Mandelson's package and the loss of Royal Mail

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Royal Mail is suffering because of its willingness to comply with EU postal service directives, says Christopher Booker.


By Christopher Booker
Last Updated: 8:46AM GMT 01 Mar 2009

In all the coverage of a possible Labour revolt over Lord Mandelson’s plans to sell off a third of Royal Mail, everyone seems to have forgotten the report from his department last year explaining why our postal service is facing an unprecedented financial crisis. It is no accident that the likely bidders are a Dutch firm, TNT, and a German company, DHL.

The report made clear that the chief cause of Royal Mail’s huge losses was Britain’s keenness to comply with three EU postal services directives, designed to end national postal monopolies by 2010 and to promote “cross-border” integration of the EU’s postal services. As a result Royal Mail had to surrender the most profitable part of its operations, when bulk business mailing was opened up to rival firms. It still has to deliver business mail, for a knock-down price of 14p an item, while the 19 companies that bid successfully for the business of collecting and sorting them cream off all the profits.

This was a major factor turning Royal Mail’s profits into a £179 million annual loss. Driven into desperate cost-cutting exercises, it drastically reduced post-box collections and ended those on Sunday altogether, while making vain attempts to raise revenue, such as its mad “size and weight” pricing scheme. But then EU law kicked in a second time, when our Government was not allowed to make up the resulting deficit under EU state-aid rules.

This was why Nigel Stapleton, head of Postcomm, suggested last year that the only way round the state-aid rules was to part-privatise Royal Mail, thus allowing it to borrow on the open market. No one knows all this better than the great Europhile Lord Mandelson. But it still raises the question as to who would want to invest in a business which EU rules force to run at a loss. The other mystery, of course, is why, in all the coverage given to this vexed issue, no one will explain why it is happening