The Government first organised a postal service around 1516, early in the reign of Henry VIII, whereby a ‘post’ was laid by stationing horses and post boys at intervals along busy routes.(3) Landmark reform of this service was brought about by an obscure pamphleteer named Rowland Hill. His self-printed 1837 publication, Post Office Reform: Its Importance and Practicability,(4) proposed the consolidation of a fractured and overpriced service into a more universal one, known as the Penny Post, in which the sender would pay for postage. Inciting public opinion with his pamphlet, he sought to convince the Lords of the Treasury that implementation of this service would generate additional revenue and justify reduced individual costs.(5)

The first major alteration in the relationship of Post Office to Government came in 1969,(6) largely for pragmatic reasons – that a Government department was ill-equipped to run such a large organisation with an eye on the future. The Post Office became a public corporation, with the Government as its sole shareholder, employees relinquishing their civil servant status, and a Minister for Posts and Telecommunications being appointed – a short-lived role that devolved to the Department of Trade and Industry (DTI). In the process, the Post Office maintained an obligation to undertake daily collections and to deliver mail to every address in the United Kingdom, however remote, for the same price. In order to fulfil this universal service obligation (USO), the Post Office retained the exclusive privilege of delivering letters which, as we shall see, has been fiercely contested.

For the next thirty years, the Post Office continued its operation on this basis, surviving as the last nationalised industry, with targets for profit being set by Westminster. In 1997, the European Commission issued a Directive to establish a single market for postal services in Europe. This specified that all European Community residents were entitled to access a universal service at an affordable price that reflected costs. On an interim basis, as part of the ‘gradual and controlled liberalisation of the market,’(7) the Directive allocated a reserved area – of items up to 350g and five times the basic tariff, expected to be reduced to 100g after January 2003 and to 50g after January 2006 – for providers of the universal service.

In the UK, a White Paper was published in response, outlining the many benefits of competition to the Post Office, and detailing changes which ‘should ensure that high quality postal services are offered at a reasonable price and that a universal service under a uniform tariff structure can be provided without direct public subsidy.’(8) While simultaneously reducing the percentage of profits withdrawn by the Exchequer, this document proposes halving the Post Office letter monopoly to fifty pence whereby, from 1 April 2000, anyone may provide a rival service to deliver items above this price and weighing more than 150g, significantly reducing the reserved area proposed by the European Commission. The White Paper also proposes transforming the public corporation into a public limited company(9) with all shares owned by the Crown, ostensibly maintaining a commitment to keeping the Post Office in the public sector while opening up its market to competition.(10) Whether the provision of the universal service will be viable under competitive conditions remains to be seen, but this shift in policy away from a public sector monopoly prompts an examination of the factors which informed this change and which continue to impact upon the ways in which the sector is being studied.

In considering the research that has been undertaken in the field since the Post Office gained relative autonomy from the Government, a consistent voice – becoming increasingly shrill over the decades – is that of Ian Senior, who began his career as a civil servant at the Post Office.(11) In a background memorandum published a year after the 1969 Postal Act was effected, he concluded that:
The change of the PO’s status has simply given the postal service the same monopoly privilege with less accountability than before … what is needed is the creation of an environment which gives to PO managers not only the freedom to manage with more efficiency, but also the incentive to do so … to counterbalance the enervating effect of past monopoly … for it is widely accepted that competition coupled with free consumer choice creates the best environment for productive enterprise.’(12)

This led him to argue that the letter monopoly – which had been subsidising less profitable areas of the corporation, including the collection from/delivery to rural areas as part of the USO – was unjustifiable and should be removed, and that the universal tariff for letter delivery should be revised. The rationale behind this was that ‘a newly profitable PO postal service would be able to provide better service for money. The more profitable the service, the more private entrepreneurs would be attracted to offer competing services. The sharper competition would encourage PO managers to tailor existing services to users’ needs and to offer new ones.’(13)

The essence of this position – that competition necessarily yields efficiency and customer satisfaction, and that the postal market should be opened up to such positive forces – has been sustained throughout Senior’s extensive commentary on the subject, and is strongly echoed in recent policy on postal reform. In 1999, the DTI under New Labour wrote ‘Competition encourages innovation, productivity and growth. Where there is competition in postal markets, and where it is anticipated, here and abroad, it is already leading to a diversity of products, tailored to meet consumer needs.’(14) It is compelling to note that Senior’s research was commissioned by the Institute of Economic Affairs (IEA), one of Britain’s oldest think tanks, acknowledged by Margaret Thatcher as having fuelled her programme of economic liberalism.(15) This dovetailing of the views of Thatcherite ideologues with those of more recent policy-makers immediately suggests a tangible political obstacle for those researchers hoping to influence postal policy in other directions.

