Tag: 2023

Members present:

Darren Jones (Chair); Alan Brown; Ruth Edwards; Jane Hunt; Mark Jenkinson; Andy McDonald; Charlotte Nichols; Mark Pawsey.

Questions 23 – 88

Witnesses:

Simon Thompson, Chief Executive Officer, Royal Mail.

Q23            Chair: I welcome Simon Thompson, who is the chief executive of Royal Mail. Good morning, Mr Thompson. I understand from your record that you were appointed in 2021. Is that right?

Simon Thompson: Yes, that is correct.

Q24            Chair: Is this the first time you have been a CEO of a business?

Simon Thompson: It is as a CEO, but I have had extensive experience around the world in many different categories.

Q25            Chair: Why has your predecessor criticised you in public for not having enough experience and mishandling the situation?

Simon Thompson: I really believe in Royal Mail. I believe in the brand. I believe in the opportunity to grow the business. We have an absolutely wonderful opportunity ahead of us. When the board appointed me, it was around understanding the customer, understanding the digitisation of the business and getting the changes that we need to win.

I was listening to the debate just before. It is important to home in on the changes we need. I and the team around me are making sure we can compete in the parcels market. The reality we face is that we did 20 billion letters a year back in 2003-04; they are now about 8 billion.

In our core business, as we had it before, we used to deliver two letters per day per household. We are now down to about one letter per day for every other household. That business has really gone through a massive decline. During that time, the number of houses we have delivered to has increased by around 4 million from around 31 million. The reality is that we are going to 10% more places and yet our business is down 60%.

What I am focused on and what the business is focused on is growing in the parcels market. We have spent £900 million investing to be able to compete in the parcels market. We have our great superhubs; we have increased our automation. We have made some great progress, but what we really need is a change in working practices so we can turn that investment into competing in, as has been said here at the Committee, a hyper-competitive market.

Q26            Chair: You did not answer my question. I asked why your predecessor criticised you in public for not having enough experience and for not handling the situation well.

Simon Thompson: During this dispute, an awful lot of things have been said that are very personal. It is not necessary; it is not nice. It does not change the fact that what we need to do is change the business and compete in the parcels market. That is what I and my team are definitely focused on.

Q27            Chair: Just now, you said to the Committee that you were appointed as CEO because you understand your customers and digital solutions. You did not say “workers”. Do you understand your workers?

Simon Thompson: Yes, absolutely. One of the things I have dedicated my time to since I have been CEO is going out and about to be with the workforce. I am out and about on a frequent basis, generally every week.

I also put in place Workplace, which I know was referenced earlier. Around 50,000 of our team are on Workplace. It is great that they now have a voice. We put on that platform really key information about the changes we need. It is always good to get their reaction.

I will always explain the changes that we need. I understand that is not always welcome, but it is really important that we have an open dialogue with the workforce.

Q28            Chair: Why were you given a bonus of £140,000 last year?

Simon Thompson: The bonus that was paid to me last year was based on the business performance last year and based on the criteria set by the remuneration committee at that point in time.

Q29            Chair: When I looked at the long‑term investment plan parameters for the calculation of your bonus, I noted that the board had changed the way they measured your performance. Traditionally, it would be looking at revenue, profit and service level delivery. I understand that it has been changed to just shareholder value.

Is that why you dished out so many millions of pounds last year instead of investing it into the business—because it creates the opportunity for you to get a larger bonus?

Simon Thompson: No, not at all. In fairness, my bonuses are based on improving the business constitution, changing the revenue, growing profitability and improving in areas such as CO2. I would come back to what I said.

Q30            Chair: Can I just check? If I have misunderstood, I will apologise. I had read that for 2022-23 the long‑term investment programme for bonuses for you and your colleagues on the board had been changed. According to the organisation, it could not accurately measure your performance on revenue and profits because of the state of affairs at Royal Mail. Therefore, it only looked at shareholder value. Is that not right?

Simon Thompson: My incentives are based on making sure we deliver good quality to the customer and that we grow the business.

Chair: So there was not that change.

Simon Thompson: No, there was that change. I understand the point you are making. What I am focused on every day is making sure we can give the best jobs in town and long‑term job security for the team. We really do need that change. I am not making change for change’s sake. It is change based on the changing needs of the customers and the reality that surrounds us.

Q31            Chair: The point I am trying to get to is that you are incentivised, as the CEO of Royal Mail, purely by delivering value for shareholders. It does not really matter how you get that. Ideally, you would get shareholder value because you run a profitable, happy and successful business. If you cut costs, cut investments, cut the workforce and still deliver a large dividend, you do well out of that too, do you not?

