Oral evidence: Competition in the Postal Services Sector and the Universal Service ObligationHC 769-iWednesday 26 November 2014

Oral evidence, 26 November 2014.

Witness

Roy Perticucci, Vice President, EU Operations, Amazon, gave evidence.

Chair

Good morning and thank you for agreeing to speak to us. We are running behind time, so we will bat on very quickly. Could you just introduce yourself for voice transcription purposes?

Roy Perticucci

Good morning, my name is Roy Perticucci. I am Vice President for EU Operations for Amazon.

Chair

Can you very briefly explain your parcel operations and include in that explanation how you decide which company will deliver your parcels to which location?

Roy Perticucci

We are an online trader, so we fulfil from a wide variety of fulfilment centres across Europe, 28 in total, plus an additional 10 third-party logistics suppliers. When orders come in, we pick them in our warehouses and either send them directly to the sort centres of various carriers or, in selected cases, sort them ourselves and deliver them deeper into the network. Then, of course, we hand them over to carriers to make the final delivery, if that has not already been done. Our criteria for selecting carriers have much to do with the customer experience, and we are constantly working to improve that. The main criteria are the dimensions of the product, where are we shipping it from, the fulfilment centre, the final destination and what time promise we have made to the customer. Is this something that can take as long as a week to arrive at a customer, although we rarely take that long, or is it next-day delivery or same-day delivery? It is a combination of the delivery promise, the type of package and the locations that we are both sending from and sending to.

Mike Crockart

You talk about customer experience being key. One of the parts of that customer experience is the ability to track their item. Is that a key part of the product that you want to offer, in terms of delivery?

Roy Perticucci

Yes, increasingly that is the case. Of course it also helps us, when customers call and ask what has happened to a package or to complain, that we know exactly what was the final handoff. In fact, that has been one of a number of great developments that we have had with the Royal Mail in the last year, where we are currently trialling that capability of scanning the package when it arrives at the doorstep of the customer. Many of the other carriers already do that.

Mike Crockart

Would you say that is driven by the customer, or is it driven by Amazon?

Roy Perticucci

Hopefully we do not do too many things that customers do not want. We pride ourselves as being one of the most customer-focused, customer-centric companies around. We do know that the tracking is very important. This is particularly at the doorstep: when did it arrive, where did we leave it? Also, any intermediate steps in between are often very helpful: it has left our fulfilment centre, it is being sorted, it is on the final mile delivery van, it has reached your door.

Mike Crockart

But that customer experience is something that you are able to develop and deliver through using Royal Mail at the moment. That is not a reason for you developing your own delivery system.

Roy Perticucci

There are multiple reasons for developing our own delivery service. A key one has been capacity.

Mike Crockart

We will probably go on to the wider stuff in a moment, but the tracking is the bit that I am interested in. I am trying to get at why you have the sudden wish for all your customers to know precisely where their packages are, and Royal Mail not being able to deliver that.

Roy Perticucci

To answer that question directly, not all of our carriers on all of their delivery methods are currently able to scan on all of their routes. In fact, that is one of the improvements that Royal Mail has introduced, or is in the course of introducing this year.

Mike Crockart

What proportion can it track?

Roy Perticucci

I cannot give you that exact information, but we can research it and get it to you.

Mike Crockart

I will let others widen it out into other areas.

Mr Walker

What is the difference in cost between your own delivery system and using Royal Mail?

Roy Perticucci

That is quite commercially sensitive information. It depends on the delivery route and the time to delivery, whether we are scanning or not and the dimensions of the product. There are multiple reasons why the cost varies.

Mr Walker

How do you determine when you use Royal Mail, when you use other providers and when you use your internal system?

Roy Perticucci

The primary driver is customer promise. Prime is a subscription service whereby for one fixed fee UK customers have next-day delivery. That is an increasing segment of our customers. Other customers also choose next day. Then we have another couple of time promises in terms of how quickly they would like it. Same day, for example, is something that is new and is growing. The primary thing is: where are we able to fulfil the products that the customer is ordering, and how quickly does that customer want to get it?

Mr Walker

To what extent is there a geographical limit on what you can do yourselves with your own network? Does your own network function outside of the major cities in the UK?

Roy Perticucci

We started our service last year, so we do not cover the full country, but the vast majority of our customers live in urban or suburban areas and that is where the vast majority of our deliveries go.

