Red-letter day for Royal Mail? UPDATED

The Cabinet is mulling the future of the Royal Mail. Will it deliver much-needed change?

Last Updated: 31 Aug 2010

UPDATE 15.50

Business secrtary Lord Mandelson has confirmed that the Royal Mail is to be part-priivatised. He also confirmed that an expression of interest has already been received from the Dutch TNT group. The business secretary said that the move was necessary in order to safeguard the long term future of the UK's universal postal service. A mminoriy stake is expected to be sold. and as part of the deal the government will take on an undisclosed portion of the Royal Mail's £7bn pension deficit.


An investigation into the state-owned Royal Mail, commissioned by the Department of Business, Enterprise and Regulatory Report (BERR), is being discussed by ministers this morning. It is expected to suggest breaking up the group and selling off chunks to rival operators.

The report is likely to recommend opening up to half of the organisation to private business and closing half of its 71 mail centres, which could result in the loss of about 50,000 jobs. The business would be divided into different units, such as collection and sorting, with rival operators allowed to buy stakes. Which would basically spell the end for another once-venerable British institution...

The Conservatives and unions have chucked their toys out of the pram, mainly over the threat of job losses and the suggestion that the government would end up taking on liability for the group's pension deficit to encourage private-sector cash. Given the state of affairs at Royal Mail these days, however, it's probably as sound a suggestion as any. Financial and organisational pressures have rendered the group far less efficient than many of its sleeker commercial competitors, who now handle one in three of every letter posted.

One major hurdle is that the government remains committed to maintaining the ‘universal service' - a millstone round Royal Mail's neck which means it has to make daily deliveries to every UK home, and collections from every postbox in the country. It may be handy for us punters, but it's a pain in the postbag if you're trying to be profitable. Indeed, its core mail delivery business will suck £400m of cash from the business next year. Meanwhile postmen and women still sort mail manually at delivery centres before their rounds - the process is 85% automated in some other European countries.

There are of course other pressures: e-mail has hammered the market, as has a contraction in business post due to the recession. Mail volumes are said to have dropped 7%, costing Royal Mail around £500m over the past few years. The group is now handling 5m fewer items daily than two years ago. Then there's the small matter of a voracious black hole in its pension pot, reckoned to be around £7bn.The group's overall operating profit last year was just £162m on £9.4bn of revenue. You're not going to solve problems of this scale just by getting your postmen to walk a bit faster (although that hasn't stopped bosses trying, if recent reports are anything to go by).

So it looks like the writing's on the envelope for the Royal Mail we knew and once loved. The only question is who's going to buy it. Eyes must be looking towards powerful continental outfits like Deutsche Post. The German giant broke Royal Mail's UK postal monopoly back in 2002 and is probably already primed to plonk its towels on the front seats of the group's famous red vans. Briefträger Pat anyone?

In today's bulletin:

Inflation slides again as fuel prices plunge
PartyGaming boss Dikshit faces $300m US fine
Red-letter day for Royal Mail?
How Britain's Most Admired boards have changed in a decade
Laying down the law on training

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