 I welcome to the 21st meeting of 2023 of the Economy and Fair Work Committee. Apologies for the received from Colin Beattie this morning, and John Mason is attending. Before we move to the first agenda item, I understand the slight to be Michelle Thomson's last meeting with this committee. I would like to very much thank Michelle for her contribution to the committee and recognise the work she has done around women in business and women's representation, and those are issues that the committee will endeavour to continue I wish you all the best in your next committee. Our first item of business is the decision to take item 3 in private. Are people content to do so? Our next item of business is an evidence session with Royal Mail. Ahead of this session, the committee put out a call for evidence and received a number of written submissions. I would like to thank everyone who submitted their views to inform this morning's session. I welcome Ross Hutchison, operations director for Scotland, and Ricky Macaulay, operations development director at Royal Mail. As always, we, members and witnesses, keep questions and answers as concise as possible, and I invite Ricky Macaulay to make a short opening statement. Let me say first of all that I've worked for Royal Mail for 37 years, having started as a post-it in the south side of Glasgow. I'm exceptionally proud to work for a company that connects households, our businesses and the communities across the reach of Scotland. I'm also proud to be one of the major employers in Scotland. We employ 11,000 people, good quality jobs in our sector. The average tenure of a postal work is 18 years, so when the joy of Royal Mail tends to stay for a career, 98 per cent of the jobs that we offer are permanent jobs in our sector. Royal Mail does need to change. I've laid this out in the written evidence. We're at a crossroads, the markets in which we operate have changed significantly and they continue to change rapidly, but we have an opportunity. We've had a difficult year in dispute, but we do now have an opportunity. We have a negotiators agreement with the CWU that underpins a lot of change that is essential for Royal Mail to modernise and adapt in those markets. We need to harvest the benefits of the £900 million that we've invested in Royal Mail's network to make sure that we're fit to compete in what is an expanding parcel sector. We're absolutely committed to improving quality of service and getting Royal Mail back to its best after that difficult year. To update on one point in the evidence that we had submitted, the negotiators agreement now with the Communications Workers Union is out at ballot. That ballot closes in the 11th of July and is out with a recommendation to accept in both the management of the company and the CWU are spending a lot of time at the moment explaining to the whole workforce why that agreement is essential for our future. On quality service, we have not been at our best over the course of the last year. The numbers tell you that. We've been in dispute for a year. Royal Mail is not the only company in dispute, but we have been in dispute for a year. We've had prolonged periods of industrial action. Royal Mail, unlike other companies, we don't just cancel appointments, we don't cancel train journeys. We have an open access network, so even when Royal Mail isn't right when industrial action is taking place, we have an open access network and it takes us a bit longer to catch up. That has impacted quality of service with the elevated absence levels as well in our network, perhaps associated with that. The important thing is that we have a plan in place to improve quality of service, an action plan in place in every depot that is not on target performance, and I'm sure we might get into some of that detail today. On the universal service, I just want to make it absolutely clear that Royal Mail is proud to provide the universal service. It's what makes Royal Mail unique. Enshrined within that is that the one price goes everywhere, connecting everyone across the whole of Scotland irrespective of what geography you live in at a standard tariff. We have no plans to change that just to be very, very clear, but given letter volume has declined from the mid-twenties from about 20 billion letters to today around 7 billion letters, we do believe that there's a need to change the letter frequency of which we deliver from Monday to Saturday to Monday to Friday. If you look at OFCOM's user needs review that they've undertaken in extensive research, they say that that meets 97 per cent of consumer and SMEs businesses today. As I said at the start, Royal Mail does have an opportunity being a difficult year. We've got the agreement in place, which we've invested significantly in our network. We're committed to improving quality of service. It hasn't been good over the course of the past year, and we do believe that we need reform to the universal service. Myself and Ross are happy to now take any questions from the committee. Thank you very much. As I said, we put a call for evidence. The call for views I think did reflect the way in which we will value the Royal Mail and recognise the importance of the universal service and how important that is, particularly to parts of Scotland. I'm sure that members will touch on those issues. However, this is not the first parliamentary committee that Royal Mail has appeared in front of the Business, Energy and Industrial Strategy Committee recently, and that has led to OFCOM inquiry into do with parcel deliveries. Some of the evidence that we received did say that the service in that area, as people felt, had fallen short of the current standard, that deliveries were only happening a few days a week. I think that it's a familiar story. We hear from our constituents, they feel that their letters are arriving under a bundle, there's a prioritisation of parcels over letters. Can you give us an update on the OFCOM inquiry? I realised that the OFCOM did look at this during the pandemic and recognised that there was a legitimate reason why Royal Mail would prioritise parcels during that period, but it was the concern that that has continued as a practice. It is something that I've heard from local sorting offices. I hear from constituents that their letters are coming in bundles, those types of issues. If you give an update on the work that's been done by OFCOM, if that's possible, and how you see this, if this is the picture that is developed in Scotland? OFCOM are investigating at the moment. It's not just prioritisation of parcels. It's a quality service results for last year. We're cooperating with investigations. We'll call for information data evidence. We've always cooperated with OFCOM. We've been meeting OFCOM on a regular basis, a monthly basis, to update on progress with quality of service. We expect that understanding that it can confirm afterwards is that that concludes in November. There will be a period of time during which OFCOM will look at all the evidence from multiple sources. We're saying that last year was truly unique. Royal Mail wasn't the only organisation to be significantly impacted by industrial action. It is regrettable. I apologise to customers the length and breadth of Scotland that they've not been able to depend on Royal Mail in the way that, historically, they have been able to depend on Royal Mail. We've got a plan of action in place. If the specifics in Scotland can go into detail, whether that's recruitment activity in certain areas, establishing all the operating standards that we've got on the network that we know deliver great quality of service. Last week, jointly with the trade union, it's part of the agreement. We're not waiting for the ballot to be ratified. There's a lot of joint activity in every unit with the trade union to put in place the actions that are required. They are quite different in each unit. Some units are recruitment in other units. It's been elevated levels of sick absence. Through the bulk of last year, the real issue that we've been dealing with is a prolonged dispute that did impact on the service that we were able to provide. In the period of dispute, while Ofcom recognised that the prioritisation of parcels was maybe necessary during the pandemic, was that a policy that was adopted during the industrial dispute in the past year that the power sales were prioritised over letter delivery? Where is the necessity to do that? What creates the necessity? Parsels take up so much more cubic capacity in a network. If you look at a network in terms of the capacity of a trunk in enough facilities, 10 per cent of that network will be letters. 