ROYAL MAIL PRIVATISATION

In a world that is fundamentally different to that of the 1980s, the announcement by the Government this week that it will proceed with a £3 billion sale of Royal Mail, is the right way forward for the business if it is to survive. Margaret Thatcher baulked at the prospect and was, famously, a privatisation too far. Mrs Thatcher remarked in the Eighties that she was ‘not prepared to have the Queen’s head privatised’. Later, Michael Heseltine, and more recently, Peter Mandelson, had their privatisation plans for Royal Mail scuppered by dissenting MPs in the House of Commons.

Vince Cable, the Business Secretary, however, notified the Stock Exchange this week of the Government’s intention to float the company, which will probably take place in November. The announcement represents a further expression of economic confidence as the economy slowly recovers from a deep and difficult 5-year recession. The privatisations of British Gas and British Airways, some three decades ago, coincided with a rising tide of opportunism. The parallels are noticeable as that is beginning to be felt once more.

The sale of Royal Mail affords something similar, too, to those earlier flotations: the spread of share ownership. More than 15,000 employees are to receive 10 per cent of the shares, with the rest being offered to institutional investors and ordinary members of the public.

While not without risks, the Government’s plan does have much to recommend it. Royal Mail has suffered from both chronic under-investment and deep-rooted inflexibility as the world around it has radically changed. Royal Mail is heavily unionised and has lumbered on, but the effect has been missed opportunities on a vast scale as rivals have been able to compete on the more lucrative parcel-delivery markets, even as the digital revolution and e-mail decimated traditional letter deliveries.

Moya Green, who took over in 2010, has brought Royal Mail back into the black, which was largely helped by the Government’s takeover of its £5 billion pension deficit. Following the flotation and barring unforeseen disasters, the first dividends, totalling £133 million, will be paid in July.

Despite the Government’s plan and opportunity, the Communication Workers Union has responded in time-honoured fashion by threatening to strike. How it envisages industrial action will help its members or Royal Mail is not wholly clear. The CWU will be holding a strike ballot early next month to protest against potential changes in pay and conditions.

Some of the union’s wider concerns will be shared by many, such as the protection of minimal universal services, guaranteeing a six days-a-week service at a uniform and affordable tariff. This has after all been the hallmark of Royal Mail since its inception and is much prized. But the legislation underpinning the privatisation, which passed through Parliament two years ago, protects the universal service and will remain enshrined in law. That guarantee has been reaffirmed by the Government following its announcement to privatise.

The digital and communication revolution has hit Royal Mail hard, with a fall of 10 million in the volume of letters sent daily. That decline has been arrested to some extent because of the huge increase in goods that are ordered online and need to be delivered.

The benefits of privatisation should not be underplayed. A fleeter-footed business, no longer restricted by government investment rules and with access to private capital, will be better placed to undertake the sweeping modernisation and rationalisation the organisation still needs to go through if it is to compete and vie for business successfully. Upon being privatised, Royal Mail would then not have to compete for scarce government funding which it currently does against other government departments and budgets, such as schools, hospitals, and the police.

But there are risks. The most immediate is that the shares are sold too cheaply, repeating the mistakes of previous flotations and leaving taxpayers cheated and resentful. Over the longer term, the challenge will be a regulatory one. Though it is almost certain that the Royal Mail will continue to be bound by the universal service obligation mandating a six-day nationwide postal delivery – bar senior management tinkering with a system that could loosen some of those ties – what is unclear is how such a costly service will be funded in the future. There may be hope that booming business elsewhere, such as through online shopping, will enable cross-subsidy funding. Critics have warned of unaffordable hikes in stamp prices or even state bailouts.

Mrs Thatcher’s unwillingness to sell off Royal Mail was not only a sentimental attachment to tradition, but sprang from a hard-headed assessment of the political pitfalls of tampering with a venerable national institution. While such hazards remain, a flotation of the Royal Mail is the right decision for the Treasury, and arguably the right decision for the organisation.

In predictable style, Labour has denounced the sale – yet, it was the last government that ended the Royal Mail monopoly and opened up the postal market to competition, thereby making the eventual privatisation inevitable.

Royal Mail can be categorised as one of the foundation stones of the modern British state, one that can trace its origins to 1516, when Henry VIII established the office of Master of the Posts. For it to remain an important part of the national story, it now needs to be a commercially viable venture that is ready and willing to compete in a market with far different demands and pressures.