Simon Thompson: What I am focused on, as I said before, is changing the business so we can compete in the parcels market. We have invested that £900 million. I am pleased to say that our superhub in Warrington has come on stream and that is working very well. The other investment we are making in the midlands with the superhub is also coming on well. We have grown our parcels automation from some 20% to over 70%. What we need are the ways of working so we can really compete in the market.

During my time here as CEO, we have led the initiative around low CO2 for parcels, which is the next battleground that is out there. It is great to be able to report that, because of our feet-on-the-street model and our investment in electric vehicles, we are really leading in this initiative. That is something that will be good for the future of the business as well as society.

Q32            Chair: I congratulate you on that, but if you do not have any workers, I am not sure it is going to go very well. In terms of your transformation plan, which external advisers are advising you on the transformation of Royal Mail?

Simon Thompson: We have a number of advisers. When I came in from a CEO perspective I changed an awful lot of the executive team.

Chair: I was asking about external advisers.

Simon Thompson: I understand.

Chair: That was my question, if you could answer it, please.

Simon Thompson: We do have some external advisers, like all large organisations.

Chair: Which ones?

Simon Thompson: The point I would like to make—

Chair: My question was, “Which external advisers?” I am not asking you to make a different point. I am asking you to answer my question.

Simon Thompson: We have an awful lot of external advisers who do advise us. A lot of those agreements are confidential.

Q33            Chair: Which advisers are advising you on the transformation of Royal Mail?

Simon Thompson: If the Committee would like some more information on that, we will certainly—

Q34            Chair: That is why I am asking you the question. What is the answer, please?

Simon Thompson: We can certainly write to you and give you that information.

Q35            Chair: Why can you not tell me now?

Simon Thompson: Some of the agreements we have with external organisations have an element of confidentiality. I do not want to make a mistake here and get that wrong. We can certainly write to you.

Q36            Chair: I would encourage you, Mr Thompson. You are covered by parliamentary privilege, so no one can sue you. That is why you can give us honest answers.

The reason I am asking this question is that, if you look at the wider industry, a certain set of external consultants and advisers are advising all businesses to invest in technology and automated devices, to reduce headcount for workers, to use self-employed drivers and to cut costs—all of the things we are seeing at Royal Mail.

You might see that at Amazon, Evri or other types of companies, where this Committee has heard testimony of working conditions being entirely unacceptable for those people. You are just following a similar track, are you not, because you are being advised by probably those same consultants?

Simon Thompson: I do not agree with that. That is not the case at all here. We are very proud that 97% of our team are full‑time employees. We are very proud of the fact that we give the best terms and conditions in town. Those are things we are determined to maintain.

Q37            Chair: What does “PVA” stand for?

Simon Thompson: I do not know. I apologise. I do not know what that stands for.

Q38            Chair: I was told about this by one of your employees. I do not know what “PVA” stands for, but it sounds similar to what Amazon uses. They gave testimony to us about this a few weeks ago. Apparently, it is a bit of technology that tracks how quickly your staff are processing packages and letters, and getting them out of the door. You are using technology to decide on the length of routes and the speed at which they should go.

I have been told by some of your workers that they are having to run from door to door because the technology is telling them they need to be quicker. Do you have that technology in place?

Simon Thompson: No. I am not aware of technology we have in place that tells people to work more quickly. I am not aware of that at all.

Q39            Chair: You have not used technology and automation to decide the size of routes.

Simon Thompson: We do have a revisions exercise in place, where we have a look at the volumes that are required on routes. This is normal standard business practice and something we have done for many years to make sure the workload for each individual route is equal across the team.

When I go out, I often get asked, “Why is it that some walks might be two hours long and some walks might also be four hours long?” We do a regular revision exercise to make sure those walks are equal.

Q40            Chair: You are telling the Committee that your members of staff do not carry bits of technology, whatever that might be, that track how quickly they are doing their job.

Simon Thompson: They do have a PDA, and that PDA—

Q41            Chair: It was a PDA, not a PVA. Did I mishear on the phone when someone called me? You do know what a PDA is, do you?

Simon Thompson: Yes, I do.

Q42            Chair: What is that?

Simon Thompson: A PDA is a device our workers will have that helps them in terms of knowing where to go on their route. It might also be scanning items at the doorstep.

Q43            Chair: You are doing exactly the same as other employers such as Amazon and using technology in this way.

Simon Thompson: We do use technology. It is the normal course of our business that we do. To the point you are making about this device telling people to go more quickly, that is not something we do.

Q44            Chair: Why are you tracking the speed at which employees are doing their work, if you are not using that for any purpose?

