose this task on it without delay.

Postcom’s role as a specialist regulator for the mail industry should be confined to ensuring the continuation of a universal letter service, enabling competitors to enter the market and ensuring a level playing field between them and Royal Mail. It should abandon its current intrusive approach to Royal Mail in relation to price and quality control, and instead it should adopt a simple and transparent framework for price regulation as proposed in the paper. This will encourage Royal Mail to seek profits from efficiency.

Postcomm should also recognise the reality that Deutsche Post and possibly other European incumbents are benefiting from soft regulatory regimes and should consider the impact of its actions in starving Royal Mail of profits. The European Commission is ineffectual when it comes to regulating the rapidly changing postal market.

Ian Senior concludes that Postcom’s current regulatory approach is intrusive, time-consuming and counterproductive. It is distracting Royal Mail from tackling its main problems. It risks making Royal Mail insolvent, thus threatening chaos akin to that of Railtrack. In such circumstances Deutsche Post with its large profits from its letter business would be nicely placed to buy Royal Mail on the cheap.

Ian Senior was first to argue, in an IEA monograph in 1970, that the Post Office’s monopoly of letters was unnecessary and should be removed.

Read the full publication here.