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Royal Mail says it slashed growth forecasts for its parcels business after the online retailer Amazon began developing its own delivery operations. Photograph: Getty
Royal Mail says it slashed growth forecasts for its parcels business after the online retailer Amazon began developing its own delivery operations. Photograph: Getty

Cable says Royal Mail ‘scaremongering’ over universal delivery service

This article is more than 9 years old
Business secretary’s comments come after company warns duty to deliver anywhere in the country six days a week under threat

Vince Cable has accused Royal Mail of “scaremongering” over claims that it will not be able to maintain a universal delivery service.

The business secretary, who oversaw the controversial privatisation of Royal Mail, said the government did not want companies “whinging” about being in a competitive market.

His intervention came after Royal Mail stepped up warnings that its public duty to deliver mail anywhere in the country, six days a week, for the same price, is under threat.

Chief executive Moya Greene told a committee of MPs that the universal service obligation was “precious” and essential for most people. But it had a high fixed cost and depended on steady revenues from urban areas to cross-subsidise more costly deliveries to rural parts of the country, she said.

Royal Mail faced a 4-6% decline in its letters business each year, while competitors were being allowed to “cherry-pick” the easiest and most lucrative deliveries to urban areas, putting the economics of the universal service at risk, Greene said.

“If you allow cherry-picking in urban areas you undermine the economics,” she told MPs. “It siphons off very quickly a lot of revenue, more revenue than can be offset even by very vigorous efficiency measures.”

Greene urged the postal regulator, Ofcom, to bring forward a review into safeguarding the universal service obligation, “before too much damage is done”. The watchdog has pledged to begin its work before the end of 2015.

Her demand was supported by trade unions, which said there was a need for urgent action to protect the universal service. “The sustainability of the universal service obligation faces its greatest threat at the moment,” said Dave Ward, deputy general secretary at the Communication Workers Union, which represents 90% of Royal Mail staff.

But Royal Mail’s competitors denied the universal service was in peril and said the entry of more players into the market has been good for consumers. “The benefit of competition is that we will keep Royal Mail honest, keep prices down and keep consumers posting,” said Nick Wells, chief executive of Whistl, a private operator that emerged after TNT Group split in 2011.

Royal Mail revealed last week that it had been forced to scale back growth forecasts for its parcels business, after the online retailer Amazon began developing its own delivery operations. Amazon launched the same-day service in the UK last month, with a promise to deliver parcels to hundreds of newsagents across the country.

Roy Perticucci, vice-president of Amazon’s EU operations, declined to comment on reports that its service had led to a 20% drop in Royal Mail’s parcel volumes in some localities, citing commercial confidentiality.

More on this story

More on this story

  • Royal Mail sell-off undervalued firm by £180m, report finds

  • Ofcom rejects Royal Mail’s competition concerns

  • Royal Mail stake will not be sold off, vows Vince Cable

  • Amazon offers package collection at post offices

  • Royal Mail launches 3D-printing service

  • The Guardian view on Royal Mail: a universal service under threat

  • FTSE 100 jumps ahead of US jobs data with Royal Mail boosted by buy note

  • Royal Mail says Amazon delivery service will hit its UK parcels business

  • An analyst with a rare stamp of authority – at least on Royal Mail

  • Royal Mail drops on concerns about future profits

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