Christine Buckley, Industrial Editor
2 for 1 tickets to Singin' In The Rain, this coming Monday. Book now
The Royal Mail could become incapable of maintaining its commitment to delivering a UK-wide price structure for its letter and parcel service, says a government-commissioned review.
At the same time, competition in postal services has delivered no benefits for domestic consumers and small businesses, according to the review set up to advise John Hutton, the Business Secretary.
Details of severe financial pressure facing the organisation have emerged just a year after it received a £3.9 billion government rescue package. Royal Mail has a £3.4 billion pension deficit and last year its profits fell by a third to £223 million.
The review, which will make final recommendations later in the year, said that Royal Mail’s finances are so precarious that they could derail its obligation to the universal service, which allows stamped mail to go anywhere in the country for the same price.
It said: “There is now a substantial threat to Royal Mail’s financial stability and, therefore, the universal service. We have come to the conclusion, based on evidence submitted so far, that the status quo is not tenable.
There is a strong case for action.”
The review was led by Richard Hooper, a former deputy chairman of Ofcom, the communications industry regulator. It criticises the Royal Mail for being slow to modernise and also cautions that modernisation in the future will be more difficult because of a decline in the letters market.
Domestic consumers and small businesses have failed to win any of the advantages from the liberalisation of the market that have been enjoyed by big business, the review says. While large businesses have secured better rates and service from Royal Mail and rivals, stamp price rises and fewer services have affected households and small companies.
It said: “The abolition of the Sunday collection and the move to a single daily collection have been more visible to small business and domestic consumers. Both changes are perceived as a reduction in service, particularly for small businesses who want earlier and more predictable delivery times.”
Postcomm, the regulator, gave warning that the review that “without extensive change, the Royal Mail’s business model will become unsustainable”. If there are no significant changes at the organisation, the regulator envisaged negative cash flow of £400 million a year by 2012. Mr Hutton said: “New technologies are transforming the way we communicate and this will only intensify in the coming decade. The findings are a wake-up call to anyone who believes it can be business as usual. It can’t. Despite progress in recent years, I am now clear that to be successful the Royal Mail must undergo radical change.”
Mr Hooper would not outline possible action yesterday. But it is thought that the universal service could be modified so that it is less costly to Royal Mail. Previous attempts to bring private capital into Royal Mail have proved politically explosive and the Government may have little appetite to try again as general unrest on the backbenches grows. But the Liberal Democrats said selling a stake in Royal Mail was the best solution.
Sarah Teather, the party’s business spokesman, said: “Royal Mail urgently needs a cash injection to allow it to modernise and compete with the private sector. Selling 49 per cent of the Royal Mail shares would allow major investment without breaking the public purse.”
A spokesman for Royal Mail said: “The report identifies the ways in which the open postal market is clearly not working and Royal Mail looks forward to submitting its further views on the changes that are required in the market, with the way it is regulated and on how the universal service can be sustained and financed.”
Enjoy screenings of all the classic films you love.
Have you ever dreamed of owning your own racehorse or a beautiful painting?
Enjoy comfort, safety, space and great design. Plus enter our great competition
Allow Times Online TV show, Perfect Pets help you make the the right pet decisions
Are you California dreaming? Explore the wonders of the Golden State. Also enter our fantastic competition
Do you have what it takes to be a Times photographer?
Your brain is capable of more than you might think...
Find out to make the most of your money with our wealth management guides
Need help with your property? We have an entire how to guide - buying, selling, letting, moving, to help you
We are seeking entries for the inaugural Sunday Times Best Green Companies Awards
Enjoy some wonderful inspiring wildlife moments
An interactive preview of the brand new For Your Eyes Only exhibition

Love Sudoku? Play our brand new interactive game: with added functionality and daily prizes

Are you irritable when you return from work? Drained of emotion? You could be suffering from boreout
Prepare for some shock and awe, petrol lovers. Despite the greens trying to wipe it out, the car is about to offer us the most exciting year ever
We've trawled the brochures and websites to find this summer’s best holidays for every taste and budget

