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Virtually the only point of agreement between the Royal Mail and the Communications Workers Union (CWU) on Wednesday was that talks ended at about 1.30am in the morning. The reasons for the failure of negotiations were, inevitably, disputed.
The company cited differences over terms and conditions for new employees – or, more precisely, whether lower rates should be equalised with the rest of the workforce over three years or five. The union called this a “selective” account and pointed to factors that would affect current staff, including whether a proposed trial for a new method of sorting mail was really a trial or had already been chalked up by management as a major cost saving.
Such is the nature of failed negotiations: each side points to different things and seemingly small differences, as outsiders might view them, become magnified. Sir Brendan Barber, former general secretary of the TUC and ex-chair of Acas, was in the room as a facilitator and is probably the only person qualified to give an impartial version, which he is obviously not going to do.
From outside one can only observe that both parties charged into this dispute a year ago at a million miles an hour. The board entered with a low-ball pay offer only months after spraying £400m on shareholders via special dividends and share buy-backs in late 2021. It was like waving a red rag, especially so soon after the pandemic. As Rico Back, former Royal Mail boss, has argued, instead of a confrontational approach, it would have been better to use the £400m to ease the inevitable transition away from letters and towards parcels.
The CWU, though, was slow to acknowledge that with the whoosh of the pandemic demand over, Royal Mail really was losing £1m a day and that the board wasn’t going to retreat far on its demand for “significant change” in working practices. Chairman Keith William’s threat to spin off GLS, the very profitable international parcels business based in Amsterdam, was the point at which the overall group, now restyled as International Distributions Services, committed to a “no cross-subsidy” stance.
What happens now? Well, it is conceivable – just – that the CWU’s 115,000 members could vote to accept the latest pay offer (expressed by the company as 10% over three years plus a lump sum of £500 or £1,500 depending on timing). But that outcome feels unlikely: the CWU leadership would recommend rejection and members voted by an overwhelming majority in February for more industrial action.
In which case, it would be back to more attrition. The company can unilaterally try to reform working practices; it thinks the only aspect that lies outside management’s control is forcing staff to begin work later in the day to spread out deliveries. Royal Mail would also gain a notional £400m annual saving from not awarding a pay rise beyond the 2% implemented a year ago. In reality, however, this approach is far from guaranteed to work. Theoretical cost savings have a habit of evaporating at Royal Mail even when there is an agreement in place. In this case, there would also be the prospect of more costly strikes, on top of the 18 days last year.
Given its past statements about protecting value for shareholders, management may now feel obliged to attempt a demerger of GLS, in effect isolating Royal Mail. In principle, it’s doable: companies break themselves up all the time. In practice, debt has to be apportioned between the two halves, which might prompt government ministers to finally take an interest in the wobbly finances of the UK postal service. A break-up wouldn’t be quick or easy. “Demerging or selling GLS is not viable without significant value leakage into the financial reinforcement of the UK business,” judged Liberum’s analyst earlier this year.
Then, of course, there’s the “special administration” scenario, one raised during the later stages of the negotiations. The company’s problem on that score, though, is that it needs government consent for a court application. Ministers probably wouldn’t want to inherit a political football this side of a general election.
Meanwhile, the regulator, Ofcom, has also said next to nothing, despite the Royal Mail’s shortfalls in delivery standards, and despite saying 18 months ago that a switch to five-a-day week deliveries for letters could yield savings – which would be useful right now – of £125m to £225m a year.
One would normally conclude by saying the two sides should get back to the negotiating table and not re-emerge until they’ve done a deal. Unfortunately, they’ve tried that already. The position is a mess.
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