Published: June 6th 2011 - at 8:55 am

Five myths about the Royal Mail sell-off planned this week


by Guest    

contribution by Lindsay Mackie

On 9 June the Postal Services Bill will have its Third Reading in the House of Commons. It will then become law. The Bill will make it possible to sell off Royal Mail, its business, its large and valuable sorting offices in all our towns and cities, to whichever buyers come forward and to whoever is cleared by European Commission competition rules.

The rush to privatise Royal Mail – shamefully begun by the last Government – is based on a set of facts which turn out to be opinions and misinformation.

The phrase ‘selling off the family silver’ barely comes close since it will in effect sell off our national communications network so we can have privatised competitors whose aim is not public service but profit. (A Lords amendment to block the sale of Royal Mail to proven asset strippers was of course defeated)

Here are the five key myths on which privatisation is based – mostly peddled in two Government commissioned reports by Richard Hooper.

Modernisation – Royal Mail is needs massive upgrading and staff cutting

It’s already happening under public ownership. Over 60,000 jobs have been lost from Royal Mail in the last five-six years with more disappearing as machinery and delivery revisions are brought in. Sorting machines (‘walk sequencing machines’) are being installed across UK workplaces reducing the number of manual hours needed.

Cycles are being largely replaced with vans which can carry more and bulky mail items – this is important because the profile of mail has changed dramatically as traditional letters, bills and statements are replaced with online alternatives and packets and parcels (think Amazon and E-Bay) increase. What more would a private company do? There are only so many jobs that can be lost before there aren’t enough postmen and women to deliver to every address in the UK- the Universal Service Obligation , the great glory of Royal Mail.

Injection of private capital. Money will only come to Royal Mail if its in private hands

The sale to a private company isn’t intended to bring in cash, the money goes to the government. RM could already borrow money from the government or in market . This could be done if the Treasury changed its rules. Selling the whole thing off smacks of ideology.

There has been a calamitous decline in mail volumes – nobody writes letters any more

This has been over-estimated. Hooper put decline at 10% per year but RM accounts and future predictions show traffic falling by 3.5 – 4.5% a year. The other point here is, why would a private company be any better placed to deal with decline in mail volumes? Surely the need for a decent postal service would be put at greater risk through privatisation if falling traffic means less profitability.

Competition and value for money. The customer will benefit from privatization and subsequent competition

Evidence from across Europe shows that RM is among the cheapest postal service. In Germany and the Netherlands (where competition is destroying services standards) the cost of first and second class equivalent services are twice as much as in the UK. Prices would be very likely to rise substantially under privatisation which is bad news for consumers and businesses.

Value for taxpayer. The hard pressed taxpayer can’t go on paying for pension deficits, and the level of service Royal Mail provides.

But the evidence that Royal Mail can be sold at anything like a decent price is not there. It is more likely that the government will flog a national asset at a sub-standard price – think BT.

In any case Royal Mail currently turns a profit. The myth of a huge sum coming to the Treasury is just that.

The Bill safeguards the Post Office network. The Post Office is not affected by the sell off of Royal Mail

30 per cent of Post Office revenue comes from Royal Mail business. Despite some amendments to the Bill it still lacks safeguards for the post office network. The Government is not fulfilling its promise to make the Post Office the ‘front office of government’.

Without real business taking place and driving up footfall who will want to look after our post offices?


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Reader comments


1. the a&e charge nurse

“The rush to privatise Royal Mail – shamefully begun by the last Government” – yes, this really is the end of Animal Farm writ large.

Pigs on legs – that’s how I think of NuLab – I do expect any different from the tories.

2. Luis Enrique

yes, I think I’m with you on this. I reckon national mail delivery is a natural monopoly and is probalby best in state hands

3. Tim Worstall

“The hard pressed taxpayer can’t go on paying for pension deficits, ”

True….

“In any case Royal Mail currently turns a profit. ”

Err, if it’s not covering its pension costs, which are after all just deferred compensation to the workforce, then it’s not making a profit, is it?

“RM could already borrow money from the government or in market . This could be done if the Treasury changed its rules. ”

No, it couldn’t. For the problem here is not the Tories, nor even Labour. It’s the EU. No, the EU does not insist that the Mail system is sold off. But it does insist that given that there are private sector competitors, there can be no public subsidy to the Mail system.

So, if the Royal Mail needs investment (it does, those pension shortfalls) then it cannot borrow from the Treasury for that would be an unfair (by EU standards) subsidy. Further, it cannot borrow from the markets because everyone knows that that would be government guaranteed debt, whether explicitly or implicitly, and thus a subsidy.

So, in order to get the investment RM needs it must become a private sector organisation and then compete in the markets without public subsidy.

This really ain’t anything to do with domestic politics any more. The power to decide what “we” wanted to do was signed away years ago.

Sorry, but this whole campaign is on a hiding to nothing. The only place you can change this situation is in Brussels.

4. Daz Pearce

This should be a part-privatisation. The worry I have is that those rural parts of the country that badly need a post office and mail network will be the areas that end up without one.

http://outspokenrabbit.blogspot.com/

5. Schmidt

Essential reading here http://www.lrb.co.uk/v33/n09/james-meek/in-the-sorting-office

6. Tim Fenton

@3

Far be it for me to dissent from the superior insights of the ASI’s finest, but if the Royal Mail is not profitable ATM, then it must be in receipt of subsidy, or at least guarantee from the Government.

So what is the difference between that subsidy and the subsidy discussed? And where does this place every EU member’s rail networks?

7. Mr S. Pill

As Luis @2 points out, the postal service is a natural monopoly and it is sheer madness to privatise it. Look at the trains for example. Maybe in 5 – 10 years we’ll have a massive range of different postal providers (ugh, horrible phrase) with vastly complicated pricing systems under the illusion of “choice”.

Super-saver-off-peak-young-person’s stamps, anyone?

8. Destiny's Child

Anyone who suggests selling off the Royal Mail simply don’t understand markets.

The markets will pick off the bits which are profitable – and like Northern Rock, the Government (taxpayer) will be left holding the loss making parts – but without the money making parts to compensate.

I wish I could actually get hold of a Tory MP to ask them some basic fundamental economic questions – but strangely they all seem to decline the offer.

My MP is now a treasury minister – and she didn’t even realise that Osbourne is following a policy of Ricardian equivalence – so lets hope they don’t leave her alone in the treasury for too long…


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