Thursday, May 20, 2010

Privatising Royal Mail

As one of the people responsible for the Lib Dems' policy on Royal Mail, I am pleased to see that Vince Cable as Business Secretary is, according to the Guardian, set to take this policy forward. Labour attempted a partial privatisation of Royal Mail last year but withdrew the plans. In effect, the Labour proposal would have meant the worst of both worlds - stuck mainly in the public sector without the benefits that can be gained by being in the private sector. Furthermore, their proposals did not separate the Post Office from the Royal Mail.

The Lib Dem policy agreed in March 2006 (I wrote the paper on it with Norman Lamb as I was still working in the Policy Unit at the time) allowed for the sale of half the shares to the private sector, a quarter to remain in government hands and a quarter to be put in trust for the benefit of the workers. The business would be run along the John Lewis Partnership model. As the business would be in the private sector, with the government as a minority shareholder, the company would have access to private investment currently denied it by its status as a publicly owned company (no publicly owned company can borrow without the approval of the government who has to guarantee the loan). A private sector company can borrow and use its assets and future cash flow to guarantee the loan.

Royal Mail has been starved of the major investment it needs to fend off competition from other private sector mail providers which are gaining market share because Royal Mail often lacks the modern machinery to compete effectively. Royal Mail needs to be put on a similar footing as the other private sector providers of mail services. A privatised Royal Mail would be able to go to the private sector and raise the money for investment that the government has denied it.

Regulation will still be needed to ensure the Universal Service Delivery continues. Action will be needed to ensure the pension deficit is reduced. And the Post Office network needs to be removed from Royal Mail, thus freeing the network to deal with other parcel and mail providers and to move into new areas of business, therefore generating new forms of income for Post Offices.

Assuming Vince puts into operation something close to the plans passed 4 years ago, we will have a model of mutuality, worker involvement and profit sharing that we could apply to other areas, such as the banks, once they have recovered, been restructured and returned to the private and mutual sector. Exciting times ahead.

8 comments:

Left Lib said...

Jonathan, it was interesting to read what the policy is. I have some questions I would like to ask you about this;
1/ British stamps are very cheap. How much do you think they will go up by under this system?
2/ What safeguards are there to stop post office closures?
3/ With a JL pattern of ownership, maybe there won't be many job cuts or weakening of employment terms and conditions. In which case where would this new organisation make it's profit from?
4/ Current economic conditions are not good. What if this private investment is not available? What if the post office continues to make a loss? Will it be allowed to fail, or can it rely on the government to bail it out?

postie said...

The reason royal mail is in a bad way is because our monopoly was taken away and our business is being cherry picked by rival companies who are only interested in making money !

Our monopoly should be restored to get the service back to the better service that it used to be instead of getting your letters in the afternoon.

Once these advanced sorting machines are gradually installed over the next few years you will be getting your mail up to 3pm in the afternoons as these machines will cost us thousands of jobs UK wide !

People can sometimes be quick to condemn us for the poorer service but the blame lies 100% with the british government and the EU for taking away our monopoly.

They have no interest in the british public and they have sold us out to foreign companies.

How can we keep going to every home and business in the UK in the future if the greedy cherry picking continues ?

It costs an absolute fortune to deliver the service and i am very proud to do it but the universal service is in real jeopardy in the future.

It is our jobs and livelihoods and your service that is on the line but the british government do not give a damn about us or you, the public...

Jonathan Wallace said...

Hello Left Lib

The answers are:

1)In the same way we cannot foresee the price of stamps under the current system of ownership, we can't put a price on what a stamp is likely to cost in a few years' time if the ownership were to change. However, the system is subject to regulation. The price of postage is covered by the regulation. One thing we have said however is that there should be a more direct contribution by mail providers to Royal Mail to cover the cost of the universal service obligation. This should not be something that the other mail firms should be able to get out of paying for. Such a contribution would help to keep down the costs of postage.

2)None, just as there are none at the moment. 95% of post offices are private businesses now and if a postmaster/mistress decides to close the business and no one else is willing to take it on, the branch is therefore lost. What is needed however is more business coming the way of post offices. Freeing the Post Office network from only working with Royal Mail will allow post oofice branches for example to act as local depots for parcels and post that can't be delivered to a recipient. The aim is about opening up new business and increasing the cashflow and footfall of post offices so they are viable as businesses.