This becomes clearer if we examine some of the research commissioned into the economics of liberalisation. In 1998, in the wake of its first Directive on postal services, the European Commission approached National Economic Research Associates (NERA), ‘an international firm of economists who understand how markets work,’(16) to undertake an analysis of the cost to each of its Member States of the USO. It was understood that the results of this study would assist the Commission in determining how much (if any) compensation would be needed by universal service providers, and whether cross-subsidy from a reserved area or compensation from an independent fund would be the most appropriate way of securing continued provision. Using the Net Avoided Cost (NAC) methodology – which subtracts the losses made in unprofitable parts of the business from the net profits – NERA concluded that the cost of providing the USO is negligible (£22.6m) and that, rather than offering compensation to providers, the imposition of universal service should be reconsidered in a liberalised environment.(17)

In 1999, the Post Office refuted the use of the NAC method – on the basis that, in considering a stable market, it fails to take account of competition – and responded with an evaluation using the Entry Pricing Approach, developed by PricewaterhouseCoopers ‘to provide a framework for producing estimates of the cost of the USO in a liberalised environment where the scope of the monopoly will be reduced.’(18) Mapping different scenarios – from initial liberalisation with a reserved area of 150g to full liberalisation of direct mail and a reserved area of 50g – the Post Office concluded that between 24% and 90% of normalised profits (up to £750 million a year)(19) could be lost, considerably higher than the losses calculated using the NAC method.

In a modest paper by a three-man research team at the University of Zurich, these two methods of evaluating USO are compared and the NAC method dismissed as having little relevance to a competitive situation. By contrast, the Entry Pricing method produces a more reliable model of the cost of USO in a competitive environment, assuming that the universal service provider has already maximised efficiency; otherwise, the cost of modernising the service in order to compete diminishes overall profits and increases the relative cost of USO. This means that, while compensation calculated according to this method would secure continued provision of universal service, it does not represent the actual cost of USO under competition. A more accurate measure, Profitability Cost, takes account of:

the additional costs a service provider in a competitive setting incurs due to the provision of universal service. It equals the compensation necessary to allow a universal service provider to fulfil the universal service obligation in the long run … the Profitability Cost approach is highly attractive from a theoretical perspective. However, from a practical perspective, the data required for an operational model is difficult to obtain: In addition to the costs, the expected prices and demand functions for all services must be estimated.(20)

This suggests a two-fold economic impediment to social researchers – in convincing policy-makers that an alternative form of modelling needs to be used, and in the prohibitive costs of adopting this methodology.

Returning to the research elicited from NERA by the European Commission, the published report cites as part of its project team none other than Ian Senior, self-declared ‘special adviser in the London office of NERA,’(21) who subsequently re-iterated their flawed findings to justify market liberalisation.(22) This begs questions about why a consultancy with a pronounced pro-market stance would be commissioned to undertake research for the European Commission in the first place. The main protagonist responsible for postal reform in Europe is Charles McCreevy, Commissioner for the Internal Market and Services portfolio since 2004. Charged with the duty of creating a single market within Europe, he is widely known as a free-marketeer.(23) Giving a speech in London in 2006, then-Chancellor of the Exchequer, Gordon Brown, heralded a new wave of liberalisation across Europe and announced that the Treasury was working with McCreevy to achieve this.(24)

