Closing post
Time to wrap up… here are today’s main stories:
In other travel news…. Eurostar traffic has returned to pre-Covid levels with a 22% rise in passenger numbers in 2023.
The cross-Channel train operator has announced that booming demand from London drove growth of 25% for journeys to Paris and more than a third on Eurostar routes to Brussels and Amsterdam, as total passenger numbers reached 18.9 million.
Eurostar also said it had found a partial solution to allow it to maintain a limited service to the Netherlands during work at Amsterdam station, which had threatened to halt the popular route in 2024.
The RMT union has announced that cleaners employed on TransPennine Express trains have suspended their strike action following an improved pay offer.
Bidvest Noonan. which employs cleaners to work on TPE services, has agreed to implement a “living wage” of £12 an hour, as part of a pay deal, plus staff travel facilities which will save cleaners £1,000 a year for rail travel.
Back at the UK parliament, the top civil servant at the Treasury has rejected comments by the head of the Office for Budget Responsibility (OBR) that public spending forecasts last year were a “work of fiction”.
James Bowler, the Permanent Secretary at the Treasury, was asked about Richard Hughes’s comments yesterday, and said he disagreed with them.
Bowler told the Treasury Committee:
I don’t agree with what excellent head of the OBR said and I don’t agree with the language he used. There’s nothing new here.
“You set out your spending plans, we have a three year spending plan, they’re due to finish in just over a year’s time and then you have an assumption as to what spending will be thereafter.
“That’s not a new, nothing’s changed in that, so I don’t particularly recognise that there’s anything different.
“It’s very good that we have multi-year spending plans. As you go through a multi-year spending plan as you get further towards the end of it, the closer you get to setting new plans so it is the case that in just over a year’s time that runs out, but I don’t think that’s new.”
Hughes told the economic affairs committee of the House of Lords that the OBR’s forecasts were based on “questionable assumptions” that lead people to call his efforts a work of fiction, due to a lack of support from the government about its public spending plans.
Spurs owner Joe Lewis pleads guilty to U.S. insider trading charges
Over in New York. British billionaire Joe Lewis has pleaded guilty to insider trading charges on Wednesday, and apologized to a judge for his conduct.
Lewis, 86, pleaded guilty to one count of conspiracy to commit securities fraud and two counts of securities fraud, as part of an agreement with the U.S. Attorney’s office in Manhattan. As part of the plea deal, Lewis has the right to appeal in the event he is sentenced to prison time, his lawyer David Zornow said.
Lewis, whose family trust controls a majority of the Tottenham Hotspur soccer team, was charged in July 2023 with passing inside information on his portfolio companies to two of his private pilots as well as friends, personal assistants and romantic partners, enabling them, according to prosecutors, to reap millions of dollars of profit.
Addressing U.S. District Judge Jessica Clarke, Lewis said he knew at the time that what he was doing was wrong.
Lewis said:
“I am so embarrassed and I apologize to the court for my conduct.”
Lewis was charged with 16 counts of securities fraud last July, which he denied, accusing prosecutors of making an “egregious” mistake.
Over at the Post Office inquiry today, a former investigator has maintained that a branch owner-operator who had his conviction for embezzlement overturned last year was guilty.
Raymond Grant, an investigator involved in the prosecution of the post office operator William Quarm, who died in 2012 not knowing he would eventually be cleared years later, had to be legally forced to appear to give testimony at the public inquiry into the Horizon IT scandal.
He told the inquiry on Wednesday he had a “clash of priorities” and wanted to focus on his current job at the Salvation Army.
Encouraging economic news from the US: American companies are growing their output at the fastest rate for seven months.
Data provider S&P Global reports that its Flash composite US PMI has risen to 52.3, from 50.9 in December, showing faster growth.
But, as in the UK, the growth was driven by the services sector – while factories suffered from supply chain problems.
S&P Global explains:
Businesses in the US signalled a stronger upturn in activity at the start of the year, as output growth quickened to the sharpest rate in seven months. The expansion was driven by service providers, as manufacturers continued to see a drop in production amid intensifying supply issues.
The report also shows that the prices charged by firms are rising at the slowest rate since May 2020, which may show that inflationary pressures are easing.
