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