Research THE HOOPER REVIEW Presentation to National Briefing Jeremy Baugh, Head of Research Thursday 15 January 2009

Hooper’s Final Report  The issues - USO - changing postal market - RM efficiency - pensions - regulation - labour relations  The choice - modernise or decline  The solutions - part privatisation - Government takeover pension deficit - abolition of Postcomm (transfer to Ofcom) - pay and IR Research

Initial response  Raises major questions for CWU  Agree about many of key issues (need for change, maintaining USO, investment, pensions, regulation)  Overall solution fundamentally flawed  Report & evidence presented to justify privatisation  Lacks positive vision - prescription for managed decline  Based on failed neo-liberal ideology  Inconsistent with Government’s wider economic strategy  Privatisation threatens future services and CWU members Research

The issues (1)  USO plays vital economic and social role  RM only company capable of providing USO  Underestimates costs of liberalisation  Contrast between Final and Interim Reports  USO under threat from market changes (e- substitution, LT mail volume decline) Research

 Contrasts £500m lost from market changes with £100m lost from competition  But figures questionable: - £100m based on RM estimate - RM have interest to keep figure low - lack of independently verifiable data - ignores cost to members, SME’s and domestic customers The issues (2)

Profits and efficiency (1)  RM least profitable / least efficient European operator  13.5% operating profit (TNT & Deutsche Post) v 0% (RM)  Inefficiency due to: - oversized network - lack of automation - higher pay and pensions in RM  Not like for like comparisons Research

Profits and efficiency (2)  Hooper ignores : - investment from Commercial Agreement - £2.6bn lost from Postcomm’s volume forecasts - greater levels of investment overseas - higher prices charged by rival operators - profit comparisons cover period when TNT & Deutsche Post didn’t face full competition - only UK operates DSA - minimum postal wage in Germany - impact of removal of pension contributions - 3p tariff increase - any change to access pricing Research

Pay and pension comparisons  RM employees paid “above average market rates”  Proposes ‘race to the bottom’ on pay & conditions  Comparisons don’t bear close inspection  RM pay is market pay  What and where are “comparable job roles”?  Ignores huge differences in pensions across EU  Compares public sector (final salary) to private sector (defined benefit)  Unionisation delivers better pay & pensions Research

The choice  Modernise or decline  Real question is how modernisation is delivered  Hooper argues: - modernisation is top priority - too much resistance to change - RM must change culture and improve efficiency - need radical reduction in network.  International comparisons flawed: - not evidence-based; - ignores differences in geography, population spread and delivery infrastructures  Overstates risk of forced restructuring: - outdated argument/ ignores new economic realities Research

The solutions (1)  CWU accept: - need for change in RM - need to improve IR - need to maintain USO - need Government support for pensions  Overall package of solutions falls short  Lacks positive vision for vital public service  Prescription for managed decline  No reduction in USO “at this time”  Rejects call for US support fund Research

The solutions (2)  4 key recommendations: - part sell off of RM - Government take over pensions deficit - changes to regulatory regime - improve labour relations  Strategic partnership for RM: - discounts public sector solution - breach of manifesto - Government facing both ways - state intervention v privatisation - European trends - perverse timing Research

Quote “Just as the free market model that spawned a spate of failed and exorbitant privatisations is imploding all over the world, the Government has seized on the idea of handing over a slice of a vital national institution to a private competitor” Seamus Milne, Guardian 18/12/08

Problems of privatisation (1)  Proposal ignores: - lessons of credit crunch - failings of postal competition - experience of failed privatisations (PFI, contracting out) - errors made by private companies like TNT  Focus on cutting costs & delivering private profits  Internal, organisational upheaval for RM  Short on crucial detail: - how much to be sold off? - what price? - what return for investor? - what partner?  Makes mockery of arguments on competition and monopoly  TNT pays “above market rates in Holland” but undercuts wages overseas  TNT responsible for loss of 8m child benefit records  question TNT’s desire and capability to offer national service Research

Problems of privatisation (2)  Hooper says sell off will deliver: - commercial confidence in RM - access to capital - access to corporate experience  But none of these require privatisation  CWU want more political accountability not less  Modernising IR part of CWU agenda: - honour existing agreements - work in partnership with CWU  No specific proposals on how to improve IR  Arguments on capital ring hollow given level of Government spending in other industries  UK has expertise - need people regulating industry & running RM with experience of public service provision.

Pensions  Welcome Government support for deficit  Question motives - make RM more attractive to investors  Public subsidy to corporate profiteering  Not matter of money but political will  Short on important detail  Let RM use £280m for investment

Regulation  Abolition of Postcomm  Transfer of regulatory functions to Ofcom  Unclear what benefits it will bring  Risk of less focus and more competition  No changes to Ofcom’s primary duty  No change to access pricing  No to US support fund

Post Office  Report faces both ways on PO  PO provides access to USO but falls outside Report  Represents missed opportunity  No reference to potential role for revitalised PO network & People’s Bank  PO & RM are interdependent  Oppose split off from RM Group

CWU alternative  No to managed decline  Positive vision linked to new economic climate - jointly agree modernisation - tackle pensions deficit & cuts to pensions provision - give RM extra £280m pa/ change access - PS Act (support SME’s, delivery spec) - product and service innovation - revitalise PO network