Nice lift to US services activity in January linked to looser financial conditions... pic.twitter.com/tbyKSLkBZx
— Chris Williamson (@WilliamsonChris) January 24, 2024
S&P 500 hits fresh intra-day record high
It’s done it again…
S&P 500 HITS FRESH INTRA-DAY RECORD HIGH; LAST 0.6%
— CGTN America (@cgtnamerica) January 24, 2024
S&P 500 Opens Up 0.6%, Nasdaq 100 Jumps 0.9%
— DB News TradFi (@DBNewswire) January 24, 2024
Also at PMQs, Rishi Sunak claimed that the Government’s £500m rescue package for Tata Steel has saved 5,000 jobs and prevented the closure of its Port Talbot plant.
The Prime Minister insisted the UK Government’s intervention would also protect further workers in the South Wales’ steelworks supply chain,
Sunak said he knows it’s an anxious time for steel workers, and claimed criticisms of the support package were “churlish”.
That’s likely to go down like a steel balloon with workers at the Port Talbot site, who learned on Friday that up t0 2,800 jobs are at risk through the closure of two blast furnaces.
Instead, Tata is building an electric arc furnace – partly funded by the UK – which will melt scrap steel, rather than producing virgin steel from iron ore.
The owner of the Port Talbot steelworks has also been accused of “gross hypocrisy”, because it is prepares to open a new blast furnace in India, which will be one of the largest blast furnaces in the world.
Updated
This morning’s report from Ofcom into Royal Mail’s universal service obligation is causing ructions in Westminster.
Liam Byrne MP, chairman of the Business and Trade Committee, is urging the government to engage with the issue, saying:
“Today’s report demonstrates once and for all that Government and Royal Mail must now get round the table to agree how the Universal Service Obligation works now and for the future.
“Let’s be absolutely clear: the USO is a vital public service which is why we’ve called for Government to get serious about talks with Royal Mail to agree a plan to secure its future.”
But prime minister Rishi Sunak told MPs he is committed to Royal Mail’s universal service obligation “remains as it is”, after Ofcom suggested the six-days-a-week letter delivery requirement could be cut to five, or even three days.
Asked at Prime Minister’s Questions in the Commons if under his watch there will be no reductions in postal services provided by Royal Mail, Sunak said:
“I agree about the importance of the Royal Mail’s universal service obligation, and as you will have heard from the minister this morning, we remain absolutely committed to ensuring that it remains as it is.”
Over in Argentina, the popularity of President Javier Milei’s austerity blitz will be tested today as unions stage a general strike.
Bloomberg has the details:
The protest Wednesday organized by the CGT, one of the South American nation’s oldest and most powerful union groups, will help set the tenor of debate as the libertarian economist attempts to slash the size of the state in a bid to tame triple-digit inflation.
“Depending on how many people they mobilize, the union will be able to demonstrate how much weight it carries at the negotiating table,” political analyst Raul Timerman said in an interview.
Milei won power last year promising a dramatic shake-up of Argentina’s moribund economy amid rampant inflation and widespread poverty.
He has already issued a decree deregulating vast swaths of the economy, while a so-called omnibus bill of austerity measures is making its way through the Argentinian parliament.
Milei startled Davos last week with a fiery speech hailing free enterprise capitalism and claiming that the Western world was in danger having fallen to socialism.
Public backlash as Milei follows through with the economic 'shock therapy' touted in his viral #Davos #WEF24 speech. Read the full story via @smeredith19 https://t.co/VRJH4lpcCY
— Karen Gilchrist (@_karengilchrist) January 24, 2024
Report: Eliminating cervical cancer across UK would save thousands of lives, and £2.6bn
Eliminating cervical cancer across the UK would save thousands of lives and is estimated to save the economy £2.6bn, according to a new report, following a pledge by the NHS in England to end the disease by 2040.
Around 3,200 cases of cervical cancer are diagnosed in the UK every year – nine women every day, according to Cancer Research UK. It says 99.8% of them are caused by human papillomavirus (HPV), which means that nearly every case is preventable.
The UK could save £2.6bn by achieving the WHO global targets for cervical cancer by 2046, according to a report from the Office for Health Economics, which was funded by cervical vaccine maker MSD. It will be launched in parliament at 1.30pm today.
The World Health Organisation has set a target of four cases of per 100,000 women, by ensuring that 90% of girls are vaccinated by age 15, 70% of women between 35 and 45 are screened, and 90% of women with cancer are treated.
The report said the UK would hit these targets by 2046, but warned that progress is not guaranteed, and called on governments in Scotland, Wales and Northern Ireland to follow England’s lead in pledging to eliminate cervical cancer by 2040.