3)Automation is likely to lead to fewer jobs but the JL ownership model does not mean that the business will not make the difficult decisions on staff levels. JL itself as announced some job losses in the past two years. The idea of staff involvement in running the company does not necessarily mean no deicison will be taken to keep on every staff member come what may. Natural wastage and a recruitment freeze would see a significant reduction. As for where the profits will come from, it is in the area of wholesale mail sorting, a role which is almost entirely automated by Royal Mail's competitors. It is this business the RM has been losing in recent years.

4)Current conditions are not good but economic life still goes on. Capital is constantly being invested in businesses, even in time of recession. The fact Royal Mail announced £400 million profits today will help to attract new capital. Will it be allowed to fail? Perhaps the question should be, will the universal service obligation be allowed to fail? The answer to that is no. Under the regulatory powers, the government would need to be able to take back control of the USO and give it to another operator. There are a number of mail providers in the UK market and they will be treated in the same way.

Jonathan Wallace said...

Hello Postie

Whilst I can understand and appreciate your argument that the loss of the monopoly has not helped Royal Mail's position, the fact is that the monopoly has now gone. The mail market has been liberalised and opened up to competition. The move was taken at the European level - all mail markets are being liberalised across Europe - though the then Labour government decided to bring forward the date at which liberalisation was to take place in the UK (it happened in 2006).

Reimposing the monopoly now would mean renegotiating with the European Commission. It would also mean closing down the businesses involved in the UK mail delivery market. That means throwing large numbers of people working for those firms out of a job. It would also require compensation, running to hundreds of millions of pounds, to those companies whose equipment would become idle as they would suddenly find themselves kicked out of the market through no fault of their own. Frankly, I'd prefer to spend the money on something more worthwhile.

It's just not possible to turn the clock back in the way your suggest.

Steve said...

Royal Mail have just posted over 400 million profit. We are about to head into a deeper recession in Europe because of the fallout from Greece and other nations. This Government would be lucky to receive a fair value for a company that is improving. What sense would it make to throw away a profitable business that is much loved by the nation for a small percentage of what it is really worth. This idea of Mr Cable seems to either smack of desperation as Cameron/Clegg try to find the 6 billion savings or that Europe is pulling the strings and another two puppets are about to dance to it's tune.
If you part privatise something then you have to think that these investors wnat something more than just the prestige of owning a piece of Royal Mail. They want a return for their money and they dont want burdened with a pension deificit. More part timers will come in as full timers leave. This will add to the benefits bill as the part timers will need help from the state. Prices will shoot up over the next 5 years to be in line with other European countries since Europe will want a level price across it's nations and we the poor suffering public will be ripped off yet again.
I thought Cameron/Clegg were going to allow more say in matters from the public? They should listen now!

Neale said...

Perhaps the question should be, will the universal service obligation be allowed to fail? The answer to that is no. Under the regulatory powers, the government would need to be able to take back control of the USO and give it to another operator.

This is a very interesting view.Of the other uk mail providers which one were you thinking would deliver to every uk address 6 days a week ?.

Neale said...

The mail market has been liberalised and opened up to competition. The move was taken at the European level - all mail markets are being liberalised across Europe - though the then Labour government decided to bring forward the date at which liberalisation was to take place in the UK (it happened in 2006).


The agreed eu dates have now past but it is my understanding that both the Dutch postal market (TNT) and the German postal market (DHL) still have not been fully opened up. In otherwords both the above mail providers can take huge chunks of Royal Mail business away but Royal Mail is unable to do the same.If the market is not opened up then i don't see the problem in having another look at the monopoly in the UK.

Neale said...

Royal Mail has been starved of the major investment it needs to fend off competition from other private sector mail providers which are gaining market share because Royal Mail often lacks the modern machinery to compete effectively.

Statement from Royal Mail 20/05/10

Three quarters of the £2 billion investment plan to transform Royal Mail’s operations has now been spent, including a further £500 million invested in the last 12 months in new technology and new equipment for our postmen and women, bringing the total to £1.6 billion invested in modernisation since 2006.

Royal Mail is on the final stages of it's modernisation program. The money for this was and is in place.

The pension fund is a problem because of the deficit however as Royal Mail took a 14 year pension holiday ( the average in the late 80's was 5 years ). The treasury was happy to take billions in tax and profit during this period, while at the same time staff continued with their own pension contributions. No money was invested during this period either.
The staff and union are quite right to insist that the government help to make up the difference.