Simon Thompson: From a customer’s perspective, what a customer wants is something called an estimated delivery window. What we need to do with that technology is make sure, based on the needs of the customer, the customer has an idea of the window in which that product is actually going to arrive. We do not use that technology when someone returns back to the office in any form of penal way. That is not what we do.

Q45            Chair: Mr Thompson, you are quite good at evading my questions. The points I wanted to make today are that your bonus package has been changed in order to focus purely on shareholder value; that you are using external consultants to do what is happening in the rest of the industry; and that you are using technology in a way that adds an enormous amount of stress on to your workforce.

In the long run, the answers to all of those questions have been yes. I would politely suggest to you that, when we have talked to other businesses doing that, it does not really go in the interests of the business and their customers. It is not the best way to go.

I will ask you one more time. For all the criticism that has been levelled at you for mishandling this situation and the state of affairs at Royal Mail, do you not have any humility to recognise that it has really not been going very well since you were appointed CEO?

Simon Thompson: Clearly, there are some things that have not gone as well as we would have wanted. I totally understand that. As the CEO of any business—

Q46            Chair: You said “we would have wanted”. Is it not your responsibility?

Simon Thompson: Of course I am accountable for the business. No one would have wanted the disruption we have had for our customers over the last nine months. That is absolutely clear.

Q47            Ruth Edwards: Mr Thompson, can you explain the cyber incident that happened at Royal Mail on 11 January, which stopped letters and parcels being delivered overseas?

Simon Thompson: Yes. I would first like to apologise to our customers who have been disrupted by this particular incident. Secondly, I would like to give a thank you to the national security agencies that have been supporting us in this particular incident as well. The other thing is, just to make it clear for the Committee, that I have been told that to discuss any fine details or any additional details on this particular topic at this point in time would be detrimental.

The situation we have is that we are no longer able to provide a service for export parcels and letters through our postal services. Our domestic reality is that nothing has changed. All of those services are working well. From an import perspective as well, everything is working exactly as we need.

That is the situation we are in. Within a day of realising what it is that had gone on with this cyber incident—of course, we had to validate that it was not other things—we asked our customers not to send us any letters and parcels at this point in time for postal export in that situation, and our advice remains the same today.

Q48            Ruth Edwards: Do I take it from your comments that the incident is still ongoing? It has not been resolved.

Simon Thompson: The incident is still ongoing. The investigations are ongoing in terms of the impact of it. The team has been working on workarounds so we can get the service up and running again. In the very near future, we will have some more news to share.

Q49            Ruth Edwards: You say “the very near future”. It has already been down for a number of days. When will you get it up and running again?

Simon Thompson: As I said, in the very near future we believe we will be able to give some more information to customers about the workarounds we have implemented.

Q50            Ruth Edwards: Okay, so you do not know. If you are working with the national security agencies, we can safely say you have experienced a cyber-attack.

Simon Thompson: Yes, that is right. We have confirmed we have had a cyber-attack, yes.

Q51            Ruth Edwards: Has there been any breach of personal customer data as a result of this cyber-attack?

Simon Thompson: Based on our investigations so far, we believe there has been no compromise of any form of customer personal information. As a precaution, we did let the ICO know straightaway. If that situation should change, we will of course let the customers and the authorities know immediately.

Q52            Ian Lavery: I just want to say that Mr Thompson is being absolutely disingenuous when he mentions the tagging. That is what it is. Posties are tagged. If they are on their routes and there is a bit of a gap in delivery, they are hauled into the office and asked for explanations. Would you deny that?

Simon Thompson: That is not my understanding. That is not something I am aware of, no.

Q53            Ian Lavery: You say it is not happening.

Simon Thompson: Not to my awareness, no.

Q54            Ian Lavery: That is astonishing, coming from the chief executive. You are not understanding that the posties of today are basically tagged during the time of their employment from the morning until the end of their delivery.

Simon Thompson: No, that is not the case. We have technology in place to assist people in terms of the routes and where they go. It is very helpful for people who are new starters as well. I cannot remember the words you used, but I am not aware of any form of penal system, as you have described, that would say at the end of a walk that somebody would be—

Ian Lavery: They are hauled into the office.

Simon Thompson: Being hauled into the office is not our standard practice. That is for sure.

Q55            Ian Lavery: I just want to refer to the financial viability of Royal Mail. It is of massive concern, particularly under your watch. Up to March 2022, the company made £758 million profit and £567 million was given to shareholders immediately. There was no consideration whatsoever, in the halcyon days of £758 million, of rewarding the people who provided the service and provided that profit. You immediately doled it out to shareholders in dividends. That is extraordinary.

