Tuesday, December 16, 2008

Why part privatisation is right for Royal Mail

So the Hooper Report has been published. There are no great surprises. Royal Mail is in sharp decline. Doing nothing to address the problems would mean leaving Royal Mail to a lingering death.

When I was involved with writing the policy proposals on Royal Mail for the Lib Dems 3 years ago, the problems then were very much the same. Declining business, antiquated equipment, a hiuge pension fund deficit. Royal Mail, by no stretch of the imagination, can be said to have prospered in the state sector

In the good years, the company was milked for cash by its owners, the government, very little of which was ploughed back as capital investment. At the same time, the government as owners were not prepared to put in the capital that was needed to modernise the business. And as a fully state owned business, it simply could not go to the financial markets to raise capital. At the start of 2006, the mail market was fully liberalised. Competitors with access to capital moved in on the contracts to sort mail for big businesses. Royal Mail's manual sorting of mail is finding it difficult to compete with these largely mechanised mail sorting companies.

Putting Royal Mail into the private sector but with the state holding a significant shareholding means the company has access to the private capital currently not available to it. Such a move will create a level playing field, putting all competitors on the same footing.

I watched Labour MPs lining up today to attack the proposal for private sector involvement. Their claim is that events have moved in a different direction recently, with the state stepping in to save the private sector. Yet stop and think for a moment. The structure of most of the bailed out banks (admittedly not the fully nationalised ones) is not going to be that much different to what is likely to emerge for Royal Mail in which the the state has a substantial shareholding in a private sector business. If it's good enough for the banks, it's good enough for Royal Mail.

There is of course one significant difference between what is likely to emerge for RM and what we proposed three years ago. Our model had a significant role for employee shareownership and management. We took as our model the John Lewis Partnership, though we proposed a quarter of the shares be placed into a trust for emplyees, rather than all which is the case for John Lewis. The bailouts of banks and possibly of large businesses should however create the opportunity to introduce employee shareownership, once the financial and economic crisis has passed.

Royal Mail currently has the structure of a monolithic corporation designed to run a state monopoly. The world has moved on however and Royal Mail will die if it doesn't move on as well. Staying where it is will not be a stay of execution. A do nothing approach, advocated by many Labour MPs, will be a disaster.

Sent via BlackBerry


Ruth said...

Thanks for the sensible comments, in contrast to the hysterical "end of the world" rants common in the blogosphere on this topic.

I agree entirely, though I do wonder if the government is making this radical proposal in order to "encourage" the unions to act in a more rational manner. By the way, I hear there is not unanimous support among posties for the strike on Friday. Some think 2 years notice of a close of sorting office (to nice new, clean accommodation) is more than generous.

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