Ofcom has today fined Royal Mail £5.6m for failing to meet its First and Second Class delivery targets in the 2022/23 financial year.
Under Ofcom’s rules, each year Royal Mail is required to deliver 93% of First Class mail within one working day and 98.5% of Second Class mail within three working days, and complete 99.9% of delivery routes for each day on which a delivery is required.
In 2022/23, Royal Mail’s reported performance results showed that it had only delivered 73.7% of First Class mail on time and 90.7% of Second Class mail on time, and completed 89.35% of delivery routes for each day on which a delivery was required.
Ofcom can consider evidence submitted by Royal Mail of any exceptional circumstances that may have explained why it missed its targets. Even after adjusting Royal Mail’s performance for the impact of industrial action, extreme weather and the Stansted runway closure, its First and Second Class performance was still only 82% and 95.5% respectively.
This means that Royal Mail breached its obligations by failing to meet its targets by a significant and unexplained margin. This caused considerable harm to customers, and Royal Mail took insufficient steps to try and prevent this failure.
So we have decided to impose a fine of £5,600,000 on Royal Mail. The penalty includes a 30% reduction from the penalty we would otherwise have imposed, which reflects Royal Mail’s admissions of liability and its agreement to settle the case. The financial penalty is payable to HM Treasury within two months.
A non-confidential version of our decision will be published in due course.
Final decision - 13 November 2023
Following our investigation Ofcom has today issued Royal Mail with a Decision. Ofcom found that Royal Mail contravened DUSP condition 1.9.1 by failing to meet the national first class, second class and delivery routes completed targets during 2022/23. The Decision also sets out our decision to impose a financial penalty on Royal Mail for its failure to meet the first class and second class national performance targets.
Ofcom has discretion to adjust Royal Mail’s performance to take into account the impact of events which Ofcom considers to be exceptional and which affected its performance. After adjusting Royal Mail’s performance to take into account the impact of industrial action, the Stansted runway closure and the extreme heat in July, Royal Mail still failed to meet the above targets by a significant and unexplained margin.
With adjustment:
Royal Mail’s maximum first class national performance was 82% (falling below the 93.0% target);
Royal Mail’s maximum second class national performance was 95.5% (falling below the 98.5% target); and
Royal Mail’s maximum delivery routes completed daily target was 89.35% (falling below the 99.90% target).
Ofcom takes compliance with performance targets very seriously and has imposed a financial penalty of £5.6 million on Royal Mail. We consider that this penalty, which was set in line with our Penalty Guidelines, is appropriate and proportionate to the seriousness of the contravention. It is also important to incentivise Royal Mail to improve its QoS performance in order to provide customers with the service they have paid for and that they can rely on.
This penalty includes a 30% discount from the penalty Ofcom would otherwise have imposed. The discount reflects Royal Mail’s admissions of liability and its agreement to settle which has allowed Ofcom to bring this matter to a close more swiftly.
In addition to the contravention finding, we have noted a particular concern about the operation of delivery offices, which we view as fundamental to Royal Mail meeting its QoS obligations. Issues include the need to return delivery offices to pre-Covid practices, with mail being cleared each day, and providing appropriate training and support for delivery office managers who play a key role in decision-making in local offices. We are particularly concerned about these issues in light of the high absence and vacancies in 2022/23 which meant it may have often been necessary to make “on the day” decisions about what to deliver, in circumstances where Royal Mail appears to have insufficient control, visibility and oversight over this local decision-making.
