Cable plans to (part) parcel off Royal Mail

Vince is planning to sell off a sizable chunk of the Royal Mail. But he faces a battle with the unions.

Last Updated: 10 Sep 2010

It looks as if we’re set for even more postal strikes, then: new business secretary Vince Cable is planning to part-privatise Royal Mail. No confirmation yet of how big a stake he’s hoping to sell, but the Times is reporting that it could be as much as 49%. The rest will supposedly be divided between some kind of employee trust (very right-on) and the Government itself, the idea being that this will free up money for investment. The plans are a more radical version of the ones Peter Mandelson was forced to abandon last year. Given the previous failure, and a ‘pension black hole’ likely to be valued at £10bn, is Saint Vince any more likely to deliver a deal?

The Tories had previously talked about flogging the whole of Royal Mail, but it looks as though their new Lib Dem coalition buddies have persuaded them to water this down. And the good news is the group's finances are looking healthier: despite strikes pushing revenues down last year, Royal Mail has just reported a £404m annual profit, up more than a quarter on the year before. It’s injected £867m into its pension scheme, while management is apparently ‘bullish’ about the state of its parcel business. (Although the less said about its struggling letters business, the better.)

Finding a buyer won’t be easy, because Royal Mail isn’t the most attractive investment opportunity. Even if the Government does take responsibility for the giant pension deficit as part of the deal, there’s still the threat of strikes to deal with. When Mandelson tried to sell 30% of the company last year, he was forced to abandon the plan after a revolt by backbench MPs – and the threat of industrial action by the Communications Workers’ Union (last year, five weeks of local strikes wreaked havoc across the country, leaving more than 30 million pieces of mail languishing in sorting offices). All of which eventually led Dutch company TNT, the leading bidder, to pull out.

And it looks as if the CWU is already rolling up its sleeves for another fight. The ever-progressive union is against any form of privatisation, insisting Royal Mail must stay in the hands of the taxpayer. Privatisation, they argue, would inevitably lead to job cuts, which would threaten the company’s ‘universal service obligation’ to deliver mail across the UK at the same price. It’s even accused the politicians of ‘talking down’ Royal Mail’s financial situation, to justify the need for privatisation.

However, the simple fact is that we’re just not sending as many letters these days – the Royal Mail is now handling 13 million fewer letters per day than it was five years ago. So it’s clear that the organisation needs to keep shrinking; it also needs to stop being obsessed with the letters business and start thinking about other ways to make money. But with the unions likely to pose obstacles at every turn, any kind of deal will be tough to pull off. If Vince can manage it without too much disruption, perhaps he'll be able to justify that ‘Saint’ moniker after all.

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