Vaccination and screening rates have worsened, according to the latest data published yesterday. This shows a one-dose coverage rate of 75.7% in year 9 girls in England, down from 82.2% in 2021/22. Of women aged 25-49, 65.8% received age-appropriate screening – down from 67.6% in 2021/22.
Cervical cancer in the UK is associated with a lifetime cost of £208,086 per case.
There are six licensed cervical cancer vaccines globally – MSD’s Gardasil and GSK’s Cervarix as well as jabs made in China and India.
The NHS used Cervarix in the routine immunisation programme for girls aged 12-13 from September 2008; from 2012 it was replaced by Gardasil.
Both vaccines protect against infection with HPV-16 and HPV-18, which cause the majority of HPV-associated cancers. Gardasil also protects against HPV-6 and -11, which cause genital warts.
Metro Bank’s white knight moves onto the board
Metro Bank’s white knight investor – the Columbian billionaire who helped rescue the bank in early October – has clinched a seat on the lender’s board.
Metro confirmed that the 65-year-old banking tycoon Jaime Gilinski Bacal would become a non-executive director, months after ploughing £100m of emergency funds into the lender in exchange a 53% stake.
Metro Bank’s chair, Robert Sharpe, said:
“Jaime’s appointment underscores the commitment he has long shown to the bank as a supportive, long-term shareholder. He brings decades of banking expertise and experience which will prove invaluable on the next stage of the bank’s journey.”
As part of his rescue agreement, Bacal has been given the green light to appoint up to three directors in total to the board.
However, he already leveraged his position into a boardroom seat for his daughter Dorita Gilinski in autumn 2022.
Bacal said in a statement:
“There are many opportunities for Metro Bank to grow and I am looking forward to playing a part in the evolution of the bank as we build on the solid foundational work undertaken to date.”
Economic storm clouds are also gathering over Germany.
This morning, Germany’s Ifo institute downgraded its 2024 economic growth forecast to 0.7%, down from 0.9%. Ifo cited uncertainty caused bya constitutional court ruling that has left the government scrambling to revamp this year’s budget.
And there could be worse ahead, if geopolitical tensions worsen.
The Bundesbank has estimated today that an economic crisis in China would knock some 1.5% off German economic growth.
According to its simulations, real German GDP would be 0.7% lower in the first year of the crisis and just under 1% in the second year.
Germany’s close trade relations with China could wreak havoc on the financial system of Europe’s largest economy if they were to deteriorate, the Bundesbank warns https://t.co/ejBzil80EF
— Bloomberg Economics (@economics) January 24, 2024
UK factories aren’t the only parts of the economy finding January tough.
Revolution Bars slashed its outlook for the year, telling shareholders that “January trade has started softly as guests recover from the expense of Christmas.”
Revolution is also facing higher wage bills, with the minimum wage set to rise by almost 10% in April, while customer numbers have been hit by Aslef train strikes.
Rob Pitcher, CEO of Revolution Bars Group, says last Christmas was the best in four years, adding,
It was pleasing to see our Revolution guests experience their first uninterrupted Christmas since 2019, driving growth for the brand.
Revolution’s younger guests are however still feeling the disproportionate effect of the cost-of-living crisis. Looking forward, both business rates and national living wage will increase materially in April 2024 and therefore we have had to take the view that, with inflation remaining high, the recovery for the Revolution business, our largest brand, will take longer than we had previously forecast.
UK factories suffer new hit to orders, cut investment plans
Newsflash: British manufacturers have been hit with a fresh drop in orders and have scaled back their investment plans, new data from the CBI shows.
The CBI’s industrial trends survey shows a contration in orders – its quarterly order book balance dropped to -13 in the three months to January, its lowest since July 2020.
The survey also shows firms expect to cut back on investment in tangible assets such as buildings, machinery and equipment.
Investment intentions for the year ahead were mixed. Manufacturers expect to raise spending on training & retraining. But investment in product & process innovation, buildings and plant & machinery is expected to fall. #ITS pic.twitter.com/KkoM17eVBd
— CBI Economics (@CBI_Economics) January 24, 2024
It also shows a rise in costs – which may be due to the Red Sea crisis disrupting supply chains, as this morning’s PMI report showed.
