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”
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.
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.
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).
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.
Mr Bean
Yes, but the Tories would sell the police off if they investigate.