90 per cent of the network is full of parcels. If we don't keep parcels moving through the network, the network will grind to a halt and will have to shut our door at the front end. One of the things that we're very proud we didn't do at any point was shut our doors to customers. It took us a long period of time to catch up. From a health and safety point of view, from an operational point of view, particularly if you take cyber weekend, where there were three days of industrial action, when we returned from that, we had to keep parcels moving. Part of the contingency arrangement would have been to do letters every other day to make sure that we can keep parcels moving so that we can repatriate containers back to customers who then want to post again. However, it's not normal practice. It's a contingency arrangement for special events. In Scotland, at the moment, do you want to— Yes, convener, just to add to what Ricky said. In Scotland, as it is the case across the UK, it's been a difficult few years for Royal Mail. We've had Covid, we've had industrial action, we've had higher levels of absence than we saw before that. Again, as Ricky said, possibly connected to the overall feeling that industrial action creates by nature. As the economy settled as well after Covid, we have pockets of Scotland where we've got higher than normal levels of vacancies and we're trying extremely hard with a variety of approaches to close that gap. We do recognise that there is improvements that we need to make. Just to be clear, I speak to my senior managers across Scotland on a daily basis, the managers that manage the post codes. I meet regularly with the trade union, as Ricky outlined. Our objective is to deliver everything every day. That is absolutely what we want to do. I think that the reality on the ground is that we look at our in-process measures. We have a delivery point coverage in Scotland currently that is in excess of 90 per cent. That means that 90 per cent of addresses are received in regular service. That doesn't make it okay for the feedback that you receive and for customers that don't receive that regular service. We recognise that. However, as Ricky has touched on, the challenges that we face that result in a requirement to manage the cubic space on occasions will not be resolved tomorrow. The local manager, in line with the trade union, has got to make a decision that looks at how I manage workload and how I manage health and safety within the building for the next two or three days as we try to resolve whatever the particular challenge is. There are two issues linked to that. When you are having to make a decision to prioritise parcels over letters, is there any look at what type of letters? The concern is that it is hospital appointments. I do recognise a lot of the letters that are posted to our birthday cards and stuff like that. There is a social post that goes around. Is there any distinction between letters that have to reach people in time and other letters? The second issue, which I have just covered just now, is parcels. Are they penitently attached to parcels? Is there a financial incentive to prioritise parcels over letters? I will take the first part of that question. Ricky, if that is okay. In terms of the importance of NHS mailing, we understand that we did a fantastic piece of work with NHS Scotland. I think that everybody will remember the blue letters that we received with vaccination appointments and that is the type of activity in which we can identify NHS mailings that allow us to make sure that we prioritise that through the network. We all recognise how important that communication is. On reflection, we delivered 17 million vaccination letters across Scotland, which is clearly a huge number. We are hugely proud of the work that we did to support the UK's attempts to manage the Covid issue, but we can identify NHS letters. Even for context, on any particular day, even at the peak of the vaccination letters posting, we might have a delivery that has five or six hundred delivery points on it. The most that we were getting was roughly 20 or 30 vaccination letters per delivery. We were able to identify that and ensure that we secure delivery of those letters. Just to touch on the point that Ricky made, because I think that it is important, we want to do everything that we can to avoid the situation whereby we have this weekly delivery. We do not believe that. My in-process checks do not tell me that that is a regular issue for Scotland. If, for whatever reason, we cannot deliver on day one, we will ensure delivery on day two. We do not, convener. It is not something. There is not added bonuses for delivering. Is there a penalty attached? If parcels are not delivered within a time frame, is there a penalty that Royal Mail would incur because they have not delivered the parcel? No, there is not. It is done purely out of operational and safety reasons. There is no specific penalty. Off-com regulates both letters and parcels to the same quality of service standards. If we feel the letters, off-com will take the same judgment. If it is a company that is asking you to deliver, as I understand, I think that some of it will be a delivery company. If you order something online, the delivery company may not manage the delivery. They will ask Royal Mail to do it because the company places a penalty on you if it is a 20-hour or a 40-hour delivery, if it is not delivered in that. The main product that we have is the USO product, the one o'clock guaranteed special delivery. During industrial action, we take the guarantee off because we know that we cannot provide the service and we have done that through the period of industrial action. When it comes to the penalty, the penalty that we face is customers ultimately walking away and using another supplier. That is the only penalty that we would face. Contractually, with our tracked products in our network, there are not penalty clauses in those. It tends to be the ones that we advertise. Compensation is available, which would be that special delivery product, which is a USO product, if it is not. Good morning, both. Thank you for joining us this morning. I am interested in exploring some issues around workforce and workforce planning. Royal Mail's plan has been to cut the number of staff by 10,000 by August this year and, in fact, you achieved that by March-April time this year. Can you tell us what proportion of that has happened in Scotland? Ross, you mentioned that the pockets of vacancies in Scotland. What are your plans for dealing with those geographically specific vacancies? I am interested in the workforce planning, the bigger picture. I will pass to Ross in a moment to talk specifically about Scotland. Across the whole of the Royal Mail network, we have reduced our full-time equivalent headcount by 10,000 jobs. That is a very significant reduction. We recognise that, and it has happened on the back of two or three key reasons. Industrial action has not helped. We knew that would be the case. Royal Mail does not have a monopoly in parcels, and as many other companies out there of Royal Mail are not at work, that other carriers will use. We have lost volume due to industrial action. Can I just come in? Is that primarily why you achieved the target four or five months early? It is part of it. It is responding to market volume, essentially. The second aspect is that we had a plan underlying to improve efficiency. It is probably three relatively equal buckets. Reduction in volume due to industrial action, improving efficiency in line with our agreements with the trade union, and thirdly the reality of the broader macroeconomic environment in which we are operating. Royal Mail is a company that thrives in the back of GDP. If GDP is growing and consumer confidence is high and people have disposable income, advertisers will advertise. It is good for letter volume, addressed and unaddressed letter volume. If people have discretionary income, they shop online more. We know that the reality is that things are incredibly tough for people, be it inflation and their interest rates, cost a few, which means that it has an impact on Royal Mail. We have to right-size the network also to the reality of the economic environment that we are operating in. That is the reduction in £10,000. To be clear, the agreement in everything that we want to grow in Royal Mail, we want Royal Mail to get bigger. A lot of the investments that we have made is about allowing Royal Mail to compete in the parcel space. Letters will always be important. Seven billion letters are still really important to Royal Mail to be clear, but it is a decline in sector. To decline in market, parcels are growing. The investments that we have made are about competing in that parcel space. Before