Growth in average costs rose rapidly in the quarter to January, accelerating for the first time since April 2022. Manufacturers expect costs to remain elevated in the quarter to April. Domestic price inflation was broadly stable, but export price inflation accelerated. #ITS pic.twitter.com/fntfPL5cU4
— CBI Economics (@CBI_Economics) January 24, 2024
CBI Deputy Chief Economist Anna Leach says:
“Conditions in the manufacturing sector deteriorated unexpectedly at the start of the year, with output falling and order books at their weakest since the depths of the COVID-19 pandemic,”
The latest CBI Industrial Trends Survey found that output volumes fell in the quarter to January, after being unchanged in the three months to December. Firms expect volumes to return to growth in the next three months. #ITS pic.twitter.com/xEW2LIzKza
— CBI Economics (@CBI_Economics) January 24, 2024
Worryingly, the report also shows manufacturers are cutting back on their headcounts:
Numbers employed fell in the three months to January. Firms expect numbers employed to be broadly unchanged in the next three months. #ITS pic.twitter.com/CrGIgyXzax
— CBI Economics (@CBI_Economics) January 24, 2024
The pound has strengthened against the US dollar, after this morning’s PMI report showed supply chain disruption was pushing up costs.
Sterling has hit $1.277, the highest in over a week, suggesting a dialling-back of interest rate cut expectations….
7-month high in UK composite PMI for January (52.5; 52.1 prev.) & keeps UK at the top of this league table at start of 2024. The spread between weak manufacturing (44.8) & strong services activity (53.8) is something of a chasm (but also a global trend). https://t.co/8qbci7E9P5 pic.twitter.com/Ro066qdk8k
— Simon French (@shjfrench) January 24, 2024
The UK PMIs point to brighter growth outlook but stubborn inflation, says ING developed markets economist James Smith.
“The UK service sector, which accounts for the lion’s share of economic output, edged further into growth in January, according to the latest purchasing manager’s index.
What’s particularly interesting is that this extends a recent trend whereby UK service sector growth is apparently accelerating at a time when the equivalent eurozone index is edging further into contraction (though Europe’s manufacturing sector appears to be bottoming out). Before last autumn, the UK’s services PMI had largely tracked what was happening in its closest neighbours.
This is another signal that the consensus among economists going into this year, which suggests the UK will underperform most major European economies in 2024, looks a bit too gloomy.
While the recent sharp fall in market rates is good news for all economies, in the UK it makes a particular difference to the mortgage squeeze given the relatively high share of households due to refinance this year (around a fifth).
Eurozone private sector still shrinking
Over in the eurozone, business activity in the euro area fell at the slowest rate for six months in January.
The eurozone Composite PMI Output Index has risen to 47.9, showing the smallest monthly contraction in six months (but below the UK’s 52.5, which showed growth).
And although disruptions to shipping in the Red Sea caused eurozone supply chains to lengthen for the first time in a year, manufacturing input costs continued to fall on average, S&P Global reports.
Updated
Today’s Flash PMI report on the UK economy (see 9.44am) shows that price pressures remain high, points out Ashley Webb, UK economist at Capital Economics.
And that may worry the Bank of England, and make policymakers less keen to consider cutting interest rates.
Webb explains:
The services output prices balance nudged down from 58.6 to 57.3. But that remains consistent with services CPI inflation easing only gradually from 6.4% in December to around 5.0% in about six months’ time. What’s more, the shipping disruptions in the Red Sea led to the steepest lengthening in suppliers’ delivery times since September 2022 and caused the input prices balance of the manufacturing PMI to rise from 47.5 to 53.5, to its highest level since March 2023.
The further small rise in the composite activity PMI, from 52.1 in December to 52.5 in January, suggests that “the economy has improved”, Webb adds.
UK factories hit by Red Sea crisis, but recession could be avoided
Newsflash: the Red Sea crisis is hitting UK manufacturing supply chains and pushing up input costs.
Data firm S&P Global reports that its flash UK Manufacturing Output Index, which tracks factory production, has fallen to a three-month low of 44.9. Any reading below 50 shows a contraction.
S&P Global’s survey of UK purchasing managers has found that manufacturing supply chains suffered from longer wait times for container freight during January in the wake of the Red Sea crisis.
With supplies taking longer to arrive, firms have been running down their inventories.
S&P Global explains:
Supplier delays were overwhelmingly linked to longer international shipping times as vessels rerouted away from the Suez Canal. At the same time, preproduction inventories fell to the greatest extent since last August as safety stocks were depleted.
