Later today ministers will announce the final details of plans for the privatisation of Royal Mail.
Later today ministers will announce the final details of plans for the privatisation of Royal Mail.
The government is looking to move quickly on the sale, with shares expected to be floated by the autumn.
There are many things which this government is doing that warrant criticism, but I am convinced that in years to come the sell off of the Royal Mail will be considered one of the most execrable decisions made by the coalition.
Here are five reasons why.
1. Royal Mail is a profitable business. Far better, then, to keep the Royal Mail public and plow the profits back into the service rather than allow them to be siphoned off to shareholders. The company made £440 million last year. The fact that the Tories still want to privatise what is an increasingly successful business smacks of public bad/private good fanaticism.
2. The cost-cutting that will likely follow a sell-off will place a huge question mark over the universal service. This isn’t left-wing propaganda as some on the right will undoubtedly claim. The Bow Group, the oldest conservative think-tank in Britain, has warned that privatisation could see the price of a stamp increase and Post Offices in rural areas close.
3. Privatisation doesn’t solve all problems. It ought to cause alarm that this point even has to be made, but such is the view of public services in the conservative mind.
Privatisation has been disastrous for our railways and has resulted in even higher subsidies for the rail operator than under public ownership. In 2010/11 Network Rail was subsidised by the taxpayer to the tune of £3.96 billion. This compares with an average of £1.4billion over the 10 years leading up to privatisation.
4. Stamp prices could hit £1. The price regulation of stamps has been scrapped to increase the attractiveness of Royal Mail to investors. This brings with it the possibility that stamp prices could hit £1 shortly after privatisation. A private business exists to maximise profits for its shareholders, after all.
Again 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 is part of the fabric of the nation. This probably sounds a bit wet, but institutions do matter. There are certain things which have come to be associated with Britain. The NHS, cricket, red phone boxes and yes, the Royal Mail.
It is hard to overstate the respect the British public has for posties. The sight of a postie on his or her rounds early (or not so early these days) in the morning is a fundamental part of British culture (yes it does exist), and not everything can simply be reduced to its monetary value.
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51 Responses to “Five reasons the privatisation of Royal Mail is bad policy”
tangentreality
CEOs and hedge fund managers get a very small percentage of profits, so you are wrong. Most of it goes to shareholders.
I agree that it’s a ridiculous situation when loss-making businesses are nationalised and profit-making ones are privatised, but as another poster has said, the Universal Service is loss-making, effectively subsidised by business & parcel services. So we are privatising the loss-making part as well. So much the better.
In terms of the waffle regarding economies of scale, yes, State-run companies sometimes have the advantage of this, but without the impetus of competition, they rarely use it. Market-based solutions almost always reduce costs, by concentrating resources into those who can use them most efficiently. That’s been proven pretty comprehensively over the last 300 years.
tangentreality
So, if Royal Mail sorts most of it’s competitors’ mail, does it charge them for such a service? If not, it bloody well should. And if it doesn’t, it’s badly run. So therefore your argument constitutes keeping the company in the public sector to ensure that it stays badly run? Doesn’t seem to make much sense to me.
blarg1987
It depends what you mean by efficent, as assett stripping, and flogging the company to a sucker only for it to go wrong seems to be classed as efficent in some people’s perspective.
The poster I think was implying that competiton when introduced was only into the profitable sections mleaving the royal mail to make a loss. What we should do is ontroduce comeptiton into loss making sections only. as the private sector claimes to be more efficent etc then it should prove it, not cherry pick the bits it wants and offload the liabilities onto the state.
Market based solutions introduce one problem, uncertanty, if i am a private company and I do not know wehn I will get my next job, I will have a high price to factor this in. While if I have a known quantity on a regular basis I can reduce prices.
Only through state gurantees will that work in alot of models.
blarg1987
Think you will find Royal Mail is obliged to sort there mail at a fixed cost imposed onto them form the Goverment.
Ronnie Murphy
Royal Mail do charge their competitors and it did make a loss on it until the regulator allowed RM to charge more.
The point is that it makes no clear business sense to give your competitors an advantage by doing their work for them even if there is a small profit, there’s an even bigger one doing it themselves.
Royal Mail’s ‘problem’ was they were simply too big, and too successful for any competitor to fairly compete. Postcomm therefore introduced Downstream Access which gave competitors access to Royal Mail’s network at a knockdown rate. All TNT and UK Mail had to do was collect the mail and sort it by machinery and put it into first part postcode. Royal Mail then walk sorted it by their machines or by staff and then sent to the depot to be sorted again.
Thanks to lax regulation the only competition that actually exists in the postal market is that of the collection and primary sorting of mail. A private Royal Mail in order to succeed would need to be unfettered from the current regulations it works under and if that happened the current regulator Ofcom would need to try to protect it’s competitors at the same time. I don’t think it will be able to and Europe may well become involved.
Don’t forget Royal Mail isn’t actually owned or funded by the Government, it’s the majority shareholder. Owning it would be against EU Law.