Five reasons the Royal Mail should never have been privatised

Poor value for money is not the only reason to lament the passing of Royal Mail into private hands.

It’s been reported today that in the government’s rush to push through the privatisation of Royal Mail the taxpayer was shortchanged.

The National Audit Office has claimed that too much emphasis was put on completing the sale within this parliament rather than achieving value for money. As a result, shares in the company are now more than 70 per cent higher than the original sale price of 330p in October 2013.

But poor value for money is not the only reason to lament the passing of Royal Mail into private hands. There are several other reasons to worry.

1. The Royal Mail was profitable. Surely better to keep the company public and plow the profits back into the service instead of handing them to shareholders. The Royal Mail made £440 million last year. The fact that the Tories were still desperate to privatise what was an increasingly successful business smacked of fanaticism.

2. Cost-cutting will place a huge question mark over the universal service. This isn’t left-wing propaganda as some on the right claim. The Bow Group, the oldest conservative think-tank in Britain, warned last year that privatisation could see the price of a stamp increase and Post Offices in rural areas close.

3. The taxpayer was shortchanged by the sale. Royal Mail shares are more than 70 per cent higher than the original sale price of 330p in October 2013. Business minister Michael Fallon last year stated “categorically that we have no intention of selling off Royal Mail cheaply”. But the sale price set by the government has now been branded “too cautious” by the National Audit Office.

The taxpayer made around £2bn from the sale of Royal Mail. However if the shares had been sold at 610p, which is where Goldman Sachs believes the price will eventually settle at, the chancellor, and by extension the taxpayer, would have brought in around £3.66bn.

4. Stamp prices could eventually reach £1. The price regulation of stamps was scrapped by the coalition prior to privatisation to increase the attractiveness of Royal Mail to investors. That brought with it the possibility that stamp prices could eventually hit £1. The first price increases come into force today, with first class increasing by 2p to 62p and second class by 3p to 53p.

To get a glipse of the future it’s worth looking at train fares. Since privatisation ten years of above-inflation rail price increases mean that some in the south-east of England now spend 15 per cent of their salary on rail travel.

5. The Royal Mail was a 500-year-old institution and part of the fabric of Britain. Institutions matter, and there are certain things which are associated with Britain, such as the NHS, cricket, red phone boxes and yes, the Royal Mail.

Strangely, conservatives are supposed to understand a bit about tradition. Yet the current government appears to believe that everything can be reduced to its monetary value.

23 Responses to “Five reasons the Royal Mail should never have been privatised”

  1. allthosepowers

    The people have been subjected to a heist, a magician trick. The daylight robbery committed upon this great nation of ours must be condemned! It is utterly utter deplorable how those rotten lot have shrink wrapped and sold off a tradition. And cheaply at that! What a crumbling country, rotting from central government and spreading its dirty filthy tenticles to everything and everyone. Remove them from these hallowed grounds and revolver a rifle to aim and shoot

  2. tangentreality

    1. RM was profitable. True, but that’s not necessarily a good reason for keeping it in public ownership. Economic good can also be served by having the profits distributed to shareholders, when it will then be taxed, spent on goods and services, and then taxed again. Money doesn’t disappear just because it goes into the private sector.

    2. Cost-cutting questions the universal service. The provision of the universal service is guaranteed in statute, and was one of the conditions of the privatisation. Also, any cost-cutting in RM would have no effect on local Post Offices, as the Post Office is a separate company which remains in public ownership.

    3. RM was sold too cheap. Distinctly possible. It is, however, very difficult to gauge investor appetite for newly-issued stocks. That said, you would have thought the Government would have appointed advisers to price the stock correctly. That’s what companies do when the float or issue new rights.

    4. Stamps could reach £1. So? They are hideously under-priced now. You try getting a letter from John O’Groats to Land’s End by conventional means for less than £50. There is a huge level of cross-subsidy. This won’t affect as many people as you think, as people don’t use letters to communicate – they use texts and e-mails, which are generally much cheaper.