Mr Walker

There have been some reports, from CWU members and Royal Mail, that reported parcel volumes in the areas where Amazon is operating its own network are down by about 20% for Royal Mail. Would you recognise that kind of scale of impact?

Roy Perticucci

Again, to do local breakdowns would be commercially sensitive, but I can say that we have had all sorts—

Chair

With respect, they obviously do not think it is commercially sensitive.

Mr Walker

It is not coming from Royal Mail directly.

Roy Perticucci

The key thing to say is that in the market segments where we have choice between carriers, we switch carriers over time on the basis of the reliability of that service, how timely they are, how we are able to expand additional improvements to that service, and cost. So as demand changes, in terms of time and in quality of service, and as carriers’ capacity varies, we shift between various carriers, including our own.

Mr Walker

Over the long term, do you see yourself as a customer or a rival of Royal Mail?

Roy Perticucci

We are certainly a customer. We have built this business together with Royal Mail. Again, I will try to keep my answer short, but this has been one of the most successful online markets in the world. We have grown tremendously, and Royal Mail has been a very strong and successful partner for all of that period. Overall, parcel volume has grown by about 40% in the last five or 10 years. That is a considerable number, much of that driven by e-commerce.

Chair

Before I move on, you have hidden behind the cloak of commercial confidentiality about your costs and so on, but I could ask you very generally: have you decided to set up this system because you can deliver it more cheaply than Royal Mail?

Roy Perticucci

We certainly try to be cheaper. That is true with all of our operations. Any logistics operator is constantly working on cost. To be clear, the primary driver for selection and the primary driver for building this capacity has been, particularly during peak times, to be able to handle the capacity in the time promise that we have made to customers.

Chair

You have partly answered my next question. You say it is potentially cheaper, but you emphasise that it is because, if you like, you can be more customer-focused. Is that a reasonable interpretation of what you said?

Roy Perticucci

Just to be clear, this Friday is probably our busiest day of the year. Last year at this time we were taking orders at about 47—

Chair

Okay. In effect, what can you offer a customer that Royal Mail cannot?

Roy Perticucci

I certainly would not want to compare our service to Royal Mail’s service, or anyone else’s. Broadly speaking, overall the things that we are looking for are continuously shortening click-to-delivery times, increasing delivery accuracy—the number of times we get it right the first time—and being able to handle the volume across the week, including Sunday pick-ups and Sunday deliveries.

Chair

Brian, did you have a supplementary question?

Mr Binley

Yes. I am interested in the drones. How many are you going to have buzzing all over my house, and how far away are you from doing it?

Roy Perticucci

We first announced that we are going to do it. We have just recently set up a research centre in Cambridge.

Mr Binley

That is near to my house.

Roy Perticucci

Have you seen them flying?

Mr Binley

Yes, and they are bloody awful. I had one hovering over my putting green. Useless.

Roy Perticucci

One of the design requirements is clearly that we need to reduce the volume.

Mr Binley

Please make sure you direct them somewhere else.

Roy Perticucci

Yes, sir.

Mr Binley

When do you intend to start?

Roy Perticucci

I am afraid we prefer only to announce that we are going to do something shortly before we do it. Of course there are a lot of things that still need to be worked out, particularly regulatory things in terms of when and where we can fly over people’s houses.

Chair

May I just ask you to remember there are a lot of people in this country that still have bad memories of aerial deliveries?

Ann McKechin

I wonder if I could just ask you how your services in other European countries compare with services in the UK. Is the model that you are trying to introduce here different from your European operations?

Roy Perticucci

I will try to answer the question broadly. Clearly, we want to work as well as we possibly can with all our major carriers. There are about 30 across Europe. Broadly, the aspirations are the same. We want to be able to know where a package is from the time it leaves our fulfilment centre to the time it reaches the customer. We are trying to reduce the time that it takes for packages to get to customers. We are overall trying to make sure, if there are any other things that they want—say, same-day delivery when that is possible—that those are all things that we are able to do.

Ann McKechin

Is your model then that you are trying to achieve this by increasing the number of companies that act as carriers, rather than primarily relying on one main company per country who is the main post deliverer?

Roy Perticucci

As with almost every publicly traded company, we try not to rely exclusively on a single supplier. What is also true with innovation is that it does not happen at the same speed with every carrier. There is one that leads for a while in one country or in one segment, and that may be quite different a year or two later.

