Royal Mail makes its political headache worse | Nils Pratley

Simon Thompson’s second outing before the business select committee wasn’t much of an improvement on the first. Royal Mail’s chief executive was less abrasive than in January, which at least suggested he’d taken advice on how not to instantly annoy a crew of MPs. But the problem was still his answers.

On the troubled issues of PDAs – the “postal digital assistant” devices carried by posties on delivery rounds – Thompson had to admit that performance data had been used in 16 conduct cases. For a tool that is supposed to be used solely for balancing workloads, that sounded to the MPs like a breach of corporate policy. On sick pay, it was hard to tell what – if any – provision Royal Mail had made for workers unable to navigate the herculean task of getting an appointment with a GP and thus a sicknote.

The tangle that may have the most serious consequences regulatory-wise, however, related to the accusation that staff were being instructed to prioritise the delivery of parcels over letters. As a commercial policy, such an approach wouldn’t be silly: parcels represent a market that is growing; letters have been in steady decline since privatisation in 2013.

The difficulty, of course, is that there is meant to be no prioritisation. The USO, or universal service obligation, requires Royal Mail to deliver letters six days a week to every address in the land if necessary. Ofcom granted a get-out during the pandemic due to staff absence, but that period is over. The committee chair, Darren Jones, was able to display multiple recent instances of workplace notices seemingly telling staff to get the parcels out of the door and not bother too much about the letters.

“At the moment we have industrial action; there is a different application of policy,” said Thompson, as his operations chief explained the thinking: parcels take up more space and have more potential to clog up the whole system. Yes, OK, one can see the logic, especially when there have been 18 strike days. But Thompson, crucially, didn’t mention this contingency arrangement in his previous testimony.

Jones sounded deeply unimpressed as Thompson dodged the direct question of whether there had been “systemic” breaches of the USO. “Our USO performance has definitely not been good enough,” was as far as the chief executive would go. On the basis of this evidence, it would be surprising if Ofcom does not demand to know more. One can accept there is no central edict to prioritise parcels, but the question is whether it is happening on the ground anyway.

As it happens, a six-day USO is probably destined to be watered down eventually because customers are keener on parcels, but for as long as the requirement is in place, Royal Mail has to meet it. There are questions to answer.

Add the USO issue to the list of corporate headaches that is headed, obviously, by the unresolved industrial dispute and losses running at £1m a day. They remain the main events. But two bruising parliamentary hearings may surely also have complicated the narrative that the group – now renamed International Distributions Services – can break itself up easily and thereby achieve relief for its shareholders.

Demerging GLS, the Amsterdam-based international parcels business that is on course for adjusted operating profits of €370m to €410m this year, makes perfect commercial sense, it should be said. And, in the shoes of the shareholders, it is rational to insist that profitable GLS does not cross-subsidise a heavily loss-making Royal Mail. Politics and politicians, however, have always been the biggest obstacle to the breakup plan.

If the committee sessions have shown us anything, it is that Royal Mail is under scrutiny like never before. In the real world, a breakup looks a non-starter until Royal Mail is more stable.