These longer delivery times are adding to costs, with S&P Global predicting UK inflation will remain “stubbornly higher” in the 3-4% range in the near future (it rose to 4% in December).
The better news is that services companies are growing at the fastest rate in eight months, with the UK Services PMI rising to 53.8.
That helped the wider recovery in private sector output gains momentum in January, lifting the overall UK PMI Composite to a seven-month high of 52.5.
That should help the economy avoid recession, they say.
💥 flash UK #PMI composite output index (manufacturing and services) rose again in January to 52.5 (December 52.1), a 7-month high... 👍
— Julian Jessop (@julianHjessop) January 24, 2024
Touch and go whether the UK avoided a technical '#recession' in the second half of last year, but 2024 already looking a lot brighter 🤓 pic.twitter.com/EnvRB4oDHK
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“UK business activity growth accelerated for a third straight month in January, according to early PMI survey data, marking a promising start to the year. The survey data point to the economy growing at a quarterly rate of 0.2% after a flat fourth quarter, therefore skirting recession and showing signs of renewed momentum.
Businesses have also become more optimistic about the year ahead, with confidence rebounding to its highest since last May. Business activity and confidence are being in part driven by hopes of faster economic growth in 2024, in turn linked to the prospect of falling inflation and commensurately lower interest rates.
Updated
Shares in IDS keep rising
Shares in Royal Mail’s parent company, International Distributions Services, have now jumped 3.4% in London, as traders ponder the savings it could make from fewer deliveries.
That’re up 9p at 270p, adding to their earlier gains.
Royal Mail shares floated at 330p in 2013, and swiftly surged over 500p.
But they’ve had a choppy ride since, hitting record lows below 120p early in the pandemic before receiving a boost from parcel demand.
Victoria Scholar, head of investment at interactive investor, points out that there is opposition to Ofcom’s suggested improvements to the Royal Mail universal service obligation:
Royal Mail has long had its calls to scrap the government’s USO rejected. Now it looks like the tide could potentially be turning. Although there is still considerable opposition including from the Communication Workers Union (CWU) which argues a three day service would ‘destroy’ the company, as well as the Postal Affairs Minister Kevin Hollinrake who said the government is committed to a six-day service.
The company owned by International Distribution Services, has been facing a series of painful setbacks like the postal strikes, a fine from Ofcom for missing delivery targets and a cyber security incident. It has also been struggling with heavy operating losses on the back of a long-term structural decline in letter demand and the loss of its 360-year-old monopoly on delivery parcels from Post Office branches. Ofcom said letter volumes have halved since 2011, raising existential concerns about the future of Royal Mail and prompting calls for a drastic overhaul of the business to revitalise its finances and operations to ensure it doesn’t become ‘unsustainable.’
Shares in IDS are trading higher today reflecting optimism towards the regulator’s openness towards change at the embattled postal business. But shares are still sharply lower than the recent highs seen in 2021 during covid.”
Shares in easyJet have jumped 5%, despite the budget airline taking a £40m hit from the conflict in the Middle East.
EasyJet reported that there was a temporary slowdown in flight bookings for the wider industry after the 7 October attacks, as well as an ongoing pause on flights to Israel and Jordan.
But, it says, demand and bookings have recovered strongly from late November.
This allowed it to narrow its pre-tax loss in the last quarter, to £126m, from £133m in October-December 2022.
Over in China, policymakers are cutting the amount of cash that banks must hold in their reserves, to stimulate the economy.
The People’s Bank of China (PBOC) has announce it will cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps) from 5 February.
This is the first RRR cut this year, and should free up 1 trillion yuan (£110bn) to support lending.
China’s stock markets rose today, with the CSI 300 index up 1.4%. Mining stocks are rallying in London too.
Minister: Fujitsu should pay hundreds of millions of pounds compensation over UK Post Office scandal
Kevin Hollinrake, the minister for postal services, believes Japanese IT firm Fujitsu should pay “hundreds of millions of pounds” in compensation for its role in the Post Office scandal.
Speaking to the Today programme, Hollinrake said:
This will cost the taxpayer a billion pounds, maybe more than that.
He added that Fujitsu, which supplied the flawed Horizon software, should pay “a significant proportion” of that bill.
Last week, Fujitsu Europe’s boss admitted the firm has a “moral obligation” to contribute to compensation for sub-postmasters who were wrongly prosecuted due to Horizon reporting that money was missing from their branches.
