The Royal Mail - a tough sell
Eamonn Butler 6:39pm
Some day soon – unless the coalition has already lost its bottle – a bill
will be introduced to 'part-privatise' Royal Mail. It has to be done. But it will be a tough sell, for four reasons.
First, the market for the Royal Mail's product is shrinking. It's a big fish, but its pool is getting smaller. It carries 75 million letters a day, but that's down by 10 million just in the last
five years. And 87 percent is mail sent by businesses. Apart from Christmas cards, the rest of us now correspond by email. Last year's pre-tax loss was £262m: the reality is that the business
is insolvent.
Second, the Royal Mail is decrepit. It is up to 40 percent less efficient than some other EU mail systems which machine-sort all the letters and parcels (here it's done by hand). And it is carrying
a £10 billion deficit on its vast pension scheme. The EU wants mail services to be opened up to full competition by 2012, but the Royal Mail is in no shape to survive that. It desperately
needs an injection of new capital, and partnership and expertise with sharper, private mail carriers; but who in their right mind would volunteer?
Third, regulation is crippling the Royal Mail. Some 88 percent of its business is price-controlled. There are limits on what it can borrow to invest. Its competitors take profitable bits of the business, but then it is obliged to carry their letters for the expensive last mile up to everyone's door – no matter where they live in the UK. It is forced to pay millions each year to a 'consumer' lobby, PostWatch, which then beats up its brand. The regulator is large, expensive, and intrusive. (And these problems are not unique to Royal Mail: all our utilities have fundamentally been re-nationalised through regulation.)
Fourth, the seller – HM government – lacks expertise, leadership and enthusiasm. One key success factor in the 1980s privatisation programme was the expert privatisation team at the Treasury, who took the lessons of each privatisation on to the next. That expertise is now scattered. Nobody at the Treasury – nor at the government's banking advisers – has privatised a major UK business in twenty years. How are they expected to remember how it's done? And is Ed Davey, the Lib Dem minister responsible for the mail, really enthusiastic about this process?
The solution here must be to put a single minister in charge of the sale. Someone like Francis Maude, who was deeply involved in the 1980s privatisations. Oliver Letwin and John Redwood, who saw the process both as bankers and as politicians, would make a good expert team. And they could recruit others. They understand that regulatory reform is needed before a sale can succeed. They are enthusiastic privatisers. And without such expertise and commitment, the privatisation will surely not succeed.
Eamonn Butler is director of the Adam Smith Institute
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Dimoto
September 8th, 2010 7:03pm Report this commentGood summary.
Excellent conclusion/recommendation.
alexsandr
September 8th, 2010 7:03pm Report this commentthe market is due to implode. More and more stuff is being sent as email attachments instead of being posted. Bank and credit card statements are online. Who will buy this?
Simon
September 8th, 2010 7:39pm Report this commentRedwood is a good shout but the others are far too busy with even bigger tasks. JR has the business and ministerial experience and the necessary political zeal for the job.
Break the Union then break up the Business flog off the assets and use the proceeds to compensate staff and plug the hole in the pension fund.
If ever there was a dinosaur business that the market would easily and swiftly work to find a replacement it is this one!
It is a wealth destroying job creation scheme that actually also impoverishes it's staff. The main purpose it to provide a good income and a handy platform for the political views of the Trade Union Officials.
Victor Southern
September 8th, 2010 8:19pm Report this commentFifthly, the unions involved.
Mr Beagle
September 8th, 2010 9:54pm Report this commentA predictable viewpoint from a rabidly right-wing organisation.
Has the Adam Smith learnt nothing from the privatisations of the Thatcher years...from public to private monopolies owned by foreigners and private equity sharks?
ROJ
September 8th, 2010 11:52pm Report this commentYes, good analysis of the business problem. And the proposed solution? Put just one politician in charge, instead of several. OMG. Hey, it's a business issue. What's Vince for? Oh, never mind.
nonny mouse
September 9th, 2010 3:01am Report this commentWhoever is in charge of the Royal Mail sell off, please make sure they had nothing to do with the rail privatisation!
Rowland
September 9th, 2010 6:37am Report this commentIt looks like Mr Butler has pulled an old article out of his desk drawer. Royal Mail doesn't pay millions to Postwatch. Postwatch ceased to exist years ago. Makes me wonder whether the rest of the article is current.
Norman Dee
September 9th, 2010 8:59am Report this commentMr Beagle, and how will having it owned by the unions improve it's chances ? Unions are there to provide a pay packet for their members regardless of the customer, with the usual union cronies earning as much if not more than the directors they oust.
Chris lancashire
September 9th, 2010 9:41am Report this commentIt is difficult to think of a public enterprise that, when privatised, has not improved - and I include most of the utilities, rail, telephones, et al.
The Royal Mail has suffered from your point 4 - lack of active owners pursuing profit through good management.
That said, it remains a basket case which is worth very little but the govt would be well advised to get shot to avoid future liabilities.
Stuart Gray
September 9th, 2010 10:28am Report this commentMost of the information in this article is outdated - Postwatch are now Consumer Focus and have been for quite some time (and are not funded by Royal Mail anyway) and Royal Mail now carry 71 million letters a day (according to their latest annual report). Flawed analysis supported by out of date and erroneous statistics.
Stuart Gray
September 9th, 2010 10:30am Report this commentI forgot to mention in my previous comment that the British postal market is already fully open - and has been for years. It's the other Member states who still have reserved areas for their incumbent postal operators. Royal Mail also now sort a great deal more mail by machine than when the facts for this article were sourced.
Rantonuk
September 9th, 2010 11:34am Report this commentI have ranted on www.rantonuk.org forum about privatising the Post Office but only after it has been given all the work the DVLA now do (it does most of the work now), set up a new server at Ministry Of Transport, transfer backup tapes to it from DVLA and then sell off all the land and buildings at DVLA Swansea (One tower block cost £100miliion!)
Then after a 'settling down' period, sell off the Post Office with it's 12,000 branches in one of the biggest share floats in history!
The Royal mail is a 'minnow' by comparison and would be difficult to sell, meanwhile we need an injection of funds into the treasury! (The sooner the better!)
Anne Wotana Kaye 1
September 9th, 2010 2:39pm Report this commentSadly I recall the old days when without the necessity of a wheelie bin (usually dumped wherever anybody can steal mail) the regular postman arrived three times a day, and knew how to read English. Now the post comes yesterday for tomorrow!
sixsix
September 9th, 2010 4:11pm Report this commentif you want a success ful business let the chinese run it.lets privistise royal mail and have a successful company like the railways where the majority of people can only afford to use it ,is the weekends
a swift postman
September 9th, 2010 8:19pm Report this commentSad that priverization in still in peoples minds as a wounderful thing and the hatred towards the unions.Well lets look at what happened to railtrack. And Britsh gas,electric,Scotish oil,coal,B.T(which had free directory inquires until sold off).Has the prices and gone up r down.Are do we see it alot on B.B.C watchdog with compliants i wounder.And when you phone up to enquire you end up India.
Are do we catch the train to work on a cold morning only to be told it is canceled. Are a one coach train turns up packed and u get told to wait. So U wait in an open bus shelter (where a fine warm building used to be)thats urine soaked and stinks of stale ale.So when we sing rule Britiana at the proms next Saturday night. We rule no more because we have nothing much