Ann McKechin

Could you amplify to the Committee a little this issue of what is called your own delivery network fulfilment centres? That is an amazing jargon phrase, I have to say. What do you think this achieves for the market and in terms of driving additional volume?

Roy Perticucci

I think you are particularly referring to AMZL. AMZL is primarily a platform that enables small to medium-sized enterprises in particular local segments to contract to make deliveries with us. We have a device that is called, to use some more jargon, the DORA. I cannot remember what it stands for either, but basically it gives a delivery manifest and a delivery route for those drivers making deliveries for us.

Ann McKechin

Is the aim to increase the overall level of business that you manage?

Roy Perticucci

The reason why we have this platform in the UK is the same reason why over the years we have worked with multiple carriers. That is, we try to find a balance. Not everyone can do exactly the right thing at the same time, and so we shift volume and work with them to get the best possible service for customers over time, making sure that that also improves over time.

Chair

That concludes our questions. Thank you and I do appreciate it. It will be incorporated into our conclusions in due course.

Mr Binley

I am going to send you my address.

Roy Perticucci

Yes, sir. A geocode would also be very helpful. Thank you very much. Examination of Witnesses

Witnesses

Billy Hayes, General Secretary, CWU, Dave Ward, Deputy General Secretary, Postal, CWU, John Park, Assistant General Secretary, Community, and Les Baylis, Special Project Officer, Logistics and Distribution, Community, gave evidence.

Chair

Good morning and welcome. Thank you for agreeing to contribute to our inquiry. Again, I will just invite you, starting with you, Dave, to introduce yourselves for voice transcription purposes.

Dave Ward

My name is Dave Ward. I am the deputy general secretary of the Communication Workers Union and responsible for negotiating with the employer on all postal issues.

Billy Hayes

My name is Billy Hayes. I am the general secretary of the CWU.

John Park

My name is John Park. I am assistant general secretary at Community, but I have responsibility for the union’s strategy and policy.

Les Baylis

My name is Les Baylis. I am part of the national team dealing with logistics and distribution.

Chair

May I start with a general question, which is, to all of you, what are your views on the sustainability of the universal service obligation, in the context of the competition that the industry is now facing?

Billy Hayes

Clearly, if I could start, it is under threat. We need an urgent review. That is the evidence from what we see out in the field. There is a great deal of cherry-picking, and it needs to be addressed. So there is a problem with the sustainability of the universal service. The universal service is not just something that we as a trade union value and the public value. It is something that Parliament wants, and a key part of the Act was sustainability of the universal service. It is very important. That is why we welcome the Committee’s calling for evidence on this subject.

Dave Ward

The sustainability of the USO faces its greatest threat at the moment. It is important for the Committee to recognise that the component parts of the USO are essentially how many delivery points you deliver to and the traffic volumes that go within that. Even without what we see as unfair and unfettered cherry-picking competition, the USO is under pressure because those two key component parts are going in opposite directions. On the one hand you have got an increase in delivery points. It is now about 29 million addresses. On the other hand there is, in the letters market, some structural decline. Therefore, there is going to be a burden on the USO, even without competition. Our view is that this is a very straightforward debate. We struggle to understand why the regulator is, in our view, drifting on the issue of bringing this review forward. We do not believe it is helpful to any of the people who are involved in this debate, including the competitors. The regulator needs to bring the review forward so that we can have a proper discussion about what is really happening. This is cherry-picking competition. Why do we say that? Because we know that the core principle that the USO relies on is cross-subsidy. There is no other way that you can deliver a universal service to the rural parts, one price goes anywhere, without the high-density areas subsidising that. The plain truth is—this is not having a go at competitors—in this particular market, with this universal service obligation in place, which is something that we all value, their whole business model is designed to attack the cross-subsidy model. That is the reality. That is the truth. The only debate can be at what point does it become impossible to maintain the universal service. Our view is, at the moment, that we are pretty much at that limit and there needs to be some action now in order to maintain the universal service.

Chair

Could I have the Community view? Then Robin has got a supplementary question.