Overseas contacts and local business information

Join by May 15 to win BMW PGA Championship tickets
2007/07
£57,500
South East England
2007/07
£40,995
South East England
2006/06
£41,995
South East England
Great car insurance deals online
£40-55k+benefits+uncapped commission
Morgan Keating
South East
£60k plus excellent benefits
Barclaycard
Stockton / Northampton
£
£55,000 - £75,000 plus bonus and benefits
Diligenta
Based in Peterborough
£45,000 - £70,000 plus bonus and benefits
Diligenta
Based in Peterborough
Globrix, the property search engine
Visit Times Online Property for homes for sale or rent
Residential development site with planning permission
£1,500,000
Mortgages, bank accounts & money transfers to help you buy abroad
Dinarobin Hotel Golf & Spa 7 nights
From £1830 per person – saving £530.
Walking & multi-activity holidays in Cauterets. Stylish self-catering apartments.
From 350€ for 7 nights.
SAVE 25% on Sandals Luxury Resorts
Great travel insurance deals online
Here in Australia we have a uniform charging postal rate in a country far bigger in size than UK with only a fraction of your population!!!!!!!
John, Melbourne, Australia
Can you say "carrier pigeons" boys and girls?
hoffmfel/PhD Student, Birmingham UK, non dom USA
It isnt a problem really, as in a few years there wont be any business or industry in this country and no need for a postal service, England will be a country that rich folk retire to and most the workforce will be in europe
paul, Wolverhampton, UK
EU diktats have turned gas, electricity , water and postal services into cash cows for companies, a lot of which are foreign owned. The shareholder is all that matters, not the consumer.
Ros, Surrey,
This is what happens to a badly managed company, there is always competitors to take their place, not to worry. If you cant run your company correctly then this is what happens, no need to bail them out.
They have failed to modernize there business model and have paid the price.
Andrew T, England, UK,
Who's to blame?EU for imposing deregulation,New Labour for allowing it ti happen and Leighton and Crozier for carrying it out.
No doubt John Hutton won't allow the Government or Leighton or Crozier to take the blame either.All evidence pints to the New Labour Government-another fine mess.
john, shrewsbury, uk
Ask why this has happened and you get a combination of EU directives and corporate/government greed.
The reason our Royal Mail is open to competitive forces is that the Government decided to enact the Eu directive early. Germany and Holand refused and have taken our business! get out of the EU!
John Stretton, Albrighton, Shropshire
I seem to remember that Royal Mail always maintained that the opening up of the postal market would enable competitors to skim the cream off the business, leaving Royal Mail to finance the Final Mile and the USO. Both Government and Postcomm, the Regulator, begged to differ. Sadly RM got it right.
matthew, London, United Kingdom
an honoured and respected name 'the royal mail' is changed to 'consignia' for no other reason than management ego and then changed back to royal mail !
with decisions like that is it any wonder the whole thing is going under and when it is gone , like the beeching rail cuts it will be too late.
david c, purbeck,
If it ain't brok don't fix it! Electricity, Gas, Water, Telecoms and public transport and Royal Mail should all be run for the benefit of the public. Privatisation produced a decline in service and profits for the money grabbing private sector, at public expense. Re-nationalise our core services.
ron, Milton Keynes, Bucks
the govement whant to sell it off.so they dont have worry about it any more.and they are push in to debt
sam browne, mk, england
The Royal Mail was originally a government department, and dates back to the 17th century. The universal Penny Post, which allowed letters to be sent anywhere in Britain at a standard charge, was introduced in 1840. As was quite obvious to Victorians, it was an essential public service. No longer!
Tom Welsh, Basingstoke,
Those complaining loudest are mostly those who supported the break up of RM. We who worked for the business when it provided a service to its customers all knew where the changes would take us and said as much. Extreme bad management of a very poor plan confirms the addage dont fix what aint broke
mike gee, bournemouth, uk
How come the US, Canadian and Austrialian equivalents have no problem in maintaining a one price structure over far larger countries?
Roger Tilbury, Worthing,
We don't need the PO today as we used to 50 years ago. We have to accept that. The universal service obligation should be abolished. The post offices that are unviable should close. The PO should not be used to channel benefits to claimants. There are bank accounts for that. Slim down Royal Mail....
Fred, Luton,
John, I've got to disagree.
When, by EU diktat, the postal market was de-regulated, the goverment failed to apply the same conditions of service to the companies as to the Post Office which allowed them to "Cherry-pick" from the services and therby caused the present problem
Chris Davison, Middlesbrough,
private sector parcels + email + online forms + e-commerce + time = future demise of post offices
David, Croydon, UK
The government has allowed the private sector to cherry pick all of the profitable parts of the business, leaving the delivery of letters to the Royal Mail. Unfortunately, unless the government wakes up and does something, there will be no mail delivery at all.
David Leslie, Perth, Scotland
Despite moans from those who blame the Government for everything and others who blame deregulation, the current state of the Royal Mail merely shows what happens when you make a somnolent public institution cost-accountable. Full privatisation is the key and closure of all lossy branch offices.
Golodh, London, UK
Our local Post Office are happy to close two popular post boxes. It looks as though it isn't cost-effective to collect the post - and another reason for us to use emails instead.
Jack Briggs, Huddersfield, England
The universal service obligation has always been a millstone around Royal Mails neck, even more so in this heavily deregulated market. So lets see a level playing field for all our competitors and see if DHL ect can get a letter to anywhere in the country with there own network for 36p.
Ted, Camberley,
The prices that go on the dimensions, thickness and weight have reduced the amount of mail I send. I used to be able to pop an envelope on the kitchen scales and into the local box. Now you need the skills of Carol Vorderman to calculate the variables. Post Office queues are too long. So I email.
Robert, Manchester, M13 9UY
There was a time when Royal Mail a highly dependable organisation. Sadly this is no longer the case. Like so many aspects of our society the standards of Royal Mail have markedly detriorated and the present Government, without doubt has been a major contributor to this decline.
Ian, LowerHeswall, Wirral, UK
As usual in the public sector, money will follow failure. The worse the Royal Mail does, the more money we have to give it. £3.9 billion is about £65 each - more than most of us spend on stamps in a year.
Frank Upton, solihull,
The solution is simple the goverment has to go and we have to nationalis everythign again, prvitishastion was only to give tony blairs mates a bit of extra cash, If the goverment keeps on going like this it wont be long before the far right get in.
MR W Jones, Liverpool, England
Thinking back to the days when the Royal Mail was something to look up to, something there as an example to those who worked in the post offices out here, The Royal Mail was considered the best in the world, without equals.
It could be again. if the current government rectified what eroded it.
margie , victoria, australia
This government has dismantled every institution that was good - and dumbed it down to something that delivers nothing. I live in Germany now in a village with post office , rail link, bakery, shop, banks. But the ones to really blame are the apethetic British who have allowed it all for money!
Richard, Plymouth,
Deregulation and its benefits was always a myth, and more about enriching the friends of the government than delivering competitive prices to the consumer. Most British people yearn for the good old days of the Electricity, Gas and Water Boards, as well as post offices in our villages.
John, London, England