Within days—days might be an exaggeration; certainly weeks—Royal Mail then announced a loss of £1 million per day. That is absolutely incredible, I have to say. At the same time, under your watch, under the watch of Mr Thompson, chief executive of Royal Mail, you announced tens of thousands of redundancies. You want to introduce agency workers on insecure contracts.

Every single performance target in the last two years was missed by your company under your stewardship. As has already been explained, a former Royal Mail chief executive said recently that you were extremely inexperienced and labelled the leadership of Royal Mail as toxic and confrontational. Do you really think you are a fit and proper person to run this national infrastructure company?

Simon Thompson: I want to roll back to some of the information you mentioned there. If we go back to the point of privatisation, between our group of Royal Mail and GLS, Royal Mail in the UK represented 83% of the turnover in the business. From a profitability perspective, it was about 73%. Where we are at today is that Royal Mail in the UK, from a turnover perspective, is about 60%, but from a profitability perspective it is zero. As you have quite rightly identified, we are losing £1 million a day.

In terms of the dividend you mentioned there, back in 2018 we started to cut the dividend payment based on how Royal Mail in the UK was performing. During Covid no dividend was paid. The dividend that was paid that you referred to there was paid by GLS, the organisation that is now very profitable. It is GLS that paid all of that dividend.

From an investment perspective, since privatisation we have invested about £2 billion. We have invested £700 million in the last three years and, under my watch, have invested £441 million in our future, including our superhubs, our electric vehicles and automation. We have really invested in the organisation to make sure we can grow. During the time of Covid as well, when the shareholders did not get a dividend, we also paid a 2.7% pay increase to our workers as well.

Q56            Ian Lavery: Do you accept, as the former chief executive said, that your style of leadership is toxic and confrontational?

Simon Thompson: No, I do not think we are toxic and confrontational at all. I would say is we are really focused on making sure we can meet the needs of the customer and we can grow this business, which we all want. I heard Dave talk about it as well, and I am totally aligned with that. We want to grow the business and give our team the long-term job security they deserve. We will only do that through changing and growing the business and by maintaining the best conditions in town. That is what we want to do.

Q57            Ian Lavery: The posties have done a fantastic job. In many ways, they are looking to advance the company more than the management themselves. Do you understand their anxiety? Mr Thompson, the chief executive, is on 23 times their average earnings. As the Chair said, you got a bonus of £140,000 at a time when—I have already said this; I am not going back over old ground—Royal Mail had basically failed as a company. It had £750 million profit, and days after it was making a loss of £1 million a day. Are you really worth that amount of money, Mr Thompson?

Simon Thompson: The £758 million that you mentioned was made at a group level. Royal Mail in the UK made £416 million of that £758 million.

In terms of the pay ratio you mention, my pay versus the posties’ pay is 23:1. Our average postie takes home £25,700 a year, which is between 18% and 40% more than the market norm. From a personal perspective and a CEO perspective, it is very positive that these pay ratios have to be reported. I know it is something the remuneration committee chair keeps a very close eye on.

Q58            Ian Lavery: It is very kind of you to say it is good that that is reported. That really was not the question. I asked whether you were worth it, given the obvious financial failure of Royal Mail. You have already said it has faced extreme difficulties under your watch. How do you get a bonus for that?

Simon Thompson: Last year is different to this year. This year we are losing £1 million a day. The situation is a very serious situation, which is why we are very focused on the change that we need to meet the needs of the customer.

As I said before, we have done the investment in the infrastructure, the £900 million over the last three years. What we now need is the change in ways of working to go with it from the team so we can turn that into a real growing business. The only other thing to add is that a lot of the changes we are requesting from our delivery staff are already well embedded in our organisation, in processing and other parts of the business as well.

Q59            Ian Lavery: Can I ask you another question? It has been suggested in the press that Royal Mail executives have been boasting about this war chest of £1.7 billion. It has been suggested that this is perhaps a union-busting fund. Would you like to comment on that?

Simon Thompson: The £1.7 billion that was referenced was not a war chest. What was referenced was that it was liquidity or access to money that the organisation could have. Like any access to money, whether it be a loan or a mortgage that you have yourself, you have to pay it back. What we need to do is turn around Royal Mail in the UK and get it back to a profitable trajectory. Then, yes, there is access to money so we can continue to invest and grow the business.

On the union busting side of things, I want to make it really clear that there is more than one union at Royal Mail. We also have Unite, a union we partner with. What we had with Unite this year is one of the largest organisational changes we have ever had in our history. In fact, it is the first time we changed our frontline management structure for 35 years.

Some of the agreements there were over 40 years old. I am pleased to say that, working alongside Unite, we delivered that change very successfully. That makes us fit for the future. We also agreed a pay deal with Unite as well, which was aligned with what we have offered the CWU. That was agreed within three weeks. We absolutely can work with unions very well and have shown that to be the case.

