Speech to Keep the Post Public meeting - Edinburgh Monday

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Speech to Keep the Post Public meeting - Edinburgh Monday 13th December

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The coalition government’s Postal Services Bill cannot be criticized for lacking innovation. While Royal Mail remains state-owned it cannot really go bankrupt. But the bll has now to contend with the fact that selling Royal Mail brings the risk of bankruptcy.

Hence the bll contains extensive sections on what would happen in the case that the privatised Royal Mail does go bankrupt.

A universal service still has to be provided. So the bll contains detail of how this will be achieved.

One option is that the privatised company is given the opportunity to receive loans and grants from the secretary of state – that is from the tax payer.

So the innovations of privatisation include, the need for legislative protection in case Royal Mail goes bankrupt, and the opportunity for tax payers to bail out such a failure.

This amply demonstrates the huge risks that the coalition government is taking with Royal Mail.

The coalition government has decided that it will take the gamble of trying to privatise Royal Mail. This is despite the fact that every opinion poll for the past 20 years has registered a large majority against this step.

Even amongst its own voters, the coalition government is going against the grain of opinion.

In a YouGov poll done on 1st October, 36 percent of Tories supported privatisation while 42 percent opposed it. Twenty-seven percent of the Lib Dem voters supported it, while 56 percent opposed it

This poll also showed that 34 percent of Tories thought the service would get better, compared to 37 percent who thought it would get worse. Twenty-nine percent of the Lib Dems thought it would get better, compared to 50 percent who thought it would get worse.

Even more incredible, 67 percent of Tories thought postal prices would rise as a result, while only six percent thought they would decrease. Seventy-six percent of Liberals thought prices would rise, while 11 percent thought they would decrease.
If amongst their own supporters, there is the view that privatisation will worsen services and increase prices, then what is the government’s rationale for privatisation?

Vince Cable has said that only through privatisation will Royal Mail be able to compete. Yet this is not demonstrated on an international or national level. Internationally Royal Mail has weathered the recession better than its key privatised rivals, TNT and Deutsche Post.

In 2008/09 Royal Mail’s profits rose to £321 million. In 2009/10 they rose again by 26 percent to £404 million.

In comparison, in 2009 TNT’s profit margin fell by 3.7 percent and its profits were down by 25.4 percent. Deutsche Post saw reductions of five percent in its profit margins, and 36.5 percent in its profits.

Both of these companies experienced far smaller decreases in mail volumes and shorter recessions than the UK in their home markets. In addition, Royal Mail delivers letters at approximately half the stamp price of these two firms.

On the national level, the postal market has been completely liberalised, any firm can enter. Yet Royal Mail continues to deliver over 99 percent of previously reserved mail.

Its efficiencies of scale and scope simply cannot be matched.

The area where competition has made inroads is in the so called “access” work. This is where bulk mail from businesses is driven to Royal Mail sorting offices for final delivery by Royal Mail.

The regulator has imposed constraints on Royal Mail pricing which mean that this discreet market has been rigged for competitors. Royal Mail has not won a contested contract for this work.

Indeed, for delivering this work, Royal Mail is losing 2p per item, amounting to a £100 million subsidy to the competitors.

This rigging is so bad that even the coalition government has accepted that something must be done.

But this confirms that it is regulation that is the problem, not that Royal Mail cannot compete.

Ed Davey, and others, have suggested that privatisation is the only way that Royal Mail can obtain investment capital. This is despite the fact that, as the minister well knows, the current three year modernisation programme is fully funded.

But even if we overlook the minister’s oversight, and look to future funding three years hence, it is clear that there are other options for Royal Mail investment.

To start with Royal Mail is profitable and these could be retained for future investment.

Secondly, if competition is equalised, Royal Mail would have an additional £100 million a year in income.

Thirdly, the government has accepted that it must take its responsibility for the pension deficit as previous governments had failed to contribute to the pension fund for 13 years.

This will reduce Royal Mail’s pension expenditure by a further £280 million a year.

Of course, additional investment can come through loans, like any normal company. If it is unfashionable to apply “best value” by the use of government loans, then Royal Mail could still borrow from the private markets without having to be privatised.