we talk about the place-specific things, can I unpack that a little more? Do you know how many other 10,000 FTEs are in Scotland? Yes. Ross, can you touch on that? Just to give context on the roundabout roughly 11,000 jobs, that has been pretty static for a number of years. I have similar to Ricky. I have worked for Royal Mail and I am proud to do so for 20 years, and that number has not fluctuated hugely. The FTE, the full-time equivalent that Ricky has referred to, is a balance of all of our resource mix. It is a balance of contracted staff that also includes agency staff, and it includes overtime. The reduction that we managed in line with volume in Scotland was around about 700, so it was pretty comparable and consistent with that overall UK number. We have managed that in line with volume. However, I would point out that it is worth the of no. We are actively recruiting around 300 people in Scotland currently. That is because we do see those microeconomic factors in specific locations where we do not have enough staff at the right time of day to complete the work. We are advertising at the moment a variety of roles at different times of day, so we have seen a growth because customers demand it of PM work, weekend work. We have real growth in those areas, and we are actively recruiting across Scotland now for people to fill those positions. As Ricky said, we are proud that those jobs are permanent and good jobs. On the reduction, we did not make anybody compulsive redundant. We have a continued commitment with the trade union that, for the length of the agreement that is at ballot at the moment, we will not make anybody compulsive redundant. That is a commitment that we have made. There was a small number in Scotland. It was a fraction of that 700. It was roughly 100 employees who took voluntary redundancy in Scotland as part of that reduction. In the rest, we managed through attrition and reduction of our casual staff. Thank you for that clarification. That is really helpful. On the balance, you said that the evening and weekend working that you are recruiting for, I suppose that one of the questions you talked about, Ricky, you talked about the three chunks of areas in which the workforce has been reduced. You talked about improvements in efficiencies. Is that to do with the refocusing of where the volume of deliveries or collections need to be? Is that to do with geographical focus? How do those two things match up? As much as off-com, we meet Royal Mail regularly and talk about quality of service. We also meet regularly and talk about efficiency, as you would expect any regulator to do. Our reality is that we have a significant range of performance across depots that are very similar. It is about narrowing the range of performance from the lower-performing units to match those that are immediate performance moving towards upper-desire performance. That change locally is difficult for people. People like their routine and what they have always done. What does it mean practically? Maybe adding another 40 or 50 households to a poster to try to improve efficiency and say where our data tells us that we have the opportunity to do so. Ecol, as I said, that is something that we do report to off-com in a regular basis. It is performance range and it is about levelling up performance to a level that we know is achievable in the bulk of our units. We have touched on the interaction that we have with the trade union. One of the positives that we have got out of the negotiators agreement is the joint commitment to productivity and quality of service. Last week, Ricky himself was directly involved in a UK-wide call where we had all the reps and all the managers from every delivery office across the United Kingdom on a call to discuss what we needed to do in both those spaces. We have just launched this week a checklist that every unit rep and manager will systematically work through to understand where we have got gaps in quality of service and where we have got gaps in productivity. That is a huge step forward. You talked about the relationship with the CWU. Given that you got to a position where there is a clear recommendation for the ballot, what is your perception of morale across your workforce? I think that we have a lot of work to do. I think that we have a lot of work to do. I think that we need to set responsibility for that. I do not think that you go through 18 days of industrial action where employees suffered a lot of loss to get to the agreement that we are now recommending. We need to be empathetic to that. We understand how our workforce is feeling and part of what Ross just referred to is that process of re-engagement. We want to get the deal done because we can put money in people's pockets, which will in a very practical sense help them, some back pay and some lump sum that has been released as part of the agreement. I think that that will help, but postman and postman do not know the country. They love serving their customers. They want great quality of service the same as we do. Getting back to our best will help to restore pride in Royal Mail, which is what we are committed to doing. I think that just to add some context as well around local relationships, because I think that it is important. We do understand that any organisation that has been subject to industrial action will see some of the issues that Ricky has articulated. Locally, we do see strong relationships between local managers and postman who are really proud to serve the communities that they serve. Even through industrial action, we saw our employee engagement scores move from 62 to 68 to 70 in terms of that local relationship and how they feel that they are supported and managed by their local managers. The foundations of good relationships are there, and the national UK-wide agreement gives us the opportunity to move that forward. First of all, thank you for your service to my office and me personally. I enjoyed my visit recently to the centre in my constituency. To follow on the employment theme, it suggested in your submission that you were having challenges recruiting people in some areas. Can you expand on that as to where that is and why? I think that it is similar to other industries and other employers. We do find that we see microeconomic factors that impact on our ability to attract people or prospective employees to the organisation. We have had to adapt our approach. We have worked incredibly hard over the past year in Scotland to be flexible in our approach. If I think back to five or six years ago, we were only offering part-time jobs. We were advertising our range of full-time and part-time jobs to increase the attraction because we understand that people and the cost of living pressures that they face want a more secure job that has longer hours. In certain locations, that is required to attract the right talent. On the islands, I worked hard to secure the specific allowances that are attached to the islands. We protected that as part of the national agreement. We will move forward and continue to understand that people in some locations find different pressures and the cost of living can vary. In some locations in Scotland, as we advertise on our website, we offer an attraction payment as well as an attraction and retention payment, which is a one-off payment on the basis that we can apply for a role with us on this day for 12 months. We are adapting our approach depending on the factors that we face in different parts of Scotland. The islands are difficult, Edinburgh is difficult. Is that because you are competing with other delivery companies? I think that across sector in Edinburgh, the economy in Edinburgh is relatively buoyant and there are other opportunities for people to see employment elsewhere. We have to react to that. Do you think that Brexit has an impact on that? I do not have an opinion on that. We react to the factors that we see and we see that through the applications that we have for the roles that we advertise. We monitor that regularly and react to that as best we can with a variety of approaches that I have walked through. I do not want to go into why you are possibly going to five days. Other colleagues will raise that, but if you go to five days, will that have an impact on the number of staff that you have? Overall, what we are trying to do is to make sure that we put the resources against where the market is growing. That would largely depend on how successfully we grow our parcel proposition and our share of the parcel market. A lot of our investment that we have made is in competing in parcels. We are increasingly expanding parcels out to a seven-day network that creates employment. If we do that well, we