Q60            Ian Lavery: I have a final question on the universal service obligation. We had the Secretary of State here a couple of weeks ago, and he was asked whether the company, Royal Mail, had written asking for six-day delivery to be reduced to five days. He said there was no way the Government would accept that and he had said that to Royal Mail. When are you going to stop trying to get rid of the USO?

Simon Thompson: The first thing to say is that we are very proud to be the provider of the USO.

Q61            Ian Lavery: Why are you trying to dilute the USO if you are very proud of what it achieves?

Simon Thompson: We want to make sure of two things. When the company was privatised, there were two conditions around that from a USO perspective. The first one was that the USO would be viable. The viability measure that was set on the USO was that Royal Mail would make between 5% and 10% return. We have done that in two years since privatisation, so there is a viability question.

The other side of things is what the customer wants. We have talked about the changes in letter volumes during this period of time as well. There was an Ofcom user needs review done a few years ago, and what the Ofcom user needs review said was very clear: a five-day service was something that would meet the needs of 97% of people. Again, if you looked across different locations in the country and different demographics, the feedback was exactly the same.

When we did our research, what the customer also said to us is they want a seven-day parcel service that goes everywhere for the same price, to and from their doorstep, with low CO2, with deliveries by the trusted postie who everyone loves. Dave mentioned trust at the doorstep earlier, and I am totally aligned on that as well.

What we want is a viable USO and one that also meets the needs of the customers. From everything we have seen, that means that five days would be fine. When I spend time out and about with our posties, they also recognise that maybe five days would be fine.

Q62            Andy McDonald: Am I right in saying that we have declared that you have a bonus of £140,000? What is your base salary?

Simon Thompson: It is £540,000.

Q63            Andy McDonald: Then there is £140,000 on top of that. Despite the job losses that Royal Mail has announced, it has introduced owner‑drivers into the business. They are on approximately 20% less pay and with insecure contracts, and you have retained and recruited thousands of agency staff. Postal workers are going to lose their jobs while casualised workers replace them. That is fire and replace, is it not?

Simon Thompson: No, there is no fire and rehire. I think that is the phrase.

Q64            Andy McDonald: No, I did not say “fire and rehire”; I said “fire and replace”. Those people are gone. They are out the door. They are bulleted. You are getting people back on casualised labour. Is that the way to run a cherished national asset such as Royal Mail?

Simon Thompson: I apologise; I had misunderstood there. No, that is not what we are doing at all. As I said before, we have 97% full-time employment, which is something that we want. In terms of the agency workers, we had 18 days of industrial action and had to make sure that we kept our service running. That meant that we had to increase our level of agency workers to make sure we could keep the service running during industrial action days as well.

Something that Dave and I discussed was that we would reduce those agency workers, which I am pleased to report we have rapidly done. We are back in talks now. We are very pleased that we are back in talks now, and it would be good to get an agreement as soon as we can.

Q65            Andy McDonald: It is pleasing to hear that you are talking. One of the reasons that you cited for the operating loss of between £350 million and £450 million in the 2022 half‑year results was as a direct result of the industrial action. What is stopping you from reaching an agreement with the CWU to end the dispute?

Simon Thompson: We would love to get an agreement, and I am delighted that we are back in talks. Dave called me just before the new year. We had a conversation on New Year’s Eve, actually, and I am delighted that that has led to where we are.

In terms of where we have got to, we have now made 12 concessions, including an increased pay offer and items such as voluntary working on a Sunday. I do not want to prejudice where we are with those talks, but we have some more days to go and we should keep our efforts to try to get an agreement. What we really need here is everybody pointing in the same direction so that we can reinvent Royal Mail for the next generations, which means we can compete in that parcels market.

As I have said before, we have the infrastructure in place. It is there, ready. It is coming on stream. We are making progress with it, but we must have the ways of working. It is an urgent situation, because as everyone here on the committee will understand £1 million lost a day is not sustainable forever.

Q66            Andy McDonald: If you have those losses, why did you distribute £567 million to shareholders in 2021-22? If Royal Mail is financially unstable, how on earth is that possible?

Simon Thompson: That was paid out of GLS’s profits, as I referenced earlier.

Q67            Andy McDonald: So you carved the business up to justify those costs. What about the sick pay that you are going to be giving? You have announced that you want to reduce sick pay for postal workers. Do you not acknowledge that by cutting sick pay you endanger them and their family, as well as creating extra pressure on the NHS? It is the Royal Mail. You have duties beyond any other business. You are not any other business; you are the Royal Mail. How can you take such a step against your own workers? My colleagues talked about your £1.3 billion war chest. Is this a really fit and proper way to run such an important business as Royal Mail?