But, the truth is that Royal Mail is up for privatisation because that’s the political prejudice of the Tories and their Lib Dem satellites.

Vince Cable denounces the city spivs at Lib Dem conference – and offers them Royal Mail in parliament.

The Postal Services Bill has been drafted in such a way as to assuage concerns amongst Coalition supporters.

It reasserts the universal service of six day deliveries, affordable and uniform tariffs for stamps.

This is in one sense an immediate concession to the anti-privatisation campaign, as we know from a leaked letter from Cable to Osborne that the six day delivery was under threat.

But the bill also reflects the fact that a privatised Royal Mail will want to reduce the universal service obligation (USO).

The bill authorises the Regulator, Ofcom, to review the USO. More disturbing again, is the fact that for the first time in legislative proposals, there is the prospect of more than a single provider, and for partial provision of service by a provider.

At present only Royal Mail provides a universal service. A universal service is very expensive to maintain, as a huge amount of equipment, vehicles and employed workers are necessary.

But such a network also creates economies of scale and scope. Such economies are removed if the universal service is broken up.

Obviously the Government knows that competitors would be anxious to take on the USO if it only covered restricted, urban and profitable areas.

The bill’s proposal would create a huge downward pressure on the USO service standard, and threaten its very coherence.

A major issue is the proposal to separate Royal Mail from Post Office Limited (POL) the counter network.

The government is playing this up as a progressive move, insisting that it would keep POL in the public sector.

Indeed, it is preparing to turn POL into a “mutual” suggesting this demonstrates the government’s radical spirit.

None of this covers up that POL is facing imminent decline outside of Royal Mail.

The simple fact is that a privatised Royal Mail will have no obligation, beyond the existing contract, to use POL.

Any retail network would do, in which case we can expect a mass of closures amongst local Post Office branches.

Such an analysis is regarded as alarmist by the coalition, but the facts are eloquent.

In 2009/10 POL received £343 million in revenue directly from Royal Mail.

It has become increasingly reliant upon Royal Mail as government business has declined.

In 2003/04 revenue from Royal Mail was 27.5 percent of POL’s income.

By 2009/10 this had risen to 35 percent.


In the same period revenue from government services fell from 43.1 percent to 24 percent.

It must also be remembered that POL is already dependent upon the government for a direct subsidy to maintain its network of Post Offices.

This is currently running at £150 million a year, and will rise to £180 million from 2011/12.

After the subsidy, POL still had a total recognised loss of £130 million in 2010.

There is also a long running dispute between POL and Royal Mail management concerning the correct pricing of services used.

Royal Mail management is of the view that it overpays POL, while POL management believe it is underpaid. On central services provided to POL by Royal Mail there is an assumption of around £150 million subsidy to POL.

The dynamic of separation is then clear. POL will be dramatically weakened.

Talk about innovative staff involvement in a mutual, is then just whistling at a hurricane.

For these, and many other reasons, the CWU is committed to a campaign against the bll.

Tonight’s meeting in the Edinburgh West Constituency is very important.

Mike Crockart – Lib Dem MP for this constituency – has a majority of 3,803.

This is a marginal seat for the coalition. He needs to be more responsive to his own electorate. They didn’t vote for him in order to privatise Royal Mail.

Last week he voted against the increase in student fees. That is good.

But the privatisation of Royal Mail is also a key question – he needs to rebel on this issue too.

I hope you will all keep up the campaign to ensure that Mike Crockart feels the pressure from him own constituency.

The CWU has 166 members in the Edinburgh West constituency, and in alliance with the many thousands of constituents who are opposed to Royal Mail’s privatisation, real pressure can be put upon the MP.

But it is vital that everyone who values the public postal service lends their support to the campaign.

In January the bill comes back to the House of Commons for a report stage and third reading.

After that it returns to the Lords where there will be an extended process and many opportunities for amendments.

The final vote will be taken in the commons – and it was at this point that Heseltine’s bill to privatise Royal Mail was defeated in 1994.

So the fight is in front of us. We have months of campaigning yet. And with a broad based campaign we will win.

Thanks for listening.