can offset the decline in job numbers associated with a reduction in the letter frequency delivery from six days to five days. I know that it is not answering your question directly. I apologise, but it really does depend on raw mail grasping the opportunity that is now in front of it, working closely with the trade union and all our employees to make sure that we deliver what customers expect. If we can grow and the opportunity is there to do that, then it will offset the type of job reductions that would be associated with a change to the letter delivery frequency. Okay, so there would be job reductions purely linked to the letters, but hopefully they would be compensated for elsewhere. Would those job reductions that would be all over the country, even if everybody goes down from 65? Yeah, so it would be across the whole of our network, across the whole of the United Kingdom. That would be the case. We would not differentiate where we done five or six-day letters. It would be one change across the whole country. I have to say that we have in place that non-compulsory redundancy guarantee for our people because we have a lot of overtime, we use elements of agency workers from time to time where we need to, although that is not our preference. We have other means of making the job reductions, which is why we have given that commitment to our employees. Okay, and you mentioned the competition and clearly a lot of the changes within Royal Mail are linked to the fact that you have all this competition out there. What do you do better than the competition or what do they do better than you? I think that Royal Mail has a unique brand. We need improved quality service. That doesn't last forever, but I think that we have a unique brand. Our foot-on-the-ground delivery model, so we don't deliver parcels point-to-point. 85 per cent of the parcels that we deliver, we deliver the letters and they are delivered on foot. From a CO2 point of view, we are half the CO2 impact of other parcel carriers that deliver on a point-to-point parcel network. That is an advantage that we have. We are looking to sustain. We need to leverage the investment in our network. We are now at 80 per cent of parcels automated in our network. That drives the unit cost of parcels down. We need to compete on service as well, as I have said. I think that the one thing that makes Royal Mail unique is our reach. It is a fact that we go everywhere. People like to deal with one supplier rather than a supplier for somebody who does a bit of the UK and a supplier that does all of the UK. They are all important factors in terms of how Royal Mail competes with other carriers, but we need to differentiate on service. One of the strengths that we have as well is that Ricky referred to in his opening statement the fact that we have employees who work here for an average of 18 years. That is a real strength. The culture that we have within the organisation and the desire to serve the communities is a real strength. That is an advantage that we need to leverage on the doorstep trust with our customers. Our net promoter score in Scotland, for example, is extremely high. It is approximately 70 per cent of the people who receive orders from Royal Mail are an active promoter of the service that they have received. I think that that is representative of the service that our people want to deliver. Do you think that there is still trust in Royal Mail more than in any of the other competition? We cannot take it for granted. Royal Mail is everywhere. It is trusted, but we cannot take it for granted. That is why I said in the opening that the service people have experienced is not what they expect from Royal Mail, and we need to get back to being the best in the market. Many of our customers will pay a bit more to do business with Royal Mail, but they have to have the trust. It is their postman and postwoman up now in the length of the country that turns up in the doorstep every day that makes Royal Mail unique and different in a uniform, not in a private car, but in proper good quality jobs here to have a career. That is how we can differentiate. Good morning to the panel. On that point, I think that, regardless of sometimes the service that the work that is done by pay agencies is certainly in my area, Highlands and Islands is very much appreciated out in all weathers. I think that any of us that go campaigning in all weathers appreciate the efforts that are made. I was just going to ask, obviously, in remote and rural and island communities there are concerns that service is not as regular as it is already currently in other parts of Scotland. Can you advise some of the kind of challenges, some of the concerns that you have about delivering that, the current six-day service and how that might be impacted if there was a five-day service? First of all, to respond to that, I think that it is a fair challenge. I think that we have already articulated that we do have a recruitment challenge on the islands. I think that unemployment on some of the islands is extremely low and there are factors that reduce the availability of potential employees for us. We have got a variety of approaches to try and address them. We are making significant progress on that at the moment in Scotland. We are seeing that that is improving and that is having a result whereby we are seeing service stabilised. I think that the logistics of islands as well as additional logistics, as I am sure everybody will appreciate, is to serve island communities. Every item of mail that enters Scotland for delivery goes through four mail centres, so Glasgow, Edinburgh, Inverness and Aberdeen, and clearly to serve some of the most remote communities. We have then got to have a structured local pipeline and logistics network to serve that. That is reliant on some cases on third parties and, indeed, on other external factors such as weather. We have got to fly to the islands from parts of the north of Scotland. Clearly, the weather sometimes can be challenging. Fog bound. We have even had fog as recently as the last week whereby flights could not land. That can impact on service. Clearly, to some of the islands on the inner hebrides of the west coast, we use a lot of ferries as well. We work with external contractors to support the movement of mail to some of those locations. Logistics are challenging, but we are committed to delivering as strong a service as we can. It is worth noting that OFCOM recognises that, particularly for the HSKW and ZE, which are the Shetlands Orkneys and Western Isles postcodes. They acknowledge that it will be very difficult for us to deliver consistently to the same level of services as we deliver to the mainland UK for those reasons. I will ask one of the things that I would ask. If a letter arrives at a sorting office—sorry, a delivery office—will it always go out as soon as possible or would, for example, you sometimes put a few letters together from perhaps a remote household or remote community to make sure that you are not doing one journey just for one piece of mail? Or do you try to ensure that there will always be—if there is a piece of mail to be delivered, it will be delivered on the day that it should be? We do everything that we can to deliver everything every day. That is the objective, and that is the objective that we measure performance again and the number of delivery points that we cover. There is a challenge in getting letters and parcels to some of those locations, but once it is there, our objective is to deliver everything that we receive on that day, on the day. If it does not, for whatever reason, because of whatever factor that we have experienced, whether that be vacancies or sickness, etc., we will do everything we can to deliver that the next day. We do not make decisions on the basis of—it is a difficult place to go—we will leave that for a couple of days. That is not our intention at all. I was just going to ask about what consultation you are doing with local communities. It impacts on them and local businesses. What consultation do you do with them on the service that is provided? What do they need? How regularly do you do that? We work specifically on the six days to five days, because I recognise that that was part of the question. I apologise for not responding to that. I think that Ricky would agree with the UK-wide data that we do not see any indication that rural communities will be disproportionately affected by that. We do lots of work with external stakeholders regularly in Scotland. We have an external relations team that works closely with the Parliament, with parliamentarians in this building and business groups outside of that. We are keen to understand the service