    5. RM was part of the fabric of Britain. This is, unashamedly, an emotional argument, and one I agree with. For the same reason that I think we shouldn’t have got rid of red telephone boxes, but put them to alternative use. However, let’s not forget that it was the Labour Party who first legislated for the privatisation, at the behest of the EU. Laying the blame squarely at the feet of the current government doesn’t add up. They are not solely responsible. If you want to look at who’s been playing with Britain’s fabric, the Labour Party and the EU share a fair proportion of the blame.

  3. Sam

    1. You say trickle down from investors will make up for losing taxpayers money year on year. Trickle down theory has been repeatedly proven to be false, and in any case, most of the shares were reserved for investment banks and funds – not exactly social enterprises, are they?

    2. Lots of things are guaranteed, and lots of guarantees are reneged upon. Now that the main aim of RM is private profit, you can’t rule out law changes. As for post offices, the majority of their users use them to post letters (surprise surprise), something you can’t do if RM ceases service. Post offices are in decline already as every service other than post that they offer has been available online for years.

    3. It’s not ‘distinctly possible’, it’s a demonstrable fact. And yes, how convenient that the Tories priced it too low and made rich individuals and corporations that much richer at the extent of the taxpayer. Almost as if they were greedy, ideologically-driven elitists!

    4. Yes, to deliver one letter in a van hundreds of miles would be uneconomical. To deliver thousands in one van, however, is perfectly economical. The fact that RM were making almost a billion a year seems to suggest that stamp prices could even have been lowered, not that they were ‘ridiculously low’. That’s fairly obvious.

    5. You’re absolutely right – if you leave your windows unlocked it’s entirely your fault when somebody breaks in, and you should be prosecuted for it.

  4. treborc1

    Well how much do you think labour would have got for it in 2009 because they tried to flog it off as well.

  5. blarg1987

    Corruption definition: – dishonest or fraudulent conduct by those in power, typically involving bribery.

    Since corruption is a criminal offence maybe we should ask the police to investigate?

  6. james

    labour party re-nationalise?

  7. Henry Page

    It is obvious from the 24x oversubscription, the 70% increase in share price and the fact that it was a bank that advised the sale price that we were ripped off yet again. If the jobless had cost this country £1.66bn through some kind of action this government would be screaming its head off but when the city does it … “that’s the way it is, we would have scared the investors off if we’d made the price higher” … Scared them off? … they were falling over each other to get their greedy snouts in the trough. Why this country has prostituted itself to unbridled capitalism baffles me. Look at rail and energy companies if you want to see how the rich give us a good kicking.

  8. Henry Page

    So let’s sell off the Royal Family then, let’s privatise that bunch of live-in-luxury spongers.

  9. Richard

    Don’t put up pictures of your ballot paper, there’s all sorts of confidential information on the envelope.

  10. Nan Parkinson

    Henry Page – thanks for a great re[ply. You are spot on.

  11. treborc1

    How much do you think that will cost. I did see somebody working it out, they gave it at between six and eight billion. sadly way to much for the Government of today, or tomorrow

  12. tangentreality

    1. Trickle-down theory hasn’t proven to be false. Virtually every post-war recovery in the Western world has been fuelled by tax cuts and supply-side reform. I’d call that a resounding success. However, your point about the shares being reserved for mainly foreign investors is valid – there should have been more focus on UK based investment funds, to maximise exposure to UK investors.

    2. You’re providing very good reasons as to why the Post Office is in decline. None of them appear to be related to RM.

    3. Either the Tories conspired to deliberately de-fraud the taxpayer… or they got it wrong. Which is more likely? Never attribute to malice what can be explained by incompetence.

    4. Like I said, there is a massive level of cross-subsidy in stamps. It costs the same to send a letter next door as to send it 500 miles. RM was/is profitable, but that is because Labour had spent years readying it for sale.

    5. Don’t be daft – if Labour had won in 2010, they would have sold off RM as well. They had every intention of doing so, and had been preparing the ground for years. The major stamp price rises took effect under Labour. Most of the job losses incurred were under Labour. RM’s major structural reforms were under Labour. They had committed, at the behest of the EU, to convert RM from a public service into a company ready for sale. The Tories only oversaw the sale itself.

