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