that we are delivering and what impact we can have. Last week, the manager for Highlands and Islands was in Orkney with some of the political figures and business leaders to discuss service that we are delivering at the moment and what opportunities there are for enhancement of that to react to what people's requirements are. We want to actively listen. To be clear, on any move from six days to five days, it will not be an overnight light switch, so we know that there is a lot of work to be done. If we did move from six to five, there is a lot of work to be done to understand how we can support external organisations to react to that. Is that consultation including households, ordinary users rather than just businesses? Absolutely. We have done a piece of work in conjunction with Ofcom to understand that. That has included people who live in Scotland and people who live in remote locations in terms of their needs. We want to understand any potential impact that we would have in consult with our range of stakeholders. Thank you. Colin Smyth, we followed by Gordon MacDonald. Just on the issue of the attempts to access Saturday letter deliveries, I mean you've said several times this is still obviously your aim, this is still your desire, but the reality is that it's not going to happen is that the UK Government have said no already, so you need to obviously move on from that plan. How central to your current strategy to return to profitability within the next two years was moving to five-day deliveries and if that's no longer there what's your strategy now? Given that you're quite right, we're not in control of it, it's ultimately enshrined in the Postal Services Act and there would need to be a change to that act of Parliament. There's a lead time for that to happen, which members of the committee will know is not overnight, it would take between two to three years to achieve an act of Parliament unlikely to happen before the next election, so we did not have that baked into our plan. We do believe that actually requiring raw mail to continue to provide the service, that the vast majority of customers now say is no longer needed. 97% of customers in Ofcom's user needs review, an extensive review, said that a five-day delivery service would meet their needs today. Requiring the provider of the universal service for a prolonged period at cost to continue to provide that service is not in the long-term interest of protecting the universal service, that's why we think that the Government needs to act and we'll continue to make representation about why that is important. Ofcom, when they set up the regulatory framework, said that the universal service provider should be able to make between 5% to 8% profit margin from the activities that they're doing to reinvest in the business. Any business needs to make a margin, we've only made that margin twice since raw mail was privatised and letter volumes continue to decline every year, not just here in the UK, across the whole of the world and across the whole of Europe. We're very much in line with the decline that we're seeing elsewhere and we'll continue to work to try and revitalise letters, but the truth is that people find other ways. Above a number of initiatives that we have in play on letters to try and defend letters as much as we can. In direct answer to your question, we believe that the change is needed. We'll continue to lobby and make the case for that change. We believe that it's important to the future sustainability of the universal service. Importantly, the one price goes everywhere that raw mail offers today and it wasn't in our cash flow projections and therefore it's not an impact on our business plan over the next couple of years. Something that does appear to be in your business plan is reported changes with the pipeline that you use to get mail to delivery offices. If I can use my own area as a way of illustrating that, I represent the south of Scotland and based in Dumfries and Galloway, the mail currently comes north to Newcastle Airport and is transported to Calail, which I appreciate is all with your area, but we are classed as Calail for deliveries. It then heads to local delivery offices in Dumfries and Galloway and I'll plan a number of, I suppose, central hubs in this case, Warrington. Can you tell us what that will mean in terms of the time that mail, for example, will reach the delivery office in Strunrar compared to what time it reaches that office at the moment? Let me give the overview of why we're making the change. Royal mail still flies 36 flight sectors and I connect to the network. It's always done that, historically, moving letters around the country. No other parcel carrier in the UK uses inland UK-based air transportation to move the product about. Our experience of air transportation is a means of moving parcels about. High as CO2 is the least reliable and it's by far the most expensive. There are better alternatives, rail and road. Significant lower CO2 and improved quality of service for our customers. If we're going to compete and meet the needs of our customers, we need to reduce our reliance on air transportation. It doesn't work when the cube of the parcel is growing every year and the volume of parcels are growing every year. That means that the transit time in the middle, which is an air sector 60 minutes, goes more like three hours. It's not two hours later everywhere just to be clear in terms of the delivery span. We can save some time in the middle within our network, but the agreement that we reached with the CWU says that the last letter delivery time will move from a latest last letter delivery time of three o'clock to half past four. That would reflect the start time in the morning, which would be up to 60 to 90 minutes later in the day. We're doing that so that we can continue to deliver letters and parcels together on a combined network for the vast majority of the parcels that we carry in the network. Putting more planes in the sky, it just doesn't work. I want a lot more detail in that. I'm not disputing at all the importance of moving from planes to trains. Frankly, that's something that I support. What I want to know is what you're doing to mitigate in those areas that are further away from the hubs that will get their mail arriving at delivery office several hours after they're currently getting that. What does that mean for customers in terms of when they will get the letters? That's a rural area, for example. You said three o'clock. I think it's not four o'clock for rural areas at the moment. What will that mean for those customers in rural areas who will get their mail to the delivery office several hours later? Therefore, by definition, it will take a later time to deliver that. What time will people start to get the letters in the rural area? To be clear, the last letter delivery time will be half past four. In every area, it will not go beyond half past four. To be clear, there are current exemptions to the four o'clock today in isolated areas of the network where we deliver up to five o'clock. I don't believe that Stranraer is part of that to be clear. Again, it's the far north of Scotland into some of the island area. So what we're saying is that deliveries will be completed not at four o'clock, but by half past four. Many of those deliveries today are completed at half past two, three o'clock. We don't actually work through to four half past four. We see that in a lot of our data. The last letter delivery time will be half past four. You'll be putting extra resources into those areas to make sure that you hit that 430 target. We will move back the start time in the day to make sure that people aren't in the office when the mail hasn't arrived. Part of it is about moving start times in the day. It may require us to look at duty attendance patterns within the unit as well. There will be, essentially, what we call a revision, but a change within the unit to accommodate the new arrival profile and that last letter delivery time. Whether it attracts investment will depend unit by unit. I think just to add to that. Again, one of the benefits of the agreement is that the CWU believe and clearly they've got representatives across the network that are close to it. They actually believe that they can support us to advance some of this network activity. We've got a joint working group at UK level. We've got a joint working group that we're about to set up at Scotland level where we can look at what can we do within the network to mitigate the time that it arrives in the delivery office as you've articulated a journey of a letter, if you like, to Strun Rha. I think that Ricky is right on the 1630. I think that one of the benefits from