  13. tangentreality

    1. Obviously, you didn’t bother to read the part where I actually disagreed with the sale of RM, but not for the same reasons. Why, then, would I also want to dismantle another State institution? Agreed, the RM sale should have had more focus on UK investors, but the principle of the privatisation is not fundamentally unsound.

    2. Again, the price of 2nd class stamps is also limited by statute. If RM wants to put it up by more than the Government of the day feels is acceptable, it won’t happen. Of course, RM may then be in a situation where it is facing a loss on the universal service. What the Government chooses to do about that is anyone’s guess.

    3. Like I said, it would be interesting to see the advice given to the Government regarding the issue price, and who was responsible for giving it.

    4. Sigh. My point is, there is a huge level of cross-subsidy. You can send a letter 500 miles for the same cost as sending it 20 yards. That’s bloody ridiculous.

    5. Deary me. For a start, most of the pit closures happened under Wilson, not Thatcher. The coal industry had been in decline for decades before Thatcher came along, and the fundamental reason was it cost too much to get the coal out of the ground. The Housing Benefit budget has ballooned, but that’s because the population has increased, and the housing stock hasn’t. Rail fares have risen, but before the privatisation, they were subsidised by higher taxes, and so were artificially low.

    Perhaps you should focus on facts, rather than ranting ideology and spewing hatred and bile.

  14. Henry Page

    1. I did read your disagreement with the sale. I am not taking issue with that. What I am pointing out is that your argument that somehow the public at large is going to benefit is palpably laughable.

    2. You can make statutes all you like but it won’t stop a private business from having to abandon things if they aren’t profitable. The whole object of privatisation is to see the buck stop at the altar of profit, and not public service. Let me give you an example. When Beeching axed the railways he cheerily announced that where lines had closed there would be a statutory provision of bus services as a substitution. This policy was almost wholly unsuccessful because the bus services were usually far slower than the train services they replaced. So market forces somewhere caused that statutory provision to collapse – did you get that? Market forces made the statutory provision defunct.

    3. It was obviously bad advice. My cat could work that out.

    4. The point of universality is that it is, well, universal. You are arguing here that universality should not be universal, that those in the furthest corners of the UK should actually pay more for the privililege of not being in middle England.

    5. It is disinigenuous in the extreme to include Wilson’s pit closures, which were based on economic factors. The coal wasn’t “too expensive to get out of the ground” it was cheaper from China where mine safety was a black comedy routine. The sad fact is that the misery caused here by Thatcher’s policies was nothing in relation to the Chinese miners, whose death toll in the early 1980s was twenty times the level of the developed, industrial economies. In 1993 China introduced more stringent saftey measures but the problem is still GHASTLY:

    “Citing a State Administration of Work Safety circular, a Chinese media report yesterday claimed that the death rate in China’s coal mines fell by one third in 2012 to stand at 0.374 deaths per million tons of coal production, the first time the rate had fallen below 0.5 deaths per million tons. However, China’s coal mine death rate is still more than ten times higher than the rate for developed countries of around 0.02 deaths per million tons of coal production on average.” http://www.clb.org.hk/en/content/report-claims-coal-mine-deaths-china-fell-one-third-2012

    “The Housing Benefit budget has ballooned, but that’s because the population has increased”. Oh dear, and you say my arguments are deficient because of ideology! The poulation of the UK has risen 13% since 1980. The number of Housing Benefit claimants has virtually flatlined over the 34 year period, remaining at or around 500,000 claimants but the Housing Benefit budget has risen by 300%

    http://www.blog.rippedoffbritons.com/2014/03/graphs-at-glance-in-30-years-since-1983.html

    Last year, the Institute for Public Policy Research (IPPR) showed that, over the current spending review, the expenditure on housing benefit is likely to be £95bn, compared to just £4.5bn of capital investment made by central government on building affordable housing. The Tories would rather have their PFI’s and private landlords because THAT circulates money back into the economy. It also leads to desperate housing shortages and ever-spiralling levels of Housing Benefit.

    “Perhaps you should focus on facts, rather than ranting ideology and spewing hatred and bile.” Physician heal thyself.

