Saving the Royal Mail – Privatisation not the answer

Royal Mail Logo

In recent weeks the Royal Mail published its half year results showing a disappointing 74% drop in profits, down from £184m to £52m. To make matters worse Royal Mail Letters recorded a loss of £66m despite making a profit of £48m only a year ago. A slight silver lining is that all other parts of Royal Mail Group, including the Post Office, Parcelforce and European partner GLS have remained profit making.

So is Vince Cable’s plan to privatise the business and split the group up the answer Royal Mail is looking for? The simple answer is no. The LibCon coalition seems to have developed an ideology that is based on a ‘crossing of the fingers’ approach that the private sector will save the country from its economic woes and the unemployment that is expected from the government cuts. This approach is in many ways flawed but in the case of the Royal Mail, the privatisation and mutualisation will do more harm than good. Although a private company may be able to make the company return to profit, it will do it in a way that will completely dissolve its current service agreement with the British public. There is no chance a private company buying Royal Mail will continue a Universal Service Obligation that the public and businesses have come to expect when such a service is run at a loss.

Problems with the privatisation of Royal Mail will also include an increase in the manager/union divide (as we have seen many times in other companies such as BA) and the separation of Post Office Ltd. This year for example the Post Office is playing a vital role in not only becoming the front office of government but also providing a profitable wing to Royal Mail Group. All the members of the Royal Mail Group are interdependent and every year some parts of the business can offset the loss of another part. Royal Mail is stronger if kept together as a government group than if it is split up. I can’t help but think this is an example of a government wishing to no longer be accountable for the Royal Mail because they can’t fix it.

Of course there is a very good reason why they can’t fix the Royal Mail and UKIP knows this reason, as do the government, but unlike the government and Labour opposition, we are willing to shout about it. That reason is the EU. The European Postal Services Directive (2002 and 2008) agreed by Labour, forces the liberalisation of European postal markets across the EU to be accomplished by Dec 2010 to allow EU nations to compete in national mail markets. Labour however decided to speed this regulation through and allowed foreign services such as TNT to compete with Royal Mail whilst creating PostComm as the industry regulator to tie back Royal Mail in terms of pricing and competiveness to ensure it could not hold on to or reinstate its monopoly. It has since lost all is profitable areas to cheaper foreign postal services, of who use Royal Mail infrastructure and staff to finish off the delivery legs they cannot do. Meanwhile Royal Mail is legally bound to provide the Universal Service Obligation whilst trying to modernise and be profitable in a market where they are not allowed to compete . Another surprising note to this is the issue to mail volumes. It is true that the letters markets are declining however with the increase of online shopping and commercial self service, packets and parcels are on the increase – as shown with the parcel force wing of Royal Mail increasing its profit. The market is there but Royal Mail are too heavily regulated to exploit this growth as they must allow European competitors the advantage and get a foot hold in the UK market.

So what is UKIP’s answer? Obviously there would be an immediate scrapping of the EU Postal Directives and allow Royal Mail to compete fairly and reinstate its monopoly or to franchise out some of its services to the private sector in the same way as local NHS trusts do at the moment. By keeping Royal Mail public we can keep the business and its modernisation in the sphere of public and political accountability. We must remember that Royal Mail play a vital public service, a service the government make a profit out of whilst getting the nod from the public. This service when fully modernised and allowed to take control of the profitable markets that it once held could theoretically SAVE the government money as Royal Mail profits are recycled into the service and reduce the need for government subsidy. Taxpayers will get more from Royal Mail for a little investment and they will be able to hold governments to account for the handling of the Royal Mail Group, including Post Office Ltd.

This is a different strategy for UKIP which is a party of the free market, but UKIP also recognises the need to weigh up the needs of the public. There is also a real opportunity for the government to make Royal Mail profitable and allow the company to make the government money but only UKIP are able to put this plan forward as we are the only party that will scrap the forced EU Postal Regulations and allow Royal Mail to exist freely in its market. Privatisation is not an answer, it is simply the government wiping there hands of a service they have lost control of to EU legislation.

Daryl Stanbury

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