ARTICLE FOR TOTAL POLITICS Should We Keep Royal Mail Public

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Billy Hayes

Recently the House of Commons Business and Enterprise Committee published its unanimous view of the proposed privatisation of Royal Mail, as drawn up in the Government’s Postal Services Bill.

The report said, “We agree with two aspects of the proposals. First that the Government should take responsibility for the historic pensions deficit. Most of its liabilities stem from Royal Mail’s time as a monopoly provider. It needs to be freed from them, as many of its European counterparts have already been freed. Moreover, pension fund members deserve to know that their pensions are secure. Second, we also agree that a new regulatory framework, in which postal services are viewed as part of a wider communications market, is entirely appropriate.

However, we do not consider either the Independent Review or the Government has properly made the case that these two reforms, about which there is a broad consensus, can only be made as part of a package which includes the third reform – the involvement of a private sector equity partner in Royal Mail. Similarly, we are not persuaded that the provisions contained in the Bill allowing such a partnership are necessary or desirable”.

The chairman of the committee, Conservative MP Peter Luff, said, “The committee does not think that the Government has yet made its case”.

This followed on from the recently published report by Compass, who examined the methodology used in the Hooper Report (the Independent Review), which the Government is using to justify the privatisation. Their pamphlet is called ‘Case Not Made’.

The entire problem is that privatisation is an option preferred for political reasons rather than being based on the development of the industry. If one analyses the industry then we come to the conclusion that Royal Mail will have a viable future in the public sector.

For example, the suggestion is that only the private sector has the expertise to modernise Royal Mail. Two of the names being mentioned as potential buyers are TNT and Deutsche Post. TNT’s profits dropped 37% in the last quarter of 2008. Deutsche Post registered a loss of 3.16 billion Euros in the last quarter of 2008. Meanwhile Royal Mail’s profit increased in the same quarter. Who should be tutoring whom?

Equally, on the issue of efficiency and services provided, there is the suggestion that Royal Mail is less than efficient than comparable providers. Of course, this depends upon how you measure efficiency, as the Compass pamphlet has so clearly demonstrated. But one of the most decisive measures of efficiency for the customer has to be the price of the product.

At present, TNT delivers a hundred gram first class letters at nearly three times the price of Royal Mail, and fifty gram letters at twice the price of Royal Mail. Deutsche Post delivers a hundred gram first class letters at more than three times the price of Royal Mail and fifty gram letters at more than twice the price of Royal Mail.

Presumably then, if either of these companies takes over Royal Mail, we can expect substantial increase in stamp tariff costs. This impression is hardened by the recent attempts of TNT to get the European Commission to lift Royal Mail’s VAT exemption. Fortunately TNT was not successful in this, but if they secure a ‘strategic partnership’ with Royal Mail then consumers beware.

Royal Mail is undergoing changes as it adapts to the changing use of mail. Some categories of mail are declining, such as social mail. But there are new forms of mail with growth potential, such as “hybrid mail”, which allows a customer to provide data to the provider who then formats, prints, envelopes and delivers the customised item. “Intelligent mail” is being developed by the United States Postal Service, which is not being privatised. This form of mail allows a customer to track and trace their item, in real time at every point, and importantly, allows for bulk-mailings to be treated this way.

In the light of such developments, the suggestion that mail has only a past is deeply ideological. Nor can this viewpoint explain why private companies might wish to buy part of Royal Mail in the first place.

There is a decline in letters volume at the moment. Yet no one has convincingly documented how much is structural rather than cyclical. Certainly in Hooper’s report the recession has no practical force in the analysis. Yet a recently published report by the Universal Postal Union, “The global economic and financial crisis”, demonstrates that postal operators, whether privatised or not, suffered a 5.9% decline in domestic traffic in the final quarter of 2008. This is the impact of the recession, not e-substitution.

The report also allows us to get some historical perspective. Between 1928 and 1934, the US postal service lost 21.9% of franking revenues. France suffered annual drops in the same period of between 15.5% and 24.8%. Germany lost 16.6% in letter post traffic between 1930 and 1931.

Taking a long perspective is hardly the basis of privatisation today. According to figures recently released by Compass, a sale today would yield 50% of the revenue for a comparable sale a year ago. Keeping Royal Mail in the public sector makes sense from every angle.

Posted by Billy Hayes | @ Thu, 21 May 2009 09:51:13 +0100

[BELIAL]

Well said Billy