  15. Henry Page

    I would also like to add this small postscript:

    It is an alarming fact that for every £1 the government spends on building houses, they will spend a further £19 on rent subsidy. It wasn’t always like this. Before Thatcher 80% of housing expenditure went on building houses, and only 20% on rent subsidy! That is a spectacular reversal. Local authorities stopped building homes in 1995 but the government’s excessive spending on housing benefit shows that something needs to be done. Without enough affordable homes, the reliance on subsidising rents through Housing Benefit, particularly to private landlords, will continue to rise.

  16. tangentreality

    1. Not laughable at all. When a company makes a profit, those profits are taxed and then invariably distributed to shareholders. The net profits are then either re-invested through the purchase of more shares, which creates further wealth for shareholders, or they are spent. All of this creates wealth and economic activity. And incidentally, the biggest shareholders are pension funds, meaning that pretty much anyone with a pension benefits. Obviously, the problem with the RM sale was that nowhere near enough shares went to UK investors, including UK pension funds, which I have pointed out. My point is not, necessarily, that in the RM example, a public good will be served. My point is that the article’s original assertion, that RM should not have been privatised because it was making a profit, is a bit daft. It very much depends on the detail, not just on a knee-jerk opposition to privatisation.

    2. I agree – which I alluded to in my response. What will happen when RM makes a loss on the universal service, and wants to put up 2nd class stamp prices beyond that which the Government of the day feels is acceptable? The Government would have to make a choice – either accept that it will have to subsidise the universal service by paying RM (or whoever) to implement it, or accept the price rises. You seem to be assuming it would be the latter, rather than the former. I think it’s pretty difficult to make that call.

    3. Then I would be interested to see who gave the advice, and whether they should be compensating the taxpayer in that regard.

    4. I am arguing that people should pay proportionately for the level of service they use, yes.

    5. Thatcher’s pit closures were also based on economic factors, i.e. the coal was too expensive over here, and was cheaper from overseas. I understand that health & safety legislation is not as robust in China as over here, and there is a moral argument that it should have been considered. However, you also had the political situation where a small number of radical union leaders were in a position to bring down elected governments, i.e. Heath. Politics and economics were the main forces in both cases, not deliberate malice.

    So, what you’re saying is, Housing Benefit has risen because private landlords are profiteering? That’s a fair point – it’s not particularly surprising, when they know that the Government will quite happily fork out and pay whatever they want in rent without question. For a time, HB was paid directly to landlords instead of tenants, making it effectively a direct subsidy to the private rental market.

    However, you seem to be inferring that the best solution to this problem is reverting to a model of predominant State ownership of land and property, or rent price controls. As a nation, we have experimented with both of these in the past, and they haven’t really helped. The people living in such accommodation have still invariably been poor, despite considerable State apparatus to attempt to relieve that. A better solution would be to wean the private rental sector off the massive State subsidy it currently receives – by a tapered reduction in Housing Benefit and reform of tenancy law to make it easier for people to move. Some price management would be needed as an interim measure, but it won’t work as a permanent feature of the housing market.

    I am pleased to see that you agree with me that we have a housing shortage due to population growth. However, is it necessarily the Government’s job to build housing? Is it the best-positioned organisation to undertake this? I would argue that house-builders are better able to undertake this job. If the Government wants to accelerate the process, it should do so by reforming our Soviet-style planning system, and allow house-builders to get on with it.

    I’m also pleased to see that you’re now looking at facts, rather than simply blaming everything on Thatcher. It’s becoming a bit of a Godwin’s Law on the internet these days. I have not, incidentally, insulted anyone or attributed malicious actions to the Labour Party. I don’t think they’re evil – just wrong.

  17. Henry Page

    1. I cannot agree with your apparent assertion that private ownership of the Royal Mail will have a greater financial benefit to society than a publicly owned industry. The profits from Royal Mail could have been re-invested into the treasury or could have been used to set up a UK wealth fund, along the lines of the Norwegian fund. The fact is that prices will rise dramatically over a ten year period, just watch and you will see.
    The fact that hedge and pension funds may be offshore has not escaped you: question: how much does the UK exchequer make from dividend tax on Sir Philip Green’s Arcadia plc high street conglomerate? Answer: nothing, because Lady Green lives in Monaco. Oh sure business produce dividends, but where do they end up? With Royal Mail as a public body its profits remained in the UK.