John Park

I would echo what has been said by both Billy and Dave. We are very supportive of the universal service obligation. We wrote to Ofcom earlier this year asking them to bring forward the review because, from our perspective, we want to see some certainty in the sector as well, for the members that we represent. So, yes, it is not just about our members who work in the sector. We have got members who work across a range of sectors who are people who rely on the universal service obligation in much the same way as everyone else does. So, yes, we are very supportive of it, and very supportive of this work that is being done by the Committee in looking into the issues. The sooner it is brought forward and examined and we have some clarity, that would be beneficial for everyone.

Mr Walker

We are all aware of and grateful for the feedback that we get through the unions. I opened this session by raising something that had been brought up by a local CWU rep, in terms of their experience and what they had seen with competition in Manchester. From what you are saying, and you used the word “cherry-picking”, do you think the threat to the USO comes entirely from end-to-end competition, or is it through the access business as well, because clearly there is competition in both? From the evidence we heard in our first session, there was the argument made, particularly by a couple of providers that were not in the end-to-end market, that as they were access businesses they were not really a threat to the USO at all. What is the CWU view of wider competition?

Billy Hayes

The first thing to say is that they would say that, wouldn’t they? The thing about the competition and Parliament is this is something that you can control. The jargon in the industry is e-substitution and the changing nature of the market. Some of those things are the way society is changing, but the competition is within the control of this Committee, and for Parliament to take a view on. The fact of the matter is it is not an accident that the people who gave evidence before bristled when you said “cherry-picking”. Do you know why? It is because it is true. It is absolutely true. If you continue to attack the urban areas and pick and choose when you deliver and who you deliver to, then, as Dave said, it is not the only threat to the cross-subsidy but it is a major threat.

Mr Walker

When you are talking about targeting urban areas particularly, is that mainly the end-to-end competition, or are you saying that is the case in all the competition, including the people who are paying Royal Mail an access price?

Billy Hayes

At the moment, we want to have the review because of what it is doing to Royal Mail in terms of the urban areas and siphoning off. They are cherry-picking, really. I can understand why people bristle about that whole aspect of cherry-picking, but it is cherry-picking: choosing when you deliver; also the mail backers, as Moya mentioned, in mail going back into the system; and the lack of transparency, I have to say, of terms and conditions. We have just had from Ofcom the whole talk about efficiency and the like. In terms of Royal Mail, you see everything. You don’t see everything in terms of the competition.

Dave Ward

Just to add to the question about the potential threat of access mail, the greater threat is clearly direct delivery competition. With access mail there is a potential threat. We would have preferred that Royal Mail stayed as a monopoly, but we have to live with the fact that access is there. We understand now that Royal Mail delivers some other companies’ mail. We have to deal with that. Where there is a potential threat of access mail is if one of the access providers builds up its capability. I think currently 47% of the mail upstream activity is with the access competitors. If they are the same people that then move to direct delivery competition, as Whistl’s model potentially could be, it is the speed with which they can transfer the access mail almost overnight to their own delivery capability. There is a key concern there for us. It was good to hear that some people were in the access market for that end of the market. We understand that. There is a potential threat, but by far the greatest threat is where direct delivery competition goes from here on in.

Chair

Before we move on, can I just clarify one point? It was intimated earlier that it was our responsibility to basically regulate. The Government have charged Ofcom with the responsibility of sustaining the universal service obligation. We will be holding both the Government and Ofcom to that commitment, but let us get it quite clear: the Government do not always agree with this Committee, as you may have noticed on other matters to do with Royal Mail. We do not make the legislation or the regulation.

Billy Hayes

You do make the legislation, Chairman. You are all MPs.

Chair

The Government do. This Committee does not. That is the distinction we must understand.

Billy Hayes

I understand your point.

Mr Binley

I am going to be cheeky and pinch an earlier question and put it to you gentlemen. The universal service obligation was brought in on the basis that we did have a monopoly, and that the good parts of the monopoly could subsidise the more expensive parts to service under the monopoly. That has now gone. We know it has gone. We knew there was going to be a problem. What is your answer to it?

Billy Hayes

We would give our answer in a cap on competition, but certainly a review. I can say for the CWU, we have never been one not to look at innovation and new ideas.

Mr Binley

That is fair. I understand that.

