Royal Mail seeks to cut back deliveries to five days a week

Royal Mail has asked the government’s permission to cut its letter delivery service from six to five days, as it looks to stave off a deepening financial crisis amid a long-running dispute with postal workers.

The company, which currently delivers letters Monday to Saturday, urged ministers on Wednesday to enable the change quickly and help to “protect the long-term sustainability” of its universal service, a legal guarantee to offer the same price for deliveries across the UK.

The announcement was made as Royal Mail’s parent company, International Distribution Services, reported it swung to a loss of £127mn during the six months to September, from a £315mn profit during the same period a year earlier.

Royal Mail benefited from a boom in online shopping and parcel deliveries during the Covid-19 pandemic, but is facing one of the biggest crises in its 506-year history. 

The former state-owned business is seeking to modernise and shift from letter deliveries to more profitable parcel deliveries, as it faces increased competition from newer rivals that have grown rapidly by employing workers on lower salaries and more flexible contracts.

But a below-inflation pay offer and changes to working conditions have angered postal workers, who this year staged their first national walkout since privatisation.

Royal Mail warned that it had already taken a £100mn hit from eight days of strike action, saying further walkouts would lead to more restructuring and job losses beyond the 10,000 announced in October.

After last week entering eight days of “intensive negotiations”, Royal Mail and the Communication Workers Union have yet to reach an agreement.

“With the unions and management digging in, negotiations look far from a resolution,” said Bernstein analyst Alex Irving.

Royal Mail warned that it would cease talks if further industrial action was announced beyond the four strike days planned in the coming weeks.

The CWU said on Tuesday that “the prospect of achieving an agreement quickly is unlikely”, unless the company moves “significantly towards the union on a range of issues”.

At the time of privatisation, Royal Mail committed to a number of legal protections on jobs. But the agreement also allowed the company to notify the union that it could bypass these commitments in the event of a national strike.

The company said it had already begun imposing changes, such as altering contracts for new starters and removing a cap on freelance delivery workers.

It also warned that a split of Royal Mail and the group’s international parcels business, which is not beholden to the same commitments on jobs and has remained profitable, remained on the cards.

Separately, Royal Mail said the cost of a new collective retirement plan that it is introducing for thousands of staff would be about £30mn a year, higher than first expected.

It said the recent increase in index-linked gilt yields had led to a £3.8bn knock on the value of its legacy defined benefit pension plan’s assets, which are hedged against interest rate moves. However, Royal Mail noted that this decrease was softened by a £2.5bn fall in its calculated liabilities, because of a surge in corporate bond yields.

The company had not received a request from its DB pension plan for additional support during the recent turmoil in gilt markets that plunged many UK retirement plans into crisis.