Before considering how these political forces are impacting on the recent research carried out in relation to postal reform in the UK, it is worth mentioning that, in 1998, Royal Mail, together with several other national postal operators, sponsored a piece of research by the Institute for the Future. The subsequent report speaks of liberalisation as an inevitability, and considers strategies of survival rather than reversal. Tracing contemporary emphasis on efficiency to the Chicago School and IEA, it offers a laudatory account of the history of deregulation in the US, the UK and Chile. Projecting ahead to 2010, the report finds that ‘posts are privatized; the monopoly is ended; more prices are determined by market forces; regulators ensure the interconnection of all players; universal service is achieved by the whole sector.’(25) Little wonder, then, that the Royal Mail offered little resistance when confronted with a near-reality formulated by serious researchers. Little wonder, also, that these were the conclusions drawn by the Institute for the Future. Based in Silicon Valley and ‘founded in 1968 by a group of former RAND Corporation researchers with a grant from the Ford Foundation to take leading-edge methodologies into the public and business sectors,’ it would seem that the Institute is no stranger to nefarious political interventions.(26)

Under the provision of the Postal Services Act 2000, a new Postal Services Commission (Postcomm) was set up ‘to provide for the licensing of certain postal services and for a universal postal service.’(27) This delegation of powers by Government – akin to the Bank of England being charged with determining interest rates – also conferred on Postcomm the responsibility of protecting consumers. In the seven years of its operation to date, Postcomm has been the major commissioner of research into the postal sector – allocating over £17 million to  ‘outside consultants, lawyers etc.’ up to the end of the 2007 financial year, with a further £3 million earmarked for 2007-08, which warrants further scrutiny here.(28)

In what has become a familiar strategy, intended to denote transparency, Postcomm immediately launched a consultation process,(29) which sought responses from public and private sectors about how it could best promote effective competition between postal operators. At the same time, Andersen(30) was commissioned to undertake a costing of the USO using the NAC method, which was calculated at a mere £81 million per year.(31) While Royal Mail’s response to the consultation showed Postcomm’s economic modelling(32) and analysis to be deeply flawed and the protection of the USO to have been subordinated to considerations of competition,(33) it nonetheless supported ‘the gradual and controlled approach to the introduction of competition’ advocated by the European Commission.

During the final phase of the consultation process, Postcomm received the results of research it had commissioned from Frontier Economics,(34) into the relationship between liberalisation and efficiency, which asserted that ‘the proposition that competition leads to improvements in efficiency can be supported empirically. Numerous studies point to the efficiency benefits of liberalised competitive markets.’(35) At the same time, the National Audit Office published a report into postal operations, portraying an obstinate universal service provider unwilling to increase efficiency without the incentive of private shareholders. Acknowledging the potential risks to USO and customer satisfaction, this report nonetheless adopts Postcomm’s conviction that ‘competition delivers greater benefits than regulation in terms of the price, quality and innovation.’(36) This tacit confirmation of Postcomm’s strategy – with increased efficiency certain to guarantee Royal Mail protection from liberalisation – set the tone for ongoing research initiatives. And, while Royal Mail did its best to counter such suggestions,(37) without directly commissioning its own research, it failed to influence the policies determining its fate.

In May 2002, Postcomm pre-empted the European Commission’s June revision of its 1997 Directive,(38) which called on Member States to provide a timetable for the opening of their postal markets.(38) Placating concerns about rushing the competitive process, Postcomm announced that liberalisation would be an elongated three-phase process – taking place at 1 January 2003, 1 April 2005 and 1 April 2007. The decision document paraphrased the findings of Frontier Economics, that Royal Mail’s ‘ability to meet its universal service obligation is more at risk from a failure to become efficient than from a loss of volume under competition.’(39) Despite the Treasury expressing concerns about threats to the USO in a competitive environment, scepticism about Postcomm’s economic modelling and disapproval that ‘Postcomm have made use of expert consultants, but [that] these are no substitute for in-house expertise,’(40) the regulator continued in its trajectory.

