Coalitions commitment to privatise by next April is defatist

[TrueBlueTerrier]

The coalition's commitment to privatise by next April is defeatist

http://www.guardian.co.uk/uk-news/nils- ... ince-cable" onclick="window.open(this.href);return false;

Cable's argument that the loan, and any subsequent funding, would be better used in schools and hospitals is not compelling



Roll up, then, for the great Royal Mail share sale. The government has embarked on "an irrevocable course", says business secretary Vince Cable. A small battalion of investment banking advisers has been hired. There's a deadline to get the deed done by next April, which probably means this autumn if stock market conditions remain friendly. Note, too, that the Labour party, despite opposing privatisation, has declined to commit to renationalisation, so there's another hurdle removed.

There's a share sweetener for staff, which could be worth up to £2,000, and Royal Mail's financials suddenly look vaguely pretty. The old pension scheme, with its £8bn deficit, has been towed away by the state and the new regulatory freedom to whack up the price of a first class stamp has done wonders for profits. At the operating level, they rose from £152m to £403m last year.

Yes, if the government is determined, it should be able to find investors and force through privatisation in the face of union opposition.

But is the policy necessary or wise? It's certainly not necessary, financially speaking. Forget the old caricature of Royal Mail as a ward of state, propped up by hand-outs reluctantly dispatched from the Treasury. Royal Mail generated £334m of free cash flow last year and paid down debts that fell to £906m. Cable's argument that the loan, and any subsequent funding, would be better used in schools and hospitals is not compelling. If the government really can't spare £1bn for a loan at commercial rates to the country's postal service it should not be contemplating the £45bn economic folly called HS2.

How about wise? Would Royal Mail, without politicians in the wings, provide a better service and become a long-term commercial success? Will it become "more flexible and fleet of foot in the fiercely competitive markets in which we operate", as the company puts it?

The argument here is more promising since there's a ready-made example of how privatisation worked well in Germany – Deutsche Post, with DHL in tow, is now a very large international logistics operator.

But come on, it's fanciful to believe Royal Mail is a hop and skip away from being the next Deutsche Post. It is years behind the game and has yet to automate its sorting of parcels, for example. The idea that such further modernisation can only be undertaken in the private sector is not persuasive.

Royal Mail has demonstrably turned a corner and the best long-term value for taxpayers may lie in backing further modernisation, riding the shift from letters to parcels, and contemplating privatisation only after that.

The government's stance is defeatist. It amounts to saying that, because recent governments have been poor owners of Royal Mail, no government can succeed in the role.

The braver course, and better long-term policy, would be to support the transformation programme and consider selling only when Royal Mail's value is substantially more than the £2bn-£3bn being pushed today. This is not the best moment to privatise.