flights or the removal of flights and moving to a greater reliance on rail and road is the reliability that we see. We see that our network is six times more fragile. Although a customer might receive that letter up to 1630, it's more likely to be there on time the next day, because we'll get a greater level of reliability from that network, and that's what we want to achieve. Can I turn to another issue? When giving evidence to the House of Commons Business, Energy and Industrial Strategy Committee or Chief Executive admitted that postal digital assistants were basically being monitored and had been used to pressure staff to work faster, do you ever monitor staff's social media platforms? If it's private to them, then if it's closed groups, then we wouldn't do it. If it was an open group and they were making inappropriate comments or anything that brings a company into disrepute, we wouldn't expect them to do that. We don't slavishly monitor it, but if it's brought to attention, we would follow up. There have been cases, because clearly in recent months around 22 staff have been dismissed in Scotland. How many of those cases was it based on, partly, social media posts that they had put forward that you had been monitoring? I don't have that level of detail. I wouldn't want to say a specific number, because I just don't have that level of detail. Do you have a sinister thought to be monitoring what staff post on a social media platform? Every employee that works for Royal Mail needs to act responsibly. Ender who uses social media needs to act responsibly. It's a public platform. They are responsible for what they put on there. If something on there is wholly inappropriate or threatening towards one of our other employees or brings Royal Mail into disrepute in some way that we don't find acceptable, we would follow those up. However, I don't have all the specific details to respond to that specific question that you asked. Just one final point. You've raised the issue of recruitment several times. I'm correct in saying that the pay deal now means that new staffs all get paid about 20 per cent less than existing staff. For example, new staffs lose their allowance for lunch, for example. They don't get paid over lunch. Is that the case? The terms of conditions for new staffs will be inferior to the existing staff. I mean, presumably that's had an impact on retention recruitment. We don't see that having an impact on retention and recruitment. The change that you're talking about is the terms and conditions that we are now offering as we bring new employees into Royal Mail. One of the things that the CWU is very keen in the heart of the dispute is that we don't become a gig economy employer. This is an alternative to becoming a gig economy employer. We don't want to be a gig economy employer, but equally we can't support wages that run 30 to 40 per cent above the market in which we compete. The jobs that we are offering are still 10 to 15 per cent above the market. You're quite right. They are around 20 per cent less. If you're taking working time, they're about 10 per cent less, but that's your point about the paid rates in many, many locations, not in every location that Ross has alluded to. We're getting 30 applicants for every job that we advertise. We'll keep a very, very close eye on what we're offering. It needs to attract talent into Royal Mail and the right talent into Royal Mail, but it's enabled us to protect. There's another 130,000 employees in Royal Mail that have the contracts I've had for a very long time. Making this change enables us to protect the contracts that we offer to 130,000 people that, as I said, have served Royal Mail loily for a long period of time. You're not seeing any changes in retention. You're not seeing any changes in turnover at the moment. It's not for the new stats at all. We haven't seen, in Scotland specifically, just to support that. I haven't, to be honest, looked at the detail UK-wide, but we aren't seeing, within our new entrants, that are under the teasing seas that Ricky's articulated. We don't see a particular spike in attrition that's beyond what we would normally see. The job is a unique job. It's a very physical job, and it's a job that a lot of people love and stay for years, and people find difficult. Sometimes, I think that the perception of what being a post-it is and the reality is. We've touched on that in the committee already in terms of the weather that you're exposed to and the challenge of the role. It can be really rewarding, but some people find it quite difficult. We have always had evidence of that, whereby people have joined and left. We're not seeing a particular spike in that with the new terms and conditions that's abnormal to what we would normally see. The point that you're making is correct. We need to watch very, very closely at all times what we're putting into the market. If we see attrition growing, or in certain areas, it's not competitive enough, we're going to have to make a response so that we can attract the talent that we need into the company. However, what we're trying to do is keep Royal Mail as an employer that offers good-quality jobs, permanent contracts, pension, sick pay, in terms of all the things that our employees enjoy. Those are not gig economy jobs. They're different. You're right to the jobs that have been there previously, but it enables us to compete in a market. Let's be honest. It's surrounded by gig economy players. We don't want to look like that, but we have had to make that change. I want to go back to the topic of five-day working that we were speaking about earlier. Can you just say what impact moving to five-day working would have on collections? We would continue to offer a level of collection service on Saturday. That would be done on the basis of demand. We would not go to every single post box, for example. If I give you an example, at the moment Royal Mail collects somewhere in the region of 85,000 or 115,000 post boxes when the post is out-delivering. Therefore, we would not be out-delivering on Saturday. We would not be out collecting from all those post boxes. It just doesn't make economic sense. Where we have post offices that are generating a lot of volume, we would look to continue to offer collection services from there, from business customers, and where there is demand for a service that we would continue to meet. Basically, you collect from most post boxes around about tea time five, six o'clock. If somebody posts a letter on a Friday night in response to something that they have received when they get home from their work on a Friday, you are not going to be picking that letter up until Monday tea time. That is 72 hours that is going to be lining in a box. Is that not just going to further undermine people's belief in the postal service that they are having to wait 72 hours for the letter to be collected and then end up to two or three days for it to be delivered to the recipient? At the moment, we will collect those post boxes when the post is out-delivering. On Saturday, they will not be out doing that. They will be collecting that on a Friday for delivery, if it is a next-day item for delivery on Monday. If I come home from work on a Friday, I get in the house at six o'clock, there is a letter that you respond to, I stick it in the post box at seven o'clock on a Friday night, that is not going to get picked up until Monday tea time. Yeah, and delivered on the Tuesday. That is correct. I think that it is a fair question. We would need to work through this level of detail, because it is, in some ways, hypothetical, but we have got a recognised approach to prioritise boxes anyway that would work through the pandemic, if we reflect on it, because we were able to say through the protest kits that we had our priority boxes so that we could signpost members of the public to specific boxes that would be emptied. I think that it is that type of approach that we would need to take if we didn't collect from every box that we had, if you want to look at it that way, priority boxes. We have talked about the impact on the letter post. What about parcels? Is there any plans? I know that we are talking hypothetically here, but you have said that you believe that change is needed. What about parcel collections? What would be the situation with that? Would that still be a six-day collection or what? It depends where the parcels are. If it is a small jiffy bag parcel that is going into one of those pillar boxes with stamps on it, then clearly it would not, unless it is a dedicated collection box. I am talking about the items that we collect on delivery. There are still options through post office. Royal Mail launched one of the