Simon Thompson: We do not have the war chest, as I mentioned earlier. That was access to liquidity.

Q68            Andy McDonald: The Telegraph described it as a war chest and it was Royal Mail stating to its own investors that it had that money. Are you saying that the Telegraph is lying or has been misinformed?

Simon Thompson: A correction was made on that particular article. Picking up your point around sick pay, our current sickness level that we have in the organisation is about three times the norm, if you look at ONS results. If we have a look at the vast majority of our team—and it is a magnificent team—they take around one and a half days’ worth of sick absence per year. Our sickness policy is significantly better any of the competition. In fact, in some of the competition, if you do not turn in when you are sick, you get no pay at all.

What we have is that over the first six months you can get full pay. For the following six months you can get half pay. Those things do not change. For the first three days of absence in any year, again, you would get full pay, but what we recognise is that an enormous amount of our sickness is actually in a small proportion of the team. We are currently discussing a change in the sickness scheme to encourage people to come back to work. We should touch on what we talked about earlier. We need everyone, or as many people as possible, back to work, as long as they are fit and healthy, because that is how we make sure we can deliver a quality of service.

Q69            Andy McDonald: You are not going to cut sick pay at all. You are not going to make any changes that would reduce workers’ sick pay while they are absent due to ill health—not a penny.

Simon Thompson: Our overall sickness policy is much better than competition.

Andy McDonald: No, I asked you the question, “Are you going to make any cuts to sick pay?” It is either a yes or a no.

Simon Thompson: We are in discussions about how it is that we can make some adjustments that would only impact a small proportion of the team to encourage them back to work.

Andy McDonald: That sounds to me like a yes—you are going to cut the sick pay for those workers.

Simon Thompson: We are discussing how it is that our sick policies can encourage as many people back to work as possible. It is also worth understanding that we spend about £250 million a year on sickness, and our sickness level is three times the industry norm.

Q70            Andy McDonald: You are giving evasive and avoiding answers. You played fast and loose with the Chair’s questions about the technology and about the acronym that was used. Should you not have come in and said “No, actually what we have is X”, or whatever it is? If you are not forthright and candid with us, are we going to be able to trust you? At the moment, these sorts of responses where you do not give straight answers to very simple questions are really causing us some considerable difficulty. Do you not see that?

Simon Thompson: I can understand that the situation is tense. I would always like to answer as best I can. I hope that I am answering the questions in a way that is acceptable to the Committee.

Andy McDonald: It is not to me.

Q71            Chair: Forgive me just for asking a simple question, but when was the decision taken to separate the international parcels business from the USO obligations?

Simon Thompson: I am not sure of the question. I am sorry.

Q72            Chair: From your evidence today, as I understand it, you have a profitable parcels business. You called it GLS. You then have the letters business, the USO, which you have been trying to reduce your obligations under with the Government. When was the decision taken to separate the two?

Simon Thompson: They have been two separate organisations for some time.

Q73            Chair: Is that since privatisation?

Simon Thompson: Yes. They have always been run as separate businesses. The GLS business has a chief executive and Royal Mail has a chief executive, which is me.

Q74            Chair: What you have been saying is that the GLS bit is profitable and viable, but you said earlier that there are viability concerns about the Royal Mail bits.

Simon Thompson: That is right, but we presented a turnaround plan for Royal Mail in the UK to the market back in November. It can be a very profitable business that flourishes, but we just need the changes that are based on the customers’ needs to make it that way.

Q75            Chair: It just reminds me a bit of the buses. When buses were privatised, the bus company CEOs said, “Oh, we have a profitable route here but we cannot cross‑subsidise to the routes over here that are not profitable”, so you cut the routes that are not profitable. Then local communities—often low-income local communities—have no bus, and then the CEOs come to Government and the taxpayer and say, “Oh, we cannot cross-subsidise the profitable routes. We can take the profits, but we cannot cross-subsidise. Can you give us some taxpayers’ money to pay for the buses for people over here who need it?” It feels like a very similar conversation. You are probably going to be wanting to ask the Government for more money, a reduction in the USO or something to make viable the bit that you have described as being potentially unviable, are you not?

Simon Thompson: No, that is not the case. I have been clear on our position on the USO from six days to five days on the basis of viability and customer need. That is something that we have asked for, but there is a great future for Royal Mail. The reason I took the job is that I believe in the business and that it can compete and flourish in the market.