Dave Ward

There has to be a limit at some point in this particular market. I keep stressing this particular market. It is not an attack on the principle of competition. It is dealing with the reality of cherry-picking competition in the letters market, which is in structural decline. In our view, there has to be a cap—a limit to how much you allow that to undermine the cross-subsidy principle. From where we are sitting, the only debate can be at what point do you introduce that? We would like the opportunity for that review to come forward, where people can put the evidence in front of people. At the end of the day, the consumers and customers are at the heart of this debate. In our view, there is not enough evidence out there to suggest that this type of competition benefits the people who value the universal service. The public, in our view, are not benefiting from this type of competition. Small businesses, in our view, are not benefiting. There is a benefit, there is no doubt about that, to bulk big businesses, and we understand that. But we have got to be honest about what is the reality of the benefits, and our strong view is you cannot have both. You cannot have what we see as unfair and unfettered competition in the high-density areas, and at the same time maintain the USO.

Mr Binley

Any comment?

John Park

That is a particular view expressed from the CWU there. We would not want to comment on that.

Mr Binley

My final question is, for the record, to ask how many members you have in the postal service. My guess is yours is pretty much the massive majority.

Billy Hayes

Oh, 90% of about 150,000. We are a union of about 210,000, so overwhelmingly—

Mr Binley

So 90% would be a reasonable estimate.

Billy Hayes

Probably that is even on the low side.

Chair

If you could just send us a figure, that would be helpful.

Billy Hayes

Yes, we will.

Mr Binley

That would be helpful. It puts it into perspective.

John Park

Our membership ranges, in different areas, between 70% and 90% density, and roughly about 2,500 people just now. Of course that will fluctuate as the business changes, but we can provide you with a snapshot figure.

Mr Binley

One final question: how many do you have in the, for instance, Whistl organisation?

Billy Hayes

We have got some members. The difference is we have not got recognition. We have got some people who work in Whistl, but Community has a recognition agreement with the company.

Les Baylis

We need to take that into context. We have only had a recognition agreement for three years. The first year that was organising at the sortation depots and the end-to-end element has only been the past 18 months. We do need to keep that in its context.

Paul Blomfield

I want to talk about conditions of employment for your members. We had an interesting exchange earlier with Nick Wells from Whistl, when he was challenging the Royal Mail to compete more effectively by changing its labour relations policy, to try to understand what that really meant. That is based on evidence we have had from the CWU and from the Royal Mail that competitors pay on or below the minimum wage; there is widespread use of zero-hours contracts and other ways of dragging down staff benefits and conditions. In his response to us he said, “Just ask the union. We work well with the union. We are an exemplar,” or something along those lines: “A model of good practice.” They were not quite his words but that was the drift. I wonder, John, Les, whether you could share with us your experience from Whistl about the wages, working conditions, contracts and so on.

Les Baylis

Again, we need to put this into context, because this will be the first year that we are having national negotiations with Whistl as far as our members are concerned in end-to-end. In sortation we have had a year of negotiations and an increase of over 3% for them, and sorted out a number of internal issues regarding their contracts. In addition to that, when we identified van drivers in the sortation element who were on zero-hours contracts, we got that stopped. They are on a minimum of 30-hour contracts now in sortation. Within the end-to-end we have currently got a claim in. We are negotiating. I was interested in what Nick Wells was saying also, as you can imagine, because we have to sit on the other side of the table in those negotiations. I also pick up the point about how we are not going to have worker against worker or a race to the bottom as far as terms and conditions are concerned. With all the efficiencies that we expect within the industry, we expect our members to share in that success. This year, for example, we have got a claim in with Whistl for the living wage in London and out of London. We have got an agreement that we are restructuring the current situation regarding zero-hours contracts. At the moment they have got zero-hours contracts within end-to-end. Interestingly, a number of our members want to keep zero-hours contracts, for various reasons. We understand that and that is their choice. We are having a debate at the moment with our reps about how we phase in the formal contracts, and we will do that after a six-month period. It may well be that they will be starting on 20 or 25 hours. We will be looking at the average hours that they have done previously. Again, I ask the Committee to take on board that we are at a snapshot here, and it is only the first year that we are negotiating. We expect to be successful. Unfortunately, Nick is not here, but we expect to be successful.

Mr Binley

He is here.

Les Baylis

Oh, he is. Hello, Nick. Maybe he can sit next to me then. We are confident that the relationship we have had with Whistl over the last three years has been one of recognising that we are in a difficult market; a number of our members have a difficult job, as within Royal Mail. Again, we need to be putting things in perspective, in our view. Whether it be Royal Mail, Whistl or anyone else within the sector, we are all in the private sector now. It is no longer in the public sector, and we need to be mindful of that. We also need to be mindful that we are working within the Ofcom regulations and a number of those arrangements have taken place. People were aware of the significance of the changes and what competition meant, but of course that has moved on, because, as I say, we are now all in the private sector.