Over the next four years, Postcomm commissioned research from The Future Foundation, NERA/RAND Europe, Frontier Economics (twice), Roland Berger Strategy Consultants, Arthur D Little, LECG (twice), NERA/Accent, Europe Economics and NERA (again).(41) The Berger report surveyed 549 business postal users (domestic customers having ceased to be important) to conclude that ‘full market opening should be assessed as an option for Phase II of market liberalisation,’(42) while Arthur D. Little(43) examined the barriers to entry for postal operators. Concerned that competition was not happening at the rate and intensity it desired, Postcomm undertook a Competitive Market Review(44)– proposing that cross-subsidy be eradicated and Royal Mail be stripped of its VAT-free status, further handicapping the universal service provider in the face of competition. In a direct example of research influencing policy, Postcomm also followed the advice of Roland Berger and Frontier Economics to launch a consultation into a Revised Market Opening Timetable,(45) which proposed that full market opening be brought forward from 1 April 2007 to 1 January 2006, with the intermediate step being eradicated, a move which was later condemned by the Trade and Industry Committee.(46)

Having studied the impact of Ian Senior and his cohorts at various think tanks, it is clear that individuals can have a great impact on the nature of research being undertaken. With this in mind, it is possible to examine the personnel governing each of the organisations central to the postal debate in the UK. The pro-market stance evinced by Charles McCreevy in Europe and Gordon Brown at home is consolidated at the Government department formerly known as Trade and Industry,(47) where the Select Committee is chaired by Conservative MP Peter Luff. In 1999, when Chair of the Commons Agriculture Select Committee, Luff came under pressure to resign due to his undisclosed links to PR and lobbying company Bell Pottinger, advisors to biotech giants Monsanto.(48) Interestingly, there is a direct link between Bell Pottinger founder, Lord Tim Bell, and the DTI via Lord Young who, when DTI secretary, was advised by Peter Luff, a service financed by Bell Pottinger.(49) The DTI is responsible for appointing the boards of Royal Mail Group and Postcomm (50) and the Chair of Postwatch,(51) each of which will now be examined in turn.

Royal Mail Group Chairman, Allan Leighton, was appointed to the post by Tony Blair in 2002, at a time of strained relations between Royal Mail and Postcomm.(52) Former Chief Executive of Asda,(53) Leighton was cited in 2001 as ‘the biggest new name among business leaders backing Labour.’(54) In a board wholly comprised of notables from the business world, fellow Labour Party donor, Stephen Carter, ‘Group Chief Executive of Brunswick Group LLP, a privately-owned corporate and financial advisory firm,’(55) stands as its Non-Executive Director, while Adam Crozier, former Saatchi and Saatchi Joint Chief Executive, holds the post of Chief Executive at Royal Mail Group. This configuration goes some way to explaining the complicity of Royal Mail when confronted with liberalisation proposals.

The picture at Postcomm is markedly similar, with pronounced business interests among its constituents. Its Chair, Nigel Stapleton,(56) is Non-Executive Director of both the London Stock Exchange and Reliance Security Group. Beneath him sits, among others, Commissioners Tony Cooper (Non-Executive Director of the Nuclear Decommissioning Agency) and Stephen Littlechild, described as ‘an international consultant on regulation and privatisation’(57) who declares no potential conflicts of interest on the Postcomm website. However, in 1981, Littlechild was commissioned to write an article for the in-house journal of the Institute of Economic Affairs, entitled ‘Ten Steps to Denationalisation’. Unequivocal about the need to introduce competition into nationalised industries, Littlechild tempers Enoch Powell and Milton Friedman’s calls for ‘immediate and wholesale denationalisation’ to suggest a significant movement towards it, citing former Post Office chairman, Sir William Barlow, as concurring with his view.(58) The postal service forms the tenth step in his proposed denationalisation programme, beginning with a sale of the profitable (non-rural) parts of the business.(59) In what would appear to be a self-fulfilling prophecy, this man is now responsible for introducing competition into the postal sector.