We do have some great advantages. We go everywhere, as Dave mentioned earlier. That is a massive advantage, and we have great infrastructure as well. We have also innovated in some really great services. We are uniquely positioned to implement Parcel Collect. Dave talked about the fact that we want a bigger role for postal workers. I agree with him. Parcel Collect—being able to pick something up at the doorstep instead of someone having to drive and park to hand over a parcel—is a magical thing, and something that is uniquely ours. We have also appointed a managing director of Royal Mail Medical, so we are looking to build some new businesses as well on the basis that we go everywhere and have that trusted relationship.

Q76            Jane Hunt: I have a couple of questions, if I may, on service performance. First of all, the Q2 performance figures in 2022 were not great, from what I can gather, and targets were missed. However, Mr Ward, the general secretary of the CWU, said in his submission earlier that reform plans were torn up in September and that there was a power struggle. Talk me through that. What is going on in Q2, what is happening about these torn‑up plans, and what is happening in terms of a power struggle?

Simon Thompson: Yes, it is true. We can see that, if we have a look at our quality of service in Q1, in first class it was 85% and in second class it was 96%, very close to the target we have set. I would also say to the Committee and everyone else that it is always a disappointment to me. Achieving those targets is something we are very committed to, however stretching they can be.

What happened in Q2 was that our performance was lower. It was 71% for first class and, from memory, it was about 92% for second class. That was disrupted by industrial action at the end. I think that is the case. If we have a look in December, for instance, we had seven days of industrial action out of the 23 days up until Christmas. During that period of time we will deliver about 30 million to 40 million letters a day, so any form of disruption is going to be a major issue for the quality of service reality.

I am also pleased to say that during the industrial action phases we totally changed the way that we did our sortation and automation in our machines to make sure we prioritised NHS letters and the likes. We delivered about 34.5 million of those critical letters during that industrial action period by prioritising them.

Q77            Jane Hunt: Thank you very much for doing that with the NHS letters, actually. I was aware of that and I feel sure it made a huge difference. My second question follows on quite well from that, actually. I did not appreciate that you had made a deal with Unite within three weeks, and yet CWU is yet to come to an agreement here. What is the impact of the CWU strikes on the future performance and development of the business, and indeed the competitiveness of the whole company?

Simon Thompson: It was referenced earlier. I spend an awful lot of time with our retailer customers as well, asking them what it is that they want. What they really need is a quality service, regularity and confidence that things can be delivered. It is true to say that during industrial action, at the press of a button, they will make a decision to protect their business and their customers, and that business has gone elsewhere.

The other thing they tell me, on a very regular basis, is that what we are building in terms of our infrastructure—the ability to take an e-commerce order at midnight and deliver it the next day, with low CO2 and with a postie that they trust—is a magical thing. The reality from the retailers is that they are having to make choices that I do not think they would like to make. The choice that they would prefer to make is to put their business with Royal Mail, because what we are building is exactly what they want.

Q78            Ruth Edwards: Mr Thompson, you have focused a lot in this session on parcels and the profitability of parcels. Would it be fair to say then that reports in the media and from constituents that postal workers have been told to prioritise parcels over letters are accurate? Is that now official Royal Mail policy?

Simon Thompson: No, that is absolutely not true. We have been very clear that there is no difference between the two. We have written to our teams on a regular basis. In my first year I actually wrote a letter to every postal worker reminding them of the importance of letters, but we have to recognise one thing, particularly after days of industrial action. For anyone who has been to one of our delivery offices, you will all remember the frames. Within the frames we are 100% optimised for letters; there is somewhere to store letters, but we are not at all optimised for parcels. We have occasions at a local level where for health and safety reasons there might be a situation where parcels need to be delivered so that the postal workers can actually get to the frames, but that is not our policy at all. Our policy is very clear that letters and parcels are equal.

Q79            Ruth Edwards: It is interesting, though, because this situation arose in Rushcliffe and I commented in the local media about it. As a result I was contacted by postal workers from across the country who said the opposite, and who said that they have been specifically told to prioritise parcels. Why do you think it is that so many of them have been told something different to what is official Royal Mail policy?

Simon Thompson: I do not know the answer to that question. All I will say is that our policy is very clear that parcels and letters are as important. As I said earlier, we are very proud to deliver the USO service, and we understand that quality is important for letters and for parcels.

Q80            Ruth Edwards: Citizens Advice has submitted evidence to the Committee ahead of this session, and its data has found that customers are far more likely to experience delays to letters than they are to parcels. Does that bear out in your internal data?

Simon Thompson: No, I do not believe it does, but if the Committee would like any more information on that topic we can certainly write to you. I did see that information from Citizens Advice as well, and it was actually thanks to the Citizens Advice recommendations some years ago that we changed our service update page to make sure that, if there are any issues at any delivery offices, we are very proactive and we let people know.

