Brown's Right Royal Dilemma - Pestons Picks

[TrueBlueTerrier]

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Something of importance has been lost in the fraught political row over whether Gordon Brown will press on with the part-privatisation of Royal Mail - which is what on earth will happen to a service that touches all our lives and employs 180,000 people?

Just to remind you, Royal Mail is in a frightful state.

It needs hundreds of millions of pounds of investment, to modernise archaic sorting offices.

The recession plus online competition are combining to reduce mail volumes by between eight and nine per cent - which in a full year would knock well over £600m off revenues.

And an imminent revaluation of an enormous pension fund is likely to assess the net deficit at around £9bn, probably a British record and a millstone humungous enough to sink almost any business.

Now in those circumstances any money raised by selling a minority stake in Royal Mail would be a drop in the ocean.

Or to put it another way, part-privatisation is a mild balm rather than a cure for Royal Mail's financial woes.

So it's easy to see why the trade unions see the disposal of part of Royal Mail as irrelevant at best and pernicious at worst.

Also it's possible to argue from a capitalist perspective that it would be bonkers to sell a stake right now, when market conditions are lousy.

But the prime minister and Peter Mandelson, the secretary of state for business, view it differently. Without the introduction of the private sector as co-owner and manager, they fear that further financial support from the public sector for Royal Mail would be throwing good money after bad.

Nor is the government flush with cash right now. In these straitened circumstances any funds being offered by the private sector represent a stunningly attractive bird in the hand.

Against that backdrop, the Business Department has presented the stake sale as part of a package that also includes a new regulatory approach and a reduction of the pension-fund burden on the postal service: Mandelson has said that Royal Mail can't have one or two elements alone.

Which has apocalyptic implications. It means there's apparently a choice between part-privatisation of Royal Mail and its bankruptcy.

Not that it would ever come to that. It's counter-intuitive to expect that the sole shareholder in this strangest of public limited companies, the government, would let Royal Mail collapse into administration.

However Royal Mail has not a scintilla of doubt that it can't afford the £830m a year (and probably rising) of contributions it's obliged to make to the pension fund.

So the board of Royal Mail would be absolutely distraught if abandoning the share sale also meant curtains for the government's proposal to take on responsibility for the pension fund's liabilities and assets as of December 16 last year (which was designed to relieve Royal Mail of £280m of cash payments into the fund).

As for a plan to transfer regulation from Postcomm to Ofcom, Royal Mail also thinks that's essential, on the basis that Ofcom may be less likely to view Royal Mail as a beastly monopoly deserving of crippling price controls.

But if Brown and Mandelson went for the u-turn, if they were to abandon the stake sale but pressed on with alleviating the pension burden and changing regulators, that could be seen as an admission of failure in respect of a structure for Royal Mail created only a few years ago by, well, more-or-less the same mob.

Not nice.

What's striking for me is that senior members of the Tory frontbench tell me they're keen to see the part-privatisation take place (and also see Nick Robinson's note on this).

The Tory leader and shadow chancellor rather like the idea that at least part of the serious financial risk associated with Royal Mail would be laid off to an outside investor. And if there's public opprobrium attached to that sale, how nice for a possible future Conservative government that it would be directed today at Brown and Mandelson.

So if Gordon Brown wants help legislating for part-privatisation against the objections of his recalcitrant, writhing backbenchers, the Tories will probably be delighted to supply it,

Gordon Brown won't like the notion that by selling a chunk of Royal Mail, he'll be alienating many of his own MPs and supporters, while doing a terrific favour for George Osborne and David Cameron.

But he won't relish the prospect of abandoning a symbolic part of his industrial strategy.

If be backs away from part privatisation, it'll be seen by many as further proof that New Labour is being buried on his watch by a reinvigorated old Labour.

[norbert]

a very Thatcherite commentator , he does a job which is winding people up ; and it dispels the BBC pinko myth .