Cable confirms Royal Mail privatisation plans

Staff may be offered shares to stave off industrial action. Cunning plan, Baldrick.

by Matthew Gwyther
Last Updated: 06 Nov 2012

After months of umm-ing and ah-ing, it looks as if the Government has finally confirmed its plans to privatise the Royal Mail. Business secretary Vince Cable made the announcement this morning, after an updated report by businessman (and ex-deputy chairman of communications watchdog Ofcom) Richard Hooper indicated the only way to maintain the postal service is with an injection of private sector money. Naturally, the unions have lambasted the plans, calling them ‘dangerous’ – but it seems ‘Saint’ Vince has a trick up his sleeve…

The report by Hooper was clear in its message: over the past 18 months, there has been a worse-than-expected decline in the number of letters and parcels posted and it’s very likely there will be another 40% drop in the numbers of letters and parcels sent over the next five years. In fact, the business is facing a ‘combination of potentially lethal challenges’, with low levels of investment and poor efficiency. And that’s not even taking into account Royal Mail’s ‘dire’ £10bn pension deficit.

Predictably, the plans were immediately condemned by the main trade union at the Royal Mail, the CWU. Its general secretary, Billy Hayes, said privatisation would lead to an increase in mail prices and job losses for staff. 'It's the failed politics of history which brought disruption to Britain's utilities and railways and astronomical prices for consumers,' he said.

'Dangerously in this case, we fear the government may also be plotting to seize the pension assets.' What value there might be in seizing assets, which are £10bn underwater, is anyone’s guess. The Royal Mail is one of the more poorly managed public sector organisations, with appalling labour relations and rife with Spanish practices. Nevertheless an almighty industrial bust-up is expected and rival logistics organisations are no doubt rubbing their hands in glee at the prospect.

It's long been a desire of both the coalition and the previous Labour administration that the Royal Mail should be privatised in some way, but the politics of doing so have until now meant that it always ended up in the 'too hard' folder. Even Lord Mandelson, no fan of publicly-owned utilities, fell at this hurdle. But the strength of the Con-Lab coalition's reforming agenda may be enough to see it through at last. Unlike New Labour, it has no conflict of interest with the unions.

And Cable seems to have a cunning plan: in a bid to head off union action, it’s thought he’s eager to pursue a John Lewis-style model for the privatisation (a strategy which seems popular today – Blackwells has announced something similar), which will hand shares to staff to give them a financial interest in Royal Mail’s success. If it happens, the government is likely to part with a significant stake, as much as 20% of the shares, to the company’s workers to win their support for the privatisation plans.

One thing is for certain: any privatisation is likely to put the one-price universal postal system under a merciless spotlight. It will be very hard for any profit-seeking, new-look Royal Mail to work out how much money it is making if it continues to charge the same price to deliver a letter from central London to St Albans or Stornaway.

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