John Park

We have also been spending quite a lot of our own time and resources to try to develop lay representatives within the company, so that it is not about people like Les or full-time officials going and negotiating on their behalf on a day-to-day basis. It is about these individuals getting the skills to take a direct interest in what is happening in that company on a day-to-day basis, and making sure that they have the skills, ability and capacity to take positions on the issues that come up around productivity or efficiency at a local level and have a debate with the management. That is healthy industrial relations, and that is certainly the future for us.

Billy Hayes

The thing you have to recognise about the CWU is we are in 40 companies. Every one of them now, apart from Post Office Counters, is in the private sector. We publish all the pay rates of the people we represent, including the pay of our own employees, and we are a living wage employer. What I would like the competition to do is publish their pay and conditions. I welcome everything that Les and John are trying to do in terms of improving the pay and conditions but alongside the quality of service there is another quality: the quality of life of the people who work in Whistl. I welcome the fact that the company is working with Community, but we are having to deal with attacks, in some quarters, on the conditions of our people, in the absence of any evidence from the competition. The agreement Dave and our negotiators made last year was a fantastic agreement, one, on behalf of the people we represent, but also in taking the company forward.

Dave Ward

As Billy said, we want to work with Community. We wish them success in driving up the pay and terms and conditions of workers across the sector. We want to help strategically in achieving their aims for workers, wherever they are. There is an uncomfortable truth about this debate, though. I hear politicians sometimes welcoming new jobs. When Nick opens up and expands his operations, people say, “It is great news. There are new jobs.” There has to be a degree of honesty. In a shrinking letters market, these are not new jobs; they are replacing Royal Mail jobs. Another concern for us is that the regulator appears to be saying that they would act on competition, but they believe that Royal Mail is not efficient enough. We want a transparent debate on efficiency. We have lost between 40,000 and 50,000 jobs since the market was liberalised. There are good reasons for that: new technology and new machinery coming in and replacing manual work. We know that our members are working harder than ever, and yet it feels to us that what the regulator is really saying is that Royal Mail is inefficient because the regulator is comparing its labour costs with those of its competitors. As Billy said, we do not get to see all of that comparison. If the regulator is using labour standards to compare efficiency, we say that is completely and fundamentally wrong. We say it is outside their remit. We are willing to address efficiency; we are willing to continue to deal with the reality of trying to make this company grow in a highly competitive market, but we want fairness: fairness for workers, fairness for customers and a level playing field for the companies that come into this market.

John Park

We would be relaxed with that approach. That would be a sensible approach. What we want to do is drive up conditions with the employer that we are working with. There is another thing that is really important to know. Around half of the people who are going to work in Whistl are long-term unemployed. Some of them come from communities where their parents and the grandparents have not worked and have been economically inactive, so it is important to note that these individuals are getting an opportunity to come in and hopefully have a long-term career. Another thing is that the people who come to work in Whistl and become members of Community tend to reflect the communities they have come from. In terms of our own membership, the age profile is going down; in terms of diversity of the membership, that is increasing, and that is a good thing, particularly for us as a trade union, but more widely for giving opportunities to people who have perhaps been underrepresented in the workplace.

Paul Blomfield

I take that point. We would all welcome opportunities to bring the long‑term unemployed back into work, but I am sure you are all agreed that that needs to be by levelling up rather than levelling down.

John Park

We would not be in this job otherwise.

Paul Blomfield

Clearly, that is your objective in relation to your members.

John Park

Yes, absolutely.

Paul Blomfield

Billy, on the point that you made, I am looking forward to the further information that Whistl are going to provide, answering exactly that question: comparability of what is paid, what are the contracts and so on. May I just press you a little bit more? A number of Royal Mail’s competitors are going to make the point that their inability to be competitive is because they do not stand up to the CWU on driving down labour costs. From the time I spent talking to your members in sorting offices in Sheffield, it seems to me that you have been extraordinary flexible in adjusting to the new terrain you are operating in, so how do you respond to that sort of criticism?

