The Government has decided it will take the gamble of trying to privatise Royal Mail. This is despite the fact that every opinion poll for the past 20 years has registered a large majority against this step.
Even among its own voters, the coalition is going against the grain of opinion. In a YouGov poll on October 1, 36 per cent of Tories supported privatisation while 42 per cent opposed it. Twenty-seven per cent of Liberal Democrat voters supported it, while 56 per cent opposed it.
This poll also showed that 34 per cent of Tories thought the service would get better in private hands, compared to 37 per cent who thought it would get worse. Twenty-nine per cent of Lib Dems thought it would get better, compared to 50 per cent who thought it would get worse.
Even more incredible, 67 per cent of Tories thought postal prices would rise as a result, while only 6 per cent thought they would decrease. Seventy-six per cent of Lib Dems thought prices would rise, while 11 per cent thought they would decrease.
If among its own supporters there is the view that privatisation will worsen services and increase prices, then what is the Government’s rationale for privatisation?
Business Secretary Vince Cable has said that only through privatisation will Royal Mail be able to compete. Yet this is not demonstrated either on an international or national level. Internationally, Royal Mail has weathered the recession better than its main privatised rivals, TNT and Deutsche Post.
In 2008-09, Royal Mail’s profit rose to £321 million. In 2009-10, they rose again by 26 per cent to £404 million. In comparison, in 2009, TNT’s profit margin fell by 3.7 per cent and its profits were down by 25.4 per cent. Deutsche Post saw reductions of 5 per cent in its profit margins and 36.5 per cent in its profits.
Both of these companies experienced far smaller decreases in mail volumes and shorter recessions in their home markets than is the case in this country. In addition, Royal Mail delivers letters at approximately half the stamp price of these two firms.
On the national level, the postal market has been completely liberalised – any firm can enter. Yet Royal Mail continues to deliver more than 99 per cent of previously reserved mail. Its efficiencies of scale and scope simply cannot be matched.
The area where competition has made inroads is in the so-called “access” work. This is where bulk mail from businesses is driven to Royal Mail sorting offices for final delivery by Royal Mail.
The postal regulator has imposed constraints on Royal Mail pricing, which mean that this discreet market has been rigged for competitors. Royal Mail has not won a contested contract for this work. Indeed, for delivering this work, Royal Mail is losing 2p per item, amounting to a £100 million subsidy for the competitors. This rigging is so bad that even the coalition has accepted that something must be done. But this confirms that it is regulation that is the problem, not that Royal Mail is unable to compete.
Postal services minister Ed Davey has suggested that privatisation is the only way that Royal Mail can obtain investment capital. This is despite the fact that, as he well knows, the current three-year modernisation programme is fully funded. However, even if we overlook the minister’s oversight and look to future funding three years hence, it is clear that there are other options for Royal Mail investment.
To start with, Royal Mail is profitable and thus could be retained in the public sector for future investment. Second, if competition were to be equalised, Royal Mail would have an additional £100 million a year in income. Third, the Government has accepted that it must take its responsibility for the pension deficit, as previous governments failed to contribute to the pension fund for 13 years. This will reduce Royal Mail’s pension expenditure by a further £280 million a year.
Of course, additional investment can come through loans, like any normal company. If it is unfashionable to apply “best value” by the use of Government loans, then Royal Mail could still borrow from the private markets without having to be privatised.
But the truth is that Royal Mail is up for privatisation because that’s the political prejudice of the Tories and their Lib Dem satellites. Vince Cable denounced the City spivs at the Lib Dem conference – and now offers them Royal Mail in Parliament.
The Postal Services Bill has been drafted in such a way as to attempt to assuage concerns among coalition supporters. It reasserts the universal service of six-day deliveries, affordable and uniform tariffs for stamps. In one sense, this is an immediate concession to the anti-privatisation campaign, as we know from a leaked letter from the Business Secretary to Chancellor George Osborne that the six-day delivery was under threat.
But the bill also reflects the fact that a privatised Royal Mail will want to reduce the universal service obligation (USO). The bill authorises the regulator, Ofcom, to review the USO. More disturbing again is the fact that, for the first time in legislative proposals, there is the prospect of more than a single provider and for partial provision of service by a provider.
Obviously the Government knows that competitors would be anxious to take on the USO if it only covered restricted, urban and profitable areas. The bill’s proposal would create a huge downward pressure on the USO service standard and threaten its very coherence.
Of equal concern is the proposal to separate Royal Mail from Post Office Limited (POL) – the counter network. The Government is playing this up as a progressive move, insisting that it would keep POL in the public sector. Indeed, it is preparing to turn POL into a “mutual”, thereby suggesting this demonstrates the Government’s radical spirit.
None of this covers up the fact that that POL is facing imminent decline outside of Royal Mail. The simple fact is that a privatised Royal Mail will have no obligation, beyond the existing contract, to use POL. Any retail network would do, in which case we can expect a mass of closures among local post office branches. Such an analysis is regarded as alarmist by the coalition, but the facts are eloquent. In 2009-10, POL received £343 million in revenue directly from Royal Mail. It has become increasingly reliant on Royal Mail as Government business has declined.
In 2003-04, revenue from Royal Mail was 27.5 per cent of POL’s income. By 2009-10, this had risen to 35 per cent. In the same period, revenue from Government services fell from 43.1 per cent to 24 per cent.
It must also be remembered that POL is already dependent upon the Government for a direct subsidy to maintain its network of post offices. This is currently running at £150 million a year and will rise to £180 million from 2011-12. After the subsidy, POL still had a total recognised loss of £130 million in 2010.
There is also a long-running dispute between POL and Royal Mail management concerning the correct pricing of services used. Royal Mail management is of the view that it overpays POL, while POL management believe it is underpaid. On central services provided to POL by Royal Mail there is an assumption of around £150 million subsidy to POL.
The dynamic of separation is then clear. POL will be dramatically weakened. Talk about innovative staff involvement in a mutual, is then just whistling at a hurricane.
For these, and many other reasons, the Communication Workers Union is committed to a campaign against the bill. We know that the Shadow Cabinet and the Parliamentary Labour Party will oppose it. But the support is much broader. Recently, the Women’s Institute pledged its support for the campaign to “Keep the Post Public”.
It is vital that everyone who values the public postal service lends their support to the campaign. With the second reading of the bill on October 27, the CWU will be organising a parliamentary lobby. We call on all Tribune readers to contact their local CWU branch whose address can be downloaded from the CWU website. This will be a tough fight – but it is one we can win.
Billy Hayes is general secretary of the Communication Workers Union