The inquiry into Horizon also heard last week that some Horizone bugs were known about as early as 1999, but this information was kept from the courts.
Hollinrake says what has happened is “absolutely disgraceful” and a “horrendous scandal”, in terms of both its scale and depth, and the impact on people’s lives.
Abrdn to cut 500 jobs in cost-cutting drive
There’s bad news for workers at asset manager Abrdn this morning.
Abrdn is stepping up its cost-cutting programme, and today announced it will strip out another £150m of costs in 2024 and 2025, mainly across its group functions and support services.
The plan will eliminate around 500 jobs.
Abrdn says:
The programme includes the removal of management layers, increasing spans of control, further efficiency in outsourcing and technology areas, as well as reducing overheads in group functions and support services.
Citizens Advice are calling for proposals to tackle the causes of Royal Mail’s “persistent failings”.
Morgan Wild, interim director of policy at Citizens Advice, says simply cutting services won’t automatically make deliveries more reliable:
“Given Royal Mail has failed to meet its targets for nearly half a decade, it’s clear the current Universal Service Obligation (USO) is falling short of its fundamental purpose: safeguarding consumers. Any changes must prioritise their needs, not Royal Mail’s bottom line.
“We agree that improving reliability is essential. Late post has real consequences - people miss vital medical appointments, legal documents and benefit decisions.
“Cutting services won’t automatically make letter deliveries more reliable, so we must see proposals to tackle the cause of Royal Mail’s persistent failings. Ofcom and the government have to spell out how any revised USO will start to deliver for the millions of us who rely on it.”
Shares in Royal Mail parent company IDS rise
Shares in International Distributions Services, Royal Mail’s parent company, rose by 1.8% at the start of trading in London, as traders digest Ofcom’s report into its USO.
'No action is not really an option'
— BBC Breakfast (@BBCBreakfast) January 24, 2024
Dame Melanie Dawes, from regulator OFCOM, spoke to #BBCBreakfast about a consultation on the future of the Royal Mail which could reduce the number of letter deliveries from six per week to five or three insteadhttps://t.co/ZQirTB8I67 pic.twitter.com/yBtskhu0pl
CWU: three-day delivery service would “destroy” Royal Mail
The Communication Workers Union (CWU) have said a three-day delivery service would “destroy” Royal Mail.
CWU general secretary Dave Ward said the union could not support such a plan:
“We are not resistant to change, but we will not sign up to a three-day universal service obligation, which would destroy Royal Mail as we know and would impact on thousands of jobs.
“Royal Mail has the biggest fleet in the country, a presence in every community, and boasts and unrivalled infrastructure.
“This is the bedrock that a serious growth agenda, and the future of the company, can be built.”
Ofcom CEO Dame Melanie Dawes is on Radio 4’s Today Programme now, to discuss the regulator’s report into Royal Mail’s Universal Service Obligation.
Q: Why should politicians make Royal Mail’s job easier? They’re failing to meet their current targets, and have terrible industrial relations….
Dawes agrees that Royal Mail is not delivering. It needs to improve their quality of service.
But there’s also been a “huge shift” in the postal markets, with letter volumes falling and parcel demand rising.
We have to respond to that, Dawes says, otherwise the service becomes too expensive, or worse, unsustainable.
Q: Are you saying that Royal Mail could go bust if their obligations don’t change?
Dawes replies that Royal Mail is currently loss-making, and has a big transformation ahead.
She adds that Ofcom fined them £5.5m, just before Christmas, because of their poor service (missing delivery targets).
Dawes adds:
We will remain absolutely vigilient in making sure they deliver what they are supposed to do at the moment.
But the regulator is also identifying where change is needed in the future, and wants to have a debate about this.
Q: So, Royal Mail could scrap Saturday deliveries, and maybe other days as well?
Dawes says some other countries already have an every-other-day service.
But that needs to be combined with a really good overnight service, for deliveries that are urgent.
Dawes says she isn’t proposing a third class of service, on top of 1st and 2nd class – (implying, I think, that 1st class would be a guaranteed overnight delivery).
Post minister: We are committed to six-day service
Postal Affairs Minister Kevin Hollinrake said that Government was committed to a six-day service from the Royal Mail (as flagged earlier).