Billy Hayes

Because they do not stand up to us? I have been in the industry 40 years; I have been a national officer for nine, representing delivery staff, and a general secretary for 12-odd years. The company stands up to us—there is no question about that—and we stand up to them. We do not make any apologies for the fact that we are a strong trade union and we do well for our members. We want to help and assist the workers in Whistl. Our contention, as Dave has just said, is that there is a Geist in society now. The living wage is taking off. In fact, it was the London Citizens organisation—it was not even a trade union—that developed it, but it is taking off, and I think it is taking off because it is chiming with the way people feel. The way to have an efficient company is not to have low pay and conditions. Can I just ask one question, Chairman? We will submit to you all the pay and conditions, but, as Dave has underlined, we would like to see the competition do the same. I do not know whether I am being a bit cheeky here, asking for that.

Chair

We have asked them to do so, and we will make a judgment if they do not.

Billy Hayes

I would really like to see it; we want to know. The thing about efficiency is that only an amateur thinks that low pay and bad conditions are a solution to productivity. All the evidence is that if you pay people well and you have a collaborative approach to solving problems, it makes for a successful company. That is the evidence, so I do not think there is any question. If you look at the dispute record of years gone by, the companies are not pushovers. Dave knows more about that than I do. They are no pushover, but neither are we.

Dave Ward

It is about balance. It is about making sure that what we do is good for customers, good for our members and also that it gives the company a future. It gets quite annoying sometimes, the way that people use trade unions per se as a convenient excuse in some of these debates. We have undergone huge amounts of change, year after year after year. If you speak to postal workers, they will tell you that their job has become much more physically demanding. It is a very difficult job. We also understand that efficiency cannot be seen as a dirty word. We understand that if we want to protect long‑term employment, the company needs to be efficient. We understand that the company needs to innovate. We would like to see Royal Mail do more on growth. We have just reached a supplementary statement that we have agreed with the company, which is very focused on growth, efficiency and incentives, and we are really pleased about some of the plans that we are working on with the company now to try and drive growth in other areas of this market. We want to play a big part in that, but we are not going to apologise for standing up for workers. What we will never accept is the race to the bottom. If that means, in the name of efficiency, that what is really being said by the regulator is that Royal Mail is not efficient enough because it is comparing its costs, wages and employment standards with its competitors, we are never going to accept that situation.

Chair

Before I invite the next question, can I just make it clear that the attrition of the membership on this side of the Committee is due to the fact that we have now started questions, and Prime Minister’s questions will be on very shortly? It is no reflection on either the importance of this subject or the quality of your answers. I could just stress that members will obviously want to get to Prime Minister’s questions, so, if members on this side could make their questions brief and the answers could be pointed, that would be helpful.

Mr Bain

I will address this question to Mr Hayes and Mr Ward. Unite’s written evidence to the Committee has recommended that Ofcom should apply some universal service conditions to Royal Mail’s competitors, require entrants to the market to take on more responsibilities to their workers and also cover more delivery days and more geographical areas. What would your view be about those kinds of proposals and the impact they would have on Royal Mail and jobs within that?

Dave Ward

I am not entirely convinced of all the points that Unite put forward there. There has to be fairness on the quality of service standards. If you are entering this market, you have to be on a level playing field; you have to be very transparent about what your service standards are. Secondly, there has to be fairness on the integrity standards of the employees who work in those companies, so we need to drive up standards of employment in that sense. There have to be good employment standards per se. These are the key things. I come back to this simple point. If the regulator, which it seems to us, from everything that we have looked at, is not wanting to take action because it believes Royal Mail is inefficient, then we need to have a more transparent debate about what they mean by that. They need to be honest, and we need to be upfront about that as well. If that boils down to, which I suspect it does, the extent to which they are comparing the terms and conditions of the competitors and some of the fixed labour costs that Royal Mail or any universal service provider must have with our members’ terms and conditions, that is not right. Therefore, at some point, in our view, the regulator must either introduce a universal support fund, which may have its problems but is something that needs to be considered, or it must introduce a cap on cherry‑picking competition. It seems you were suggesting that it might be a good idea if they competed right across the board for the USO. I don’t think so. You have to also recognise that the USO is an end‑to‑end service commitment, and it is better performed, as it has been for 350 years, by the company that has been doing it. I don’t think we would want to see that extended to other companies. I don’t think it would be in the interests of consumers.

John Park

I am happy to say, more generally, Community is very supportive of Government levers being used to drive up standards around employment in particular. Whether that be procurement or whether that be through the regulatory framework, that is something we are very supportive of. There are thousands of opportunities out there, certainly for our members in other sectors, where, if there was a more direct approach or more intervention from Parliament or Government, some of the problems we are facing in terms of our members’ terms and conditions and the issues they have to face on a day‑to‑day basis would be dealt with at source. That would then mean that we could deal with the day‑to‑day issues of driving companies forward and making sure they are efficient and our members are sharing the spoils that are there.

Mr Walker

I want to ask about the area of employee ownership and the fact that now CWU members own a substantial proportion of Royal Mail. Do you think that has affected the attitude that people take to the company or perhaps helped to maintain the positive attitude and commitment that people had to the company before privatisation?

Billy Hayes

We are in a new situation now in terms of share ownership with our people. They cannot cash them in for a couple of years yet. I do not think it makes a difference per se, to be quite honest, in terms of share ownership. We have seen that in BT. Obviously, we represent members in the telecommunications sector as well. I am not saying it makes a great deal of difference, but you might say it is a little too early to tell in some senses. As we said at the time, nobody is going to baulk at free money, but I do not know.

Dave Ward

I agree with Billy. I think it is too early to tell. I don’t think it will ever replace the reality of people’s take‑home pay and their basic wage. They will always value that much more than any free shares. We opposed privatisation. Our concerns at the time were that that, in itself, could start to undermine the universal service and that, whilst investors put money in, our experience is that they take more out than they put in. We still worry about the potential impact of that but we have to deal with the reality of that situation. We have to move on and we have to tackle the issues. One of the big things I see is that, if the regulator was to take some action to bring about fairness, we could concentrate much more on delivering growth in this industry and the innovation that is required. We want to play a big part in that debate.

Les Baylis

As far as the regulator is concerned, I take Dave’s point about using this benchmark of wages, terms and conditions, but we should be under no illusion. Whistl or anyone else that works with the regulator has to abide by the standards within the industry; otherwise they do not get the contract to do the work, basically. Again, we need to be mindful of that. I take Dave’s point about what benchmarks may or may not be used by the regulator, and we would be interested in that dialogue as well.

Mr Bain

This question to John and Les. It follows on from what Robin was talking about. Shareholding is one way that workers with Royal Mail have a stake in the business. In terms of your unions’ workers, it is probably going to be a different situation, but what kind of stake do you think it might be possible for workers to have in these other providers in the postal services industry that means we will have better relations between the workers and the employers within these other providers?

John Park

As a point of principle, I will just get it on the record that the shareholding side of things is something we want to decouple from any other discussions around industrial relations, conditions of employment and things like that. It is a different type of investment. We believe the process that we have taken with Whistl in working with them has been one that has enabled our members to have a positive impact on the business, as well as us being able to negotiate on conditions of employment. As I said earlier, we invest quite a lot of time and resource in developing our members from individual members who come into the company into activists who take a view not just on what that company is doing but where the industry is going as well. In more traditional areas where trade unions are well represented, particularly in the CWU and other organisations, that has always been the approach that is taken. Managing is far too important to be left to managers on their own; sometimes you are better having people in the business who understand, who are representing the work force, to get a more balanced view and approach. We are quite happy to talk about working in partnership. We do that with a range of companies in a range of different sectors. We do not always agree, but making sure there is a trade union in place, which is recognised by the employer, which can influence the business positively, is a good thing and we see our role in that as developing a new generation of constructive representatives to play their part in that.

Mr Bain

Les, do you want to add anything to that?

Les Baylis

Again, we need to put things into perspective. We already mentioned about Royal Mail now being a private company. We have also seen, interestingly, that the deficit within the pension fund is now a liability of the taxpayer and off the balance sheet as far as the Royal Mail is concerned. We do need to take other things into account and context when we are talking about a level playing field.

Chair

That concludes our questions. May I thank you very much for your contribution? We still have another session, but we will be reporting in due course. I would repeat what I have said to the other panellists. If you feel that there is additional information that you would like to give us, please send it in a written form. Equally, if we feel we should have asked you something but did not, we will write the question to you and ask you to respond in a written manner. Thanks very much. That was very helpful.

OE

Competition in the Postal Services Sector and the Universal Service Obligation, HC 769-i 4