Mr Cable may yet rue selling off Royal Mail

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ONLY last month Vince Cable, the business secretary, implored those who rushed to judgment on the Royal Mail flotation to think again.

It should not be wishful thinking to hope he is reflecting now on his premature advice.

Mr Cable chose to sell off the Royal Mail, keeping only a 30 per cent stake in the company. Four weeks ago he remained optimistic that first-class management, a co-operative work force and the freedom for the company to borrow would enable Royal Mail to flourish over the long term.

He claimed the emphasis throughout the controversial sell-off had been ensuring the Royal Mail had a long-term future. Well, Mr Cable maybe secured its future but at what cost to the service?

Few ever believed city investors would be as concerned with service as they were by profit, and yesterday Moya Greene, the Royal Mail's chief executive, confirmed the views of the pessimists who predicted a bleak future for a privatised Royal Mail. She rang the alarm bells loud and clear.

Without any apparent sense of irony, Ms Greene complained increased competition is threatening the company's ability to deliver letters to all parts of the UK, as mandated by law.

It is not as if these competitors have emerged only recently from the woodwork. They were out and about when the Government thought it a good idea to sell off the Royal Mail and buyers rushed to buy it at 330p a share.

Mr Cable defends the sale. He cites the uncertainty of the market, and says that after extensive market testing and a study of dividend yields on comparable stocks reinforced the conviction among advisers that 330p a share would be good value for money and the best price to aim at for a large flotation. Whether terrified at the possibility of the flotation turning into a flop, as occurred with other major IPOs at the time, such as Facebook, and probably under pressure from the Treasury the sale went ahead.

The Government was criticised by many who believed Mr Cable had sold the taxpayer short.

Now Ms Greene argues the Royal Mail's obligations put them at a commercial disadvantage to rivals like Amazon and Whistl, neither of which are bound by the Universal Service mandate which stipulates mail is delivered across the UK, six days a week at one fixed price.

No doubt her analysis is correct. But it begs the question: in their keenness to grab a bargain did the new owners hope they could rely on changing the rules once they were in charge?

The volume of mail is in decline. Business- to-business mail and business-to-consumer mail makes up more than 80 per cent of the mail delivered in the UK and social mail has reduced to around 10 per cent, most of which is made up of Christmas cards sent in December.

Ofcom is responsible for the implementation of the Universal Service Obligation but it is safe to assume that however much pressure it comes under from the Royal Mail, their competitors will put the contrary view just as forcibly.

If Ofcom does not comply with the Royal Mail's demands, the Government would need to change the legislation to allow a reduced delivery. It is a safe bet no decision to change the law will be taken before the General Election, and after that those minded to support the Royal Mail's case will argue a six-day delivery is a "gold plated" service.

The sixth day delivery is not obligatory under EU rules. The European Postal Service Directive stipulates the Government is bound only to deliver a universal postal service on at least five days of the week at one price.

The Communications Workers Union also might be having a moment of regret. The last Labour government did want to attract private money into the Royal Mail but they promised to keep it in public ownership.

Pat McFadden, the minister responsible, put a clause in the Postal Services Bill limiting private sector involvement to around 30 per cent, and if that was ever to change legislation would be needed. Surely less than perfect legislation would have been preferable to Mr Cable's option.