Finally, what of Postwatch, the body set up to protect postal consumers? Notable on its committee is the Chair for Scotland, Alan Alexander. Chair of Scottish Water from 2002 to 2006 and current Emeritus Professor at the University of Strathclyde, Alexander has been a council member of the Economic and Social Research Council (ESRC) since 2003, where he also chairs the Audit Committee.(60) Professor Alexander would, therefore, be well placed to review any applications for funding to research the postal services, with a view to improving conditions for the consumers Postwatch ostensibly represents. However, in UK academia, research generally consolidates the neoliberal consensus outlined above. In a dissertation for the University of Durham, for example, Nick Steven-Jones heavily relies on Ian Senior’s arguments to summarise ‘it can be seen that with effective introduction and regulation a market is almost always vastly improved by the introduction of competition and subsequently most problems relating to the requirement for a the [sic] universal service become insignificant.’(61) Research conducted at the ‘independent and politically neutral’(62) Centre for the Study of Regulated Industries, University of Bath School of Management, which lists NERA as one of its sponsors, offers an overview of the various roles and responsibilities of the relevant parties to the postal debate without critical commentary. Similarly, research commissioned at the University of Warwick by the National Audit Office attempts an empirical analysis of the economic models used to cost USO by the European Commission, Postcomm and Royal Mail but fails to add anything significant to the discussion.(63)

Within the European context but from a vantage point outside the EU, the aforementioned Swiss team is working on a research project, scheduled for completion in December 2007, which challenges the notion that market liberalisation alone stimulates innovation, to undertake a comparative study of regulatory methods(64) and their effects on innovation: ‘Contrary to conventional wisdom, our model predicts that postal monopolists have very strong innovation incentives and that market liberalization may result in lower levels of innovation.’(65) Also in Switzerland, the Universal Postal Union,(66) which considers itself a non-political organisation yet is often cited by the European Commission and undertook a collaborative study with the World Bank, is avowedly pro-globalisation.

In fact, when we consider the field as a whole, the lone dissenting voice in the UK has been that of the Communication Workers Union. While the work of its research department is largely centred on industrial relations, it has been unambiguous in its response to Postcomm’s proposals: ‘From the outset we would like to emphasise our fundamental and overriding opposition to Postcomm’s approach. Since its inception, we have remained consistently opposed to Postcomm’s liberalisation agenda and have explicitly stated this opposition in response to the regulator’s various competition-related consultations.’(67)

This brief overview of the research commissioned into the postal sector since 1970 demonstrates that its findings have overwhelmingly consolidated the logic of economic liberalisation. Couched in empirical terms, reports disseminated by the Institute of Economic Affairs initially established a directly proportional relationship between competition and efficiency which led, throughout successive Conservative Governments, to calls for the Post Office to be stripped of its monopoly and subjected to market forces. By the second half of the 1990s, this seemingly causal relationship between competition and efficiency readily entered the rhetoric of the European Commission and New Labour to justify liberalisation. This, in turn, gave rise to a new tranche of research, with Ian Senior as a constant figure from IEA to NERA.

In what may retrospectively be regarded as part of a deliberate and sustained attempt to privatise postal markets, the European Commission, Royal Mail and especially Postcomm, commissioned research to reinforce the consensus around liberalisation. Given that this research was largely solicited from right-wing think-tanks and market-friendly consultants, it may be argued that its findings were biased from the outset. Nonetheless, this overwhelming body of work has created a seemingly insurmountable ideological barrier to those seeking to contribute to the discussion in terms other than those of the free market. Combined with politicised appointments in the main organisations responsible for formulating and executing postal policy, researchers wishing to introduce other approaches into the public domain would undoubtedly encounter significant resistance.

While apparently having devolved direct responsibility for postal decision-making, the Select Committee tellingly renamed Business and Enterprise continues, under its Conservative Chair, to be influential through its appointments of personnel at Royal Mail, Postcomm and Postwatch, and in its continued role as sole shareholder. By opening the postal sector to competition and significantly reducing the Royal Mail’s market share, the Government has effectively privatised the postal sector without yet reaping share dividends. In December 2007, the Secretary of State for Business, Enterprise and Regulatory Reform, John Hutton, appointed businessman Richard Hooper to undertake a review of the postal services sector since liberalization, due to report in autumn 2008. Deputy Chairman of Ofcom (the telecommunications equivalent of Postcomm) between 2002 and 2005, Hooper is being advised in the review process by Taylor Woodrow’s Ian Smith and by Dame Deirdre Hutton, a shareholder in some of the UK’s major companies and advisor to pro-market think-tank, the Social Market Foundation.