Ofcom fines Royal Mail £10.5m for poor delivery performance

Announced this morning (13 December), the fine is the second time Ofcom has found Royal Mail in breach of its regulatory obligations in recent years, after the lower £5.6m it fined the company in November 2023 for its performance in 2022/23.

Ofcom’s rules require Royal Mail to deliver, in each financial year, 93% of First Class mail within one working day of collection and 98.5% of Second Class mail within three working days of collection.

This excludes the ‘Christmas period’, which is defined as the period beginning on the first Monday in December and ending on the New Year public holiday in the following January.

“If Royal Mail misses its annual targets, we can consider evidence of any exceptional circumstances beyond the company’s control – such as the Covid-19 pandemic – and whether it would have achieved its targets had those events not occurred,” Ofcom stated.

The investigation found that from April 2023 to March 2024, Royal Mail only delivered 74.7% of First Class mail on time and 92.7% of Second Class mail on time.

It said the company had blamed its poor performance on its challenging financial position and delays to the ballot on a deal that followed the previous year’s industrial action.

“We do not consider either of these to be justifiable reasons for Royal Mail’s failure to provide the levels of service expected of it. Ultimately, it is for the company to manage its financial position taking account of its obligations,” Ofcom further said.

“We have therefore decided that the company breached its obligations by failing to provide an acceptable level of service without justification. Royal Mail took insufficient and ineffective steps to try and prevent this failure, which is likely to have impacted millions of customers who did not get the service they paid for.”

As well as fining the company, Ofcom said it had been pressing Royal Mail regularly on what it is doing to turn things around.

“While there has been some progress, its overall performance in 2023/24 was only marginally better than its reported performance in 2022/23, and it needs to do much better,” the regulator said.

“At a minimum we expect to see a clear, credible and publicly-communicated plan setting out how Royal Mail will get back on track through meaningful, sustainable and continuous improvements for customers.

“Having failed to hit its targets in 2022/23, Royal Mail did not set out a clear improvement plan for 2023/24. Following engagement with Ofcom, the company published an update on its improvement plans in May this year, and we will be holding it to account for delivering a better service.”

When deciding how much to fine a company, Ofcom said it was required to consider what is appropriate and proportionate.

“In deciding on the level of this fine, we have considered the harm suffered by customers as a result of Royal Mail’s poor service,” it stated.

“Ofcom also has a duty to ensure the universal postal service is financially sustainable, so we have also taken account of the fact that Royal Mail has been losing hundreds of millions of pounds.”

It said the £10.5m financial penalty would be passed in full to HM Treasury. The fine includes a 30% reduction from the £15m it would otherwise have imposed, reflecting Royal Mail’s admissions of liability and agreement to settle the case.

Ian Strawhorne, Ofcom director of enforcement, said: “With millions of letters arriving late, far too many people aren’t getting what they pay for when they buy a stamp. Royal Mail’s poor service is now eroding public trust in one of the UK’s oldest institutions.

“This is the second time we’ve fined the company since the pandemic. Royal Mail has provided an improvement plan, and we’re seeing some signs of progress, but it must go further and faster to deliver the service that people expect.”

In response to the fine, a Royal Mail spokesperson said: “We acknowledge today’s decision.

“Throughout this year we have continued to implement substantial changes to drive improvements. This is shown in our latest quality of service results with both First and Second Class mail improving year-on-year. Ofcom also note that we are ‘on a recovery path to significantly improve performance’.

“Delivering great quality of service is extremely important to us and we are making the necessary changes to deliver for our customers.

“However, it is essential that these efforts are backed by urgent reform of the Universal Service, restoring it to a level that meets the needs of today’s postal users, not the needs of customers 20 years ago. Combined this will help create a modern, sustainable and reliable service for future generations.

“In April, we submitted our proposed reforms on the Universal Service. This proposal is designed to protect what matters most to customers. We look forward to Ofcom’s upcoming consultation in January which will enable the required regulatory changes to be made by summer.”

Royal Mail parent group International Distribution Services (IDS) released its interim results last month, which revealed that sales were up and losses significantly reduced at Royal Mail, but an expected £120m increase in costs due to the upcoming National Insurance hike resulted in a £134m impairment charge at the business.

IDS also noted in the results last month that the £3.6bn takeover offer for the business from EP Bidco Ltd – backed by Czech billionaire Daniel Křetínský and called in for government review under the National Security and Investment Act – is expected to become or be declared unconditional in Q1 of calendar year 2025, “subject to required conditions being satisfied or waived”.

IDS’ share price was up by 0.02% on yesterday’s close at the time of writing at lunchtime today, at 358.08p (52-week high: 364.80p, low: 209.82p).