  18. blarg1987

    To correct a couple of your points, people who live and lived in social housing many may still be poor but many more have had a better quality of living through a better house. Many people even moved classes as well including under right to buy. The mistake was not building more houses for the next generation to repeat the process and a case of clibing the ladder and pulling it up behind us comes to mind (a contributing factor to mamny of todays social and economic problems).

    With regards to coal pits, the goverment of the day (quite hippocritically) said the Uk needs to be more competative with other countries so we have to get ride of the subsidy, yet ended up buying in coal from countries who still had state funded subsidies (no doubt the countries we were meant to compete with).

  19. Ben

    On point 3. George Osborne claims to have been completely unaware that a hedge fund that have already pocketed in the region of 18 million from the sale of public property, has on It’s board George’s best man. I would very much suggest malice.
    Thieving torie scum.

  20. Mr Bean

    Yes, but the Tories would sell the police off if they investigate.

  21. Uncertain Times ahead

    We ship at least 600 parcels a year with Royal Mail and have been doing so for more than 3 years. We ship everything with a signed and tracked service. Over the past 6 weeks we have had 2 parcels not reach their destinations, the tracking service doesnt get updated and nothing gets explained on it. Having shipped more than 1800 parcels over a sustained period and never experiencing any problems before. Is our recent experiences just bad luck or is the service Royal Mail offering (particularly the higher cost signed and tracked service) now under privatization not reliable? time will tell, fortunately for the clients there is plenty of competition out there and if Royal Mail is now unable to keep their past standards high then they will lose customers much like the gaff British Gas made about 10 years ago when they lost millions of customers over an arrogant public statement.

  22. Deb Pilkington

    How can a government sell the royal title??? Thats all I want to know.

  23. NO EURO NO EU

    http://www.nao.org.uk/wp-content/uploads/2014/04/The-privatisation-of-royal-mail.pdf

    The Privatisation of Royal Mail supposed to be to the BRITISH PEOPLE not to the Bank or instutution. ONLY 16% was made sold to the individual and this a real scandal.

    Final demand and allocation
    of shares among bidding investors 4.11

    The government allocated 60
    per cent of Royal Mail to institutional and retail investors in accordance with
    the principles established at the outset of the process (Figure 17 overleaf):

    • Over one fifth of Royal
    Mail (22 per cent) was sold to the 16 priority investors who had bid for shares
    at 330 pence.

    • Seventeen per cent was sold
    to 94 investors who had been targeted in the pre-deal marketing (three
    institutions that were part of pilot fishing but had not given pre-deal
    indications were allocated 3 per cent).

    • A further 3 per cent was
    sold to a further 180 investors that were considered high quality. Nothing was
    allocated to a large majority, 506 institutions, that applied.

    • Approximately 16 per cent
    of the company was sold to 690,000 individual investors (not including
    employees). Retail investors that asked for less than £10,000 were sold 227
    shares each (£749.10 at 330 pence a share), and those that applied for more
    than £10,000 (5 per cent of the total applying) received nothing.

    24 Share price performance
    4.12 On the first day of trading, 11 October 2013, the shares opened at 448
    pence: 36 per cent above the IPO price. At the close of trading, Royal
    Mail’s share price closed at 455 pence, up 38 per cent. The Department
    participated in the increase by retaining a 30 per cent stake, but the benefit
    of the price rise on the 60 per cent stake sold (a first day increase of £750
    million) flowed to the new shareholders. 4.13 On the first day of trading, 253
    million shares – representing 42 per cent of the shares available for trading –
    changed hands on the London Stock Exchange.25 The cumulative total trading
    volume for the first ten trading days was 475 million shares. On average 2.6
    million Royal Mail shares are traded every day on the London Stock Exchange.26
    This is much smaller than the number sold at IPO, but is comparable with the
    trading activity of other FTSE 100 index companies with a similar market
    capitalisation.27 Looking on a five-day average trading volume basis Royal Mail
    is now much more closely in line with the FTSE 100 average, with 0.93 per cent
    of available shares traded on average (ranked 43) compared to the FTSE average
    of 0.91 per cent.

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