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A shake-up of the postal service that could hand the owner of Royal Mail a £300m boost will not take place before the general election, it has emerged, as the company’s bosses meet ministers to discuss its proposed £3.5bn takeover by a Czech billionaire.
The industry regulator, Ofcom, has been studying options to reform the universal service obligation (USO), which requires Royal Mail to deliver nationwide, six days a week.
Ofcom has said an update to the process, which could result in the regulator allowing the struggling company to cut back its service, is due this summer.
However, the Guardian understands that Ofcom does not expect to implement any reforms until after the forthcoming general election, which could take place as late as January, and possibly not until the second half of 2025.
The communications watchdog’s work has taken on extra importance since the emergence of takeover interest in Royal Mail’s owner, International Distributions Services (IDS), from its largest shareholder, the Czech energy tycoon Daniel Křetínský. On Wednesday, the IDS board backed a 370p-a-share bid from Křetínský’s EP Group.
The lengthy timetable for the reform process represents a blow for Martin Seidenberg, the chief executive of IDS, who recently called on regulators to begin consulting on recommendations as early as this summer in an investor presentation. “Reform is in the regulator’s hands and we urge Ofcom to accelerate their review,” the company said.
Earlier this year, Ofcom laid out options for change, including reducing the service to as little as three days a week. In response, Royal Mail asked to be allowed to water down its second-class mail service so that it only has to deliver every other weekday, saving £300m and cutting nearly 1,000 jobs.
A source close to Ofcom’s work said: “It is possible to do what Royal Mail wants without changing legislation – making the process quicker – but the election makes the timing very difficult to do anything this side of Christmas.
“There has been a huge response to the original call for input. There will be a brief update in July summarising the responses and giving an update, but full recommendations will not come before an election, particularly given purdah [the restriction on civil servants’ activities before an election].”
It is understood full recommendations are likely to be followed by a three-month consultation, and then a further gap until their implementation. Royal Mail wants to make its network more efficient as it struggles to deliver on time amid falling letter volumes and stiff competition on parcels.
An industry source said: “Regulators do not want to allow Royal Mail to degrade the service by allowing it to slow down, without getting better quality of service.”
Křetínský’s £3.5bn bid, improved from an earlier £3.1bn offer, has given added significance to a long-planned meeting between Seidenberg and the business secretary, Kemi Badenoch, on Thursday. Sources said the pair had planned to discuss the potential USO reforms, but the bid will now also be on the agenda.
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Ahead of the meeting, Rishi Sunak’s spokesperson said the government “will engage at the relevant point in the process to outline our expectations”, adding that regulators would also be involved.
When backing Křetínský’s offer, IDS also said EP Group had agreed to “undertakings”, including keeping the brand and maintaining a service delivering first-class letters six days a week.
The shadow business secretary, Jonathan Reynolds, has written to Křetínský, who is also a part owner of West Ham United, to commit to “safeguards” if the deal is completed, including maintaining the universal service and keeping the company’s headquarters in the UK.
Royal Mail, which was privatised in 2013, lost £319m in the first half of its financial year and IDS will report group annual results next week. Late last month, the credit analysis firm Dun & Bradstreet rated the company as at “high risk of severe financial stress”.
Ofcom said: “We have received thousands of responses to our call for evidence on the future of the universal postal service. We’re now examining these carefully before finalising our next steps. We’d like to thank all those who have contributed to the national debate on this important issue, and we’ll be providing an update on this work in the summer.”