Q81            Ruth Edwards: The Committee would like to see that information in terms of delays to letters as opposed to parcels. We need to put this issue to bed once and for all, in a way. What will Royal Mail be doing, given that there is this confusion as to whether parcels are to be prioritised over letters? What will you be doing to set the record straight and to make sure that everybody knows that that is not the case?

Simon Thompson: We have always been very clear. It is very clear in our policies.

Q82            Ruth Edwards: How can you have been very clear if so many people have the wrong end of the stick?

Simon Thompson: It might be time to recommunicate again, but we have always been very clear that that is the situation. That is our policy through our managers and also with our people. We have been very clear about that.

Q83            Ruth Edwards: Can I take it from what you are saying then that there will be a new communication now from Royal Mail to make it very clear that parcels should not be being prioritised over letters? Obviously people missing letters are missing incredibly important information about NHS appointments, paying bills and all sorts of things.

Simon Thompson: We are very happy to recommunicate our policy that we have recommunicated several times. That is perfectly fine.

Q84            Chair: Mr Thompson, I am a bit confused. A whistleblower wrote to me only last week once we had advertised that this session was happening to tell me that you do in fact prioritise parcels over letters. In fact, he sent me a picture of a poster that is on his rack in one of your offices. I will just read you what it says here. This is from last week. It says, “The future is parcels. Unless your manager directs you otherwise these are your priorities on delivery each day: number one, premium items and collections; number two, large parcels; number three, lapsing, including all parcels; number four, at least half of the delivery points on your frame, including letters”. Letters are ranked number four in the priority list, and only half of them. You are unilaterally only delivering on 50% of your USO, are you not?

Simon Thompson: I am actually aware of that particular correspondence that was done in one delivery office. It was dealt with and it was a local action.

Q85            Chair: Is this not true? Who wrote this poster?

Simon Thompson: That is absolutely not our policy.

Q86            Chair: It is on a Royal Mail poster that your workers are being asked to read when they go to work. If that is not Royal Mail policy, how else do you communicate Royal Mail policy?

Simon Thompson: That is absolutely not our policy.

Chair: I will remind you, Mr Thompson, that misleading Parliament is not something that we appreciate here on the Committee. If this is not the case, you are going to need to write to us with sufficient details afterwards to prove that that has changed.

Q87            Mark Pawsey: Mr Thompson, we have heard about the dynamic marketplace you are operating in. You have a workforce that has been with you for some time, in many cases. When I visited my sorting office, they told me that a postie stayed for either six months or their entire working career, and many of them do choose to stay there for a long time. Do you think that the workforce understands the changes in the market and the need to put the customer first?

Simon Thompson: Our average tenure of service is around 17 years, which is something we are really proud about. That helps us massively with the trust at the doorstep and the relationships as well. We are very happy about that reality, but we also need to recognise that, if you have done a job in a certain way for a period of time, change can actually be quite difficult.

What we have also done—and we have worked with the CWU on this particular topic—is to make Sunday working voluntary, for instance, so we are making sure that any changes we are proposing are things that people can work with and adjust to over time. The realities of a parcel market are very different to a letters market.

I will give you a very practical example. The latest posting time for a letter could be 5 pm or 6 pm. That would be our traditional reality. The reality is now in the parcels e-commerce market those deliveries are at midnight, and of course we have to get those items to everybody the next day. That is a six-hour difference. What we are discussing is how we can get later start times—sometimes up to an hour, maybe two hours, maybe three hours—so that we can make sure that those parcels, which is now 60% of our revenue, can get to the customer in the right way for the right day, because that is what they need.

Q88            Mark Pawsey: My question is whether you think that the workforce and their representatives recognise the nature of that change, or is that part of the obstacle to finding a way through the present problems?

Simon Thompson: It is an obstacle and it is something that is going to need more explanation. When I am out and about in the operation the posties will quite often say to me that, when they are home in the afternoon and they look out of their windows, they can see their competitors delivering. Those competitors are delivering business that we could be doing and we want to do.

Chair: Mr Thompson, if I might politely say so, I have not been very pleased with your answers today. I know this is a difficult job for you, but it is really important that you answer questions clearly and, might I say, as honestly as possible. Your performance gives us grave concern, really, about the narrative that you have provided on many of my questions today, including when there is clear evidence to the contrary. You have suggested that what we have been told and what the evidence suggests is not true. Something has to be true, and I am not sure what that is. I wish you the best in resolving this dispute. I hope that you take our concerns and questions seriously, and if this dispute and these issues are not resolved in a timely fashion, we may have to call you back to answer further questions and update. Thank you.