things that we are proud to have done over the last year, consumer collect. When the post is now out in delivery, we collect on the doorstep. We will still be out on Saturday delivering parcels, to be clear. We will still have around 20,000 people out on Saturday delivering parcels. The demand is for not a six-day but a 70-day parcel network. That is what retailers are demanding of Royal Mail. Therefore, their ability to do collection on the doorstep is an opportunity that we would look to exploit as well. We offer business collections as well as part of a service that we have today. What about convenience stores that might act as a collecting point for returns from shopping catalogs and things like that? Will they still get the Saturday collection? We tend to use post office for that. If there is an item that is due to be either our own customer service points or post office, that is the outlets that we have available. Earlier this year, we launched something called auto re-delivery. Rather than when we cannot deliver a parcel, we put a red card through the door, saying that we need to go and collect it. We now give a second attempt. We are now up to the very high 90, 98, 98.5 per cent delivered to the household. That is the customer's greatest preference. That is where they want the parcel delivered. However, if they need to collect it, they can have the item left in a safe place, or they can collect it after that second attempt at the sorting office or redirect it to a post office. We are trying to find the most convenient way for customers to receive their items. I have to say that all the research says that the most convenient way is the one that is delivered to their home, which is why we have done that auto re-deliverate second attempt. I just want to follow up a bit on what Gordon MacDonald was asking about the letter delivery. If you get your way and you can go down to five days delivery, that is clearly a poorer service than we currently have. Gordon outlined a scenario where a letter could take several days to arrive. In those circumstances, is there any point in continuing with first and second-class stamps? We should just go to a service where everybody gets the same. There is no point in putting a letter in with first-class stamping on a Friday, when it will not arrive on Saturday. We have not put that forward as our primary proposal. You are quite right, you have articulated what we have proposed, 60 letters down to five-day letters. I would not be surprised if off-com is part of the on-going review of sustaining the universal service. Do not look at that. Many others spent some time last week with 15 or 16 other postal administrations. Several of those administrations have moved to a single-tier service. I do not really want to comment on it much more, because I do not have enough data or detail on the pros and cons of that, but I do think that it is something that we will inevitably end up looking at if there is going to be a reform of the universal service. That is fair enough. It is just something that occurred to me if we move to that situation. What is the level of agency staff that you use as opposed to fully employed by Royal Mail? It varies depending on the time of year and the demand in the network. If I put aside the industrial action, because Royal Mail is obliged by off-com to have a contingency plan in the event of industrial action to do our best, so we would have had 10,000 plus maybe more agency casual workers in the operation trying to expedite the speed at which we recover. Over our peak season at Christmas, as much as we give a lot of overtime to our postmen and postwomen, there is only so much that they can do. We would add at that time of year around 15,000 seasonal workers at that time of year to our network. Underline, as I said, 98 per cent of the jobs that we offer are permanent contracts. Part of the agreement with the CWU is to significantly reduce the level of agency workers that we are using in the network. I can follow up and write, but I do not have the exact number of what is in the network today. It will probably be in the low kind of thousands. It is not to say that they are full-time. I will give you a specific example. We have expanded our Sunday service. We are now delivering for a number of customers on a Sunday service. It is not very popular with our own team. Postmen and postwomen do not really want to be out there on a Sunday service. That is why the new contracts that we have got, if somebody applies for a job and stipulates, they need to work on a Sunday service. At the moment, we are using around 1,000—it is not a precise number—agency people who are working on a Sunday service to make sure that we can provide that network. That is not our preference. We want uniformed red vans out-delivering for Royal Mail. Back to what I said earlier, it is what differentiates Royal Mail. We actively review that unit by unit in Scotland every week and say what was our agency usage last week in that location. What were the reasons for why we have used that flex resource and is the opportunity to turn that into a permanent job? We see quite a lot of agency staff converting to become Royal Mail employees. We actively encourage that. We have people who have worked for us, who have enjoyed it, who have clearly had the ability to do the job and the desire to do the job, and they can convert on to Royal Mail jobs. We want to keep that usage level as low as we can. It really is for the points that Ricky articulated. We review weekly site by site. Can they be converted to permanent jobs? Okay. Are you looking at the use of drones to deliver it? We have done some initial trials in the islands of Scotland, and I think that we have done that as well. At the moment, there are trials in terms of scaling, but what we do know is that reliability is more reliable than in climate weather. At the moment, all the legislation that is required to fly drones out of sight and remotely is not in place. That is something that we have been lobbying and trying to make progress with, so that we can think about is this truly a scalable solution that allows us to develop a use case that is scalable and that we can use as an alternative to an aircraft, other forms of transport or emergency items, medical items and things like that, and open up a new market. However, it is exploratory and it is trials. How has it gone in your view as a goer? I think that it is too early to say for sure, but I think that we would need the entry point and the price point to come down a bit in terms of the level of investment required to operate. We do need to change civil aviation authority in terms of the ability to fly drones over the distances that we are talking about. What we have done so far is controlled trials. Does broader legislation change require if it is to be a scalable solution? However, it is definitely worth exploring some of the remote islands. It would be more reliable. The payloads are increasingly getting larger in terms of what drones can carry. You are right. Ricky's point is valid. There are around 150 populated islands in Scotland that we are talking about. It is significant when we say that some of them are extremely remote with small populations that lends itself to that type of method of convenience, if we could make it work. Sure. We will watch that space. I want to ask about your delivery officers. You have said that you have four main sorting centres, and then they would go out to local officers. I visited my local one recently in East Kilbride and went round with a postman. That was all very good. You have the four main sites, and then stuff goes out to local sites. How many of those local delivery officers do you have? Are you looking to… A lot of them would be quite old buildings, maybe not suitable. Are you looking to modernise and close down offices, move offices? There are around 170 local delivery sites. We also have an SPDO network in Scotland for the most remote communities, whereby we operate in conjunction with, potentially, postmasters that run small post offices. We rent a small space in addition to that, but we operate with around about 170 delivery offices. There is not a huge plan to amalgamate them. We do constantly review the estate. We have put investment in the written submission with some details to the committee, but we have invested in some of those sites as best as we can, given the financial challenges that the organisation has faced. I visited Dunbar a couple of weeks ago. We have taken an external building and transformed it into a parcel site, which is going to be good. It helps us to move forward in line with the strategic direction. We are reviewing the estate. We recognise that huge