Speaking after Ofcom suggested letter delivery days could be cut to five, or even three, Hollinrake told Times Radio:
“The Prime Minister been very clear on this, six-day delivery is really important for many people in this country, many of our citizens, but also for many of our businesses.”
Questioned over whether the six-day model for letters remained sustainable, Hollinrake said:
“Royal Mail made significant profits in previous years. They’ve had a couple of difficult years not least because of some of the industrial action they’ve been subjected to. But nevertheless we are keen to see Royal Mail become more efficient.”
He added:
“I believe the Royal Mail can build a sustainable model. But that sustainable model must be based on a-six day service.”
Updated
The UK’s Communication Workers Union says Ofcom’s report into the Royal Mail’s Universal Service Obligation is “completely dead in the water”.
The CWU is planning to produce its own report on the future of Royal Mail:
CWU general secretary Dave Ward says:
“The response to the leaked information over the week showed that CWU members, the public and politicians are united against the deliberate, manufactured destruction of the postal service.
“In the ongoing debate, Ofcom now have no credibility whatsoever, and their views are an irrelevance to the discussion that must take place between postal workers, businesses and customers.
“To produce a report without any input whatsoever from frontline workers or their union is an attempt to railroad through the failed agenda of the previous Royal Mail management team.
“The CWU will not stand for that. We will now launch an extensive engagement exercise and produce our own report on the future of Royal Mail, taking on board the views of our members and customers.
“This will be a blueprint for a sustainable Royal Mail that can grow our economy and our communities.
Full story: Royal Mail could save £650m by switching to three-day-a week service, says Ofcom
Royal Mail could save up to £650m if it delivered letters just three days a week and £200m by stopping Saturday deliveries, the communications regulator has said (see 6.52am).
The watchdog said a reduction from six to five days a week would save £100m to £200m, and going down to three days £400m to £650m, my colleague Alex Lawson reports.
In a much-anticipated review, Ofcom laid out a series of options for the future of the universal service obligation (USO), which requires Royal Mail to deliver nationwide, six days a week, for a fixed price.
The regulator began gathering evidence to show how the future of the service may be reformed to better suit consumers’ needs, amid a long-term decline in letter volumes and a surge in the number of parcels sent as online shopping has grown.
It has conducted consumer research and modelled Royal Mail’s finances in the review, and will seek views with a further update planned later this year.
Ofcom want to hear your views to its suggestion that Royal Mail could deliver letters slower, or less often.
The regulator is inviting views from interested parties by 3 April 2024, to understand the potential impact on people and businesses.
This includes vulnerable people, those in rural and remote areas of the UK’s nations, as well as large organisations who use bulk mail services.
Ofcom will hold events around the country to discuss the evidence and options, and after considering feedback it will provide an update in the summer.
Ofcom CEO: USO is unsustainable if we don’t take action.
Dame Melanie Dawes, Ofcom’s chief executive, says:
“Postal workers are part of the fabric of our society and are critical to communities up and down the country. But we’re sending half as many letters as we did in 2011, and receiving many more parcels. The universal service hasn’t changed since then, it’s getting out of date and will become unsustainable if we don’t take action.
“So we’ve set out options for reform so there can be a national discussion about the future of universal post. In the meantime, we’re making sure prices will remain affordable by capping the price of Second Class stamps.”
Ofcom argues that most people’s needs could still be met if Royal Mail delivered letters less often.
Having conducted market research, it says:
Nine in 10 people (88%) say reliability is important for letter deliveries, compared to 58% for delivery on Saturdays (down from 63% in 2020).[7]
Most participants in our research were also open to reducing some services and standards – particularly for letters – in the interests of keeping prices down and only paying for what was required. Similarly, there was strong acknowledgement that most letters were not urgent, but people still needed to have a faster service available for the occasional urgent items, even if that meant paying a premium for it.
What about a possible subsidy for Royal Mail, as some other countries provide?
Ofcom reckons it’s preferable to change the specification of the universal service, rather than using taxpayer funds to maintain the existing levels of service and products.
Ultimately this is a decision for Government, it adds.
Ofcom: delivery targets should not be downgraded
Ofcom is also not proposing downgrading Royal Mail’s delivery targets – saying this is not an option for reform.
It adds:
In fact, it will be important to consider whether additional safeguards are necessary to ensure people’s needs are fully met. Any changes must improve existing levels of reliability.
Ofcom: Royal Mail could save £650m by cutting deliveries to 3 days a week.
