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.

24 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?

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