parts of the estate are old and require some level of modernisation. We try to do that as best as we can. However, you have not got a number of offices that you need to maybe close and open. No, we do not work. We will constantly review opportunities to make our network slicker, but we do not have a mass plan in Scotland to reduce the estate significantly below the 170. I have a couple of questions. In 2019, £1.5 million was to do with first-class post-delivery failures. That is part of the off-com investigation at the moment and is to do with performance. You did recognise at the start disappointment in the current performance. When would you see us returning to pre-pandemic performance in terms of the universal service obligation? The off-com inquiry is on go and I think that there hasn't been a decision made yet whether a fine would be applied this time. When would you see pre-pandemic performance return then? We are working very hard to restore service across the whole of the network. We meet off-com on a regular basis, a monthly basis to update on progress. I am not going to commit to a timescale to say that we will be back on the quality service target by a specific timescale. It is something that we are discussing with off-com. We recognise that we, for the reasons that I have outlined, have not been at our best for customers. I have also said that, for Royal Mail to win in the market, we need to get back to being our best. There are many imperatives to improve service, but we will be back on the quality service target by a specific timescale. It is something that we are discussing on a frequent basis with off-com. Consumer Scotland is doing a short investigation into Royal Mail. We had them in front of us a few weeks ago. They are a new organisation within Scotland and understand that they are looking at Royal Mail service from a consumer's point of view. I am not sure when that is going to conclude with the shared information with us, but I think that it is on the public domain around post codes that are performing below the UK average. Some of the areas that we have talked about today, but other ones are just matching. That is serious that I represent. I have got some of the post codes that are below the UK average, but would those be within Scotland? Is that covered by some of the issues that have already been discovered around remoteness and difficulties with reaching areas? Or are there other factors why we are seeing particular post codes? The ones that are below are DD, FK, IV, KAP, APH, KY and ML are on average. We do have ones that are above average, but they are still not hitting the target that is set. No, I think that that is fair. As Ricky has highlighted, we recognise that we have not been at our best. In Scotland, the nature of the geography of Scotland is quite unique in the context of the UK. We cover 33 per cent of the UK land mass, and with that, the post codes that you have articulated, some of them are exposed to some extreme geographies. We have talked about some of the North of Scotland post codes. The PA post code covers the islands, as well as urban conurbations such as Paisley. It covers the inner hebrides. The PH post code, as we talked about, ranges from Perth in the south to Avie, Moog, Granton and Spain in the north to Fort William in the west. Actually, there are islands off the west coast of Scotland at our PH post codes, as well. There are some logistical issues. I think that there are other factors in some of those post codes. It would be a fair challenge to say that the DD post code is not particularly geographically remote. In the context of our local network, that is service from Edinburgh. There is a decent transit time from Edinburgh, so any mail for Dundee goes through Edinburgh. There are some logistics there, but what we see in that example is a particular location whereby we have higher than normal levels of absences that we see in other parts of Scotland. We see sick absences in Scotland run about 5 per cent in some locations, so it can be higher for a variety of reasons that we work hard to understand. There are different factors in different post codes, and I think that the nature of Scotland and the geography of Scotland lends itself to some additional logistical challenges on top of the challenges that we see at UK-wide. I think that when we look at quality service in terms of where it is in Scotland, it is not where we want it to be, but it is consistent with what we see in the UK. Can I just ask, if no one else has any other questions, about the price of a stamp? It is the Royal Mail that sets the price of the first-class stamp. The second-class stamp is still capped by Ofcom. At the moment, it is £1.10 for a standard first-class letter, and it is £75 for a second class, so it is 35 per cent dearer. That is almost a third dearer. Do you have any—it does seem that the price of stamps has increased quite dramatically. You have seen a reduction in letters. Do you take that into consideration? It might be one of the factors of why we have seen a reduction in letters, particularly at Christmas or at areas where people are looking at a high volume of stamps. At £1.10, there is a question of whether that is still affordable. We recognise that, in the UK, we have a very valued service, that we have a universal obligation that other countries do not have. We recognise that you reach every point of the UK, and that is really important and valued by people. However, we have seen quite a big increase in the cost of a service that people took as an everyday service. The concern would be that it has now become a special service that they only use on special occasions and that they would not be prepared to pay that for the postal service. What consideration is given to the increases in the first-class stamp when you are making those decisions, when they are all making the decisions? There are a number of factors, convener, that we look at. The first is the letter volume decline because, as the letter volume is declining, we are still having to provide the 60-year universal service. Therefore, there is a cost associated with that. Is that part of that? It is not. It is very anecdotal, but you have older relatives who think, I am not going to send a card anymore because it is £1.10 and I am going to send an email. I know that £1.10 is a third of the price of a coffee, but it is simply the perception that people have, so it is encouraging to shift to something else. It is the pace of increase that is making people feel that the increase is not something that they are prepared to pay, it is maybe the pace rather than the amount that is putting people off-sending. It is kind of discouraging that I am sending them. They do have the option of posting the item a second-class 75-pen, so there is quite a big differential. It is disgusting that, if it is a special card, you could wait five days. It is recognised that it is slower. I know that three days is the target, but it does feel that a second-class stamp now is quite a bit slower than a first. If you look at the volume that is declining in the network, we are trying to sustain the universal service. Raw mail is not immune to all the inflationary pressures. It is a large network distribution organisation and some of those inflationary pressures need to be reflected in what will be charged for the services that we provide. If we use some of the European benchmarks, the average across Europe is £1.25 for a next-day service. Many of the Europeans charge £2 for a next-day standard USO type letter service. We represent good value for money when you benchmark it across the rest of Europe. If you look at the office of national statistics data, household spending on postage is 0.2 per cent of household spending in total. People typically spend less than £0.90 a week on postage. However, we have to find the balance. The point that you are making, the more expensive we make it, the people stop using it. That is the balance that we have to always try to find. You are quite right that Offcom looks at the second-class. In fact, they look at both in terms of being an affordable mail service. Anytime we change the prices, we do that in conversation with Offcom as well. The one thing that we say is not that raw mail is charging £1.10 and making £1 billion of profits on the back of it, but we are not. We are trying to survive at the moment and get the company back into profitability so that we can invest in securing our security in the future. If there are no other questions from members, that brings us to the end of this morning's session. Thank you both for the evidence that we have heard. That has been helpful to the committee. I will now move into private session.