Ofcom estimates that Royal Mail could achieve a net cost saving of £100m-£200m if letter deliveries were reduced to five days; and £400m-£650m if reduced to three days.
If the large majority of letters were delivered within three days, it could achieve net cost savings of £150m-£650m, the regulator adds.
Ofcom review released: "Universal postal service must modernise"
NEWSFLASH: Ofcom is calling for the UK’s universal postal service to modernise, as it publishes its review of Royal Mail’s universal service obligation (see opening post).
The regulator is inviting views on a range of options for redesigning the universal postal service to secure its future, while ensuring it reflects the way people use it.
Ofcom points out that letter volumes have halved since 2011.
And it says options for reform include changing letter delivery speed or the number of delivery days, as other countries have done, but not downgrading delivery targets.
That could include cutting letter deliveries to just three days a week!
Ofcom says it is proposing two primary options:
Making changes to existing First and Second Class and business products so that most letters are delivered through a service taking up to three days or longer, with a next-day service still available for any urgent letters.
Reducing the number of letter delivery days in the service from six to five or three. This would require Government and Parliament to change primary legislation.
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Ofcom does not have the power to scrap Saturday letter deliveries, as the six-days-a-week service is part of the universal service requirement stipulated by law under the Postal Services Act 2011.
Changing the obligation would require primary legislation, and a vote by MPs in the Commons.
Ahead of Ofcom’s announcement, my colleague Alex Lawson has examined how other countries run their own postal operations:
IDS chair: Royal Mail’s universal service needs help to survive
The chair of Royal Mail’s parent company says its universal service “needs help to survive”.
Keith Williams, chairman of International Distributions Services, argues against “nostalgia for a bygone era” when assessing the future of Royal Mail.
Writing in The Times this morning, Williams says there needs to be an “honest conversation” about how to protect the one-price-goes-anywhere postal service.
He says:
The number of letters we deliver has fallen from 20 billion to 7 billion. We only deliver about four letters per address, per week.
This means we have to walk more than three times as far to deliver the same number of letters as we did before, increasing the cost per letter of each delivery.
Williams warns that Royal Mail is currently “stuck in a vicious spiral” – without reform of the regulatory system, or a subsidy – leading to “heavy losses and an unsustainable service”.
And on the possibility of Saturday letter deliveries being scrapped, Williams says there are other options…
He says:
There has been a lot of discussion about dropping letter deliveries on a Saturday, while retaining daily parcel deliveries, to tackle the problem of declining letter volumes and Royal Mail’s material financial losses.
The truth is there are a range of other options, including ways we can ensure a reliable service for time-critical mail such as hospital appointments and weekly magazines.
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Introduction: Regulator to report on potential Royal Mail reforms
Good morning, and welcome to our rolling coverage of business, the financial market and the world economy.
Royal Mail’s future is in the spotlight today, with UK communications regulator Ofcom expected to release the findings of its review into its universal service obligation (USO).
Currently, Royal Mail is legally obliged to deliver letters six days a week and parcels five days a week, for a fixed price, something the postal operator insists is unaffordable.
Ofcom’s review will outline various options for the future of the USO, reflecting changes in the postal market as letter volumes fall, and parcel demand rises thanks to online shopping.
Possible changes to the legal requirements of the British postal service could include changing its first and second class delivery targets (which it has strugggled to hit), or higher stamp prices.
It’s also possible Ofcom could recomment changing the current six-day USO, paving the way for the axing of letter deliveries on a Saturday.
That should please Royal Mail’s parent company, International Distributions Services, which warned last week that the six-day USO was ‘simply not sustainable‘.
But that would be controversial, not least with prime minister Rishi Sunak.
Earlier this week, Sunak’s spokesman said the PM “will not countenance” scrapping postal deliveries on Saturday, as they provide “flexibility and convenience” for customers and are “important for businesses and particularly publishers”.
Ofcom itself has said its review will set out evidence and options on “how the universal postal service might need to evolve to more closely meet consumer needs”.
They added:
“We will be inviting views on this, not consulting on specific proposals.
“It would ultimately be for the UK government and parliament to determine whether any changes are needed to the minimum requirements of the universal service.”
The agenda
7am: Ofcom expected to publish its review into the Royal Mail’s universal service
9am GMT: Eurozone flash PMI report into company growth in January
9.30am GMT: UK flash PMI report into company growth in January
11am GMT: CBI industrial trends survey of UK manufacturing
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