THE public sector would save £31 million a year if it dropped Royal Mail in favour of rivals, sent some letters second class and used the internet more, the Government’s spending watchdog said yesterday.

The finding by the National Audit Office (NAO), which examined how key departments handled their post, is a blow to Royal Mail. The postal group, which handles most public sector mail, is already losing key contracts as full competition takes its toll.

The report also highlights the large quantities of mail sent by departments to incorrect addresses or people. The NAO found that the average cost of mail in the public sector is 28p an item, compared with 22p in the financial services industry.

The watchdog said that departments should also send more letters second class, use the internet more and manage their systems better.

The NAO studied the postal operations of the Department for Work and Pensions, Revenue & Customs, the Driver and Vehicle Licensing Agency, National Savings & Investments, and RBS Group, which was used as a private sector comparison.

Edward Leigh, chairman of the Public Accounts Committee, said: “When it comes to its own mail, the public sector has been extraordinarily timid in taking advantage of opportunities to save money, for example, through the newly liberalised postal market.”

Millie Banerjee, chairman of the Postwatch, the consumer group, said: “Public sector organisations are amongst the biggest mailers and will be able to secure significant savings.”

A spokesman for Royal Mail said: “In a fully liberalised market what is crucial is making sure that our customers are satisfied. We will operate as efficiently as possible to offer the best prices we can.”

Both the NAO and Postwatch still use Royal Mail because they say their volumes of mail are too low to secure attractive discounts for bulk mailing. However, both said that they would switch if they were able to.

The projected savings of £31 million amounts to 5 per cent of the Government’s total postage bill.

Several million letters a year are sent by four government departments to people who have died, wrong recipients or wrong addresses. Revenue & Customs put the wrong addresses on 3.4 million letters last year, at a cost of £4 million, the NAO found. Work and Pensions misdirected 1.1 million letters (£650,000); Driver and Vehicle Licensing 143,000 ( £73,000) and National Savings 42,000 (£23,000).

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