International Distribution Services : RMG Cebr Study 2023-24

Royal Mail Group Ltd. A Cebr report for Royal Mail.

ROYAL MAIL'S ECONOMIC

IMPACT ON THE UK

The contribution of Royal Mail to the UK economy: A study on the economic contribution of Royal Mail's business to the UK, for the financial year 2023-24 (May 2024).

Headline findings

The Centre for Economics and

Business Research (Cebr), commissioned by Royal Mail, has carried out an economic impact assessment of its UK business and its significant contribution to the UK economy, through its value-added contribution to Gross Domestic

Product (GDP), national employment and taxation.

Cebr's assessment found:

• A direct £6.00 billion contribution to total UK Gross Value Added (GVA) by Royal Mail, equating to a 0.24% share of UK GDP.
• An indirect £4.91 billion of GVA supported by Royal Mail in the wider economy through indirect and induced multiplier impacts.
• An aggregate (direct and indirect) GVA supported by Royal Mail of £10.91 billion, which equates to 0.45% of GVA of UK industry (Q2 2023-Q1 2024).
• A £1.87 billion exchequer contribution through employer
  and employee national insurance contributions (NICs), income taxes, business rates, the apprenticeship levy and a

range of indirect taxes paid directly and through Royal Mail's suppliers. This represents 0.18% of HMRC's aggregate 2023-24 tax revenue.

• A £2.93 billion spend on goods and services provided through Royal Mail's external supply chain. This includes inter- business intermediate spend (that is, when Royal Mail purchases the services from other parts of the Royal Mail business).
• Headcount statistics translate to 138,905 full time equivalent (FTE) employees. One in every 200 jobs in the UK economy is provided by Royal Mail.
• A further 62,573 FTE are jobs indirectly supported by Royal Mail in the wider economy.
• For every £1 of income from employment paid by Royal Mail, an additional £0.44 of income from employment is supported in the wider economy through indirect and induced multiplier impacts.

In the transportation and storage sector, Royal Mail's direct GVA contribution (£6bn) equates to 7.59% of the GVA contribution of the

sector. Royal Mail contributes 9.27% of jobs in the sector, or one in every 11 jobs.

On a regional level, Royal Mail's direct GVA contribution in England is £5.2 billion; Wales (£230 million); Scotland (£472 million); and Northern Ireland (£134 million).

From a position of 19th in the 2009

Department for Business, Innovation and Skills (BIS) GVA Scoreboard (which was based on the global operations of the top 50 UK- based companies), Royal Mail is in 8th position on Cebr's 'adapted GVA scoreboard' (a ranking of the top ten companies in the UK, based on the size of their UK operations only). In an economic context, the benefits deriving from Royal Mail are demonstrable.

Methodology and assumptions

For the study, Cebr used a combination of national statistic sources and data supplied by Royal Mail. Royal Mail provided the following information from the financial year 2023-24, for input into the study:

1. Taxes, less subsidies on products (on a gross and net basis).

Royal Mail's economic impact on the UK. A Cebr report for Royal Mail.

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1. Taxes, less subsidies on production: including business rates, employer NICs and the apprenticeship levy.
2. Taxes on income, including
   employee NICs, PAYE, corporation tax etc.
3. Compensation of employees, taking in basic salaries, bonuses and overtime.
4. Gross operating surplus, including profits before tax, and consumption of capital, as reflected in depreciation charges to the profit and loss account.
5. Intermediate consumption (via supply chain expenditure).
6. Employment: headcount and number of full-time equivalent employees.

To establish the size and economic impacts of Royal Mail, Cebr adopted the framework provided by the Office for National Statistics' supply- use tables. This is the most detailed official record of how the industries of the economy interact with other industries, with consumers and international markets in producing the nation's GDP and national income. Making use of the supply- use framework to analyse a company such as Royal Mail, which is a subset of an industry at the level of disaggregation provided by this framework, is one of the best means of ensuring consistency with the national accounting framework. The process of embedding a specific company (Royal Mail) within this framework involves assigning that company a role within the models.

Having assigned a role for Royal Mail within the supply-use

framework/model, we have the foundation for establishing:

• The economic contribution (or direct impact) of Royal Mail, using standard measures of
  GVA, employment and exchequer contributions. From this, percentage contribution to GDP can be calculated.
• The wider economic impact of Royal Mail on the UK economy, using Leontief input-output modelling to estimate a full set of (matrix) multipliers capturing direct, indirect and induced impacts of Royal Mail on output, GVA and employment.

We use the multipliers in conjunction with the direct impacts of Royal Mail, through the supply chain response (indirect impacts) and the boost to household incomes and expenditure in the wider

economy (induced impacts). Combined, the direct, indirect, and induced impacts show the net contribution made by Royal Mail to the UK economy.

GVA scoreboard

For eight years running, up until 2009, the Department for Business, Innovation & Skills (BIS) produced a scoreboard of the top 800 UK and 750 European companies by value added. This is the difference between a company's sales (turnover or gross output) and the cost of bought-in goods and services (intermediate consumption through the supply chain).

The original UK scoreboard included the global operations of UK- owned/listed and foreign-owned companies that report in the UK.

Royal Mail requested that Cebr establish an adapted version of this scoreboard that takes account of UK operations only. As Royal Mail's operations are UK-based, the adapted scoreboard is designed to provide a more appropriate basis for ranking its economic contribution to the UK, relative to other major companies.

The process of isolating the share of the value added from the global operations of these major companies, that could be attributed to UK operations, involves an individual review of each of their annual reports and consolidated financial statements. This produces a reasonable approximation for the share of their globally generated value added that can be attributed to their UK operations. These figures are not always updated annually: in the absence of available updated information, we have assumed that this share is consistent with the most recent year available.

Cebr has produced an adapted GVA scoreboard for 2023-24, showing the top ten companies by value added from UK operations. In this, Royal Mail ranks 8th in the UK.

National and regional impacts

The UK-level results from the input output modelling exercise provide the starting point for assessing national and regional impacts. We use location quotients to take account of the relative size of industries in regional economies and their ability to satisfy the demands placed on them by other industries (through supply chain relationships) and final demand - this consisting of

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householdconsumption, government expenditure (current and capital), capital investment by private business and exports.

These location quotients also take account of the fact that, at the regional level, the propensity (or need) to import tends to be higher because imports at this level include those from abroad as well as those from other parts of the UK. Location quotients involve adjusting UK-wide technical coefficients to take account of differing proportions of local demands being satisfied locally.

We currently apply 'Cross-Industry Location Quotients' (CILQs), which can be interpreted in the following way:

• CILQ < 1 - the supplying sector is relatively small compared to the purchasing sector at the regional level, so some of the required inputs need to be imported from elsewhere in the UK.
• CILQ > 1 -there is no need to adjust national coefficients as all the needs for the input can be met from within the region.

The result is a distinct Leontief inverse matrix for each of the regions under consideration, from which the regional-level multipliers can be derived. Again, these regional-level multipliers can be estimated for GVA and employment. The results represent what we call 'in-region' impacts.

These show the extent to which the indirect and induced impacts of UKPIL's operations in a particular region stay within that region or 'leak' into others.

Such leakages positively impact other regions and are approximately equal to any difference between the UK-level and the national/regional multiplier estimates. These leakages are not included in the estimates presented above because the data that would allow us to identify exactly where in the UK benefits from these is not available.

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Disclaimer

Whilst every effort has been made to ensure the accuracy of the material in this document, neither Cebr nor the report's authors will be liable for any loss or damages incurred through the use of the report.

Authorship and acknowledgements

This report has been produced by Cebr, an independent economics and business research consultancy established in 1992. The views expressed herein are those of the authors only and are based upon independent research by them. This study has been commissioned by Royal Mail Group Ltd and has utilised a combination of data provided by Royal Mail Group Ltd and those available in the public domain through Office for National Statistics, Nomis etc. The term 'Royal Mail' refers to the UK business which includes Royal Mail and Parcelforce. London, May 2024.

Royal Mail's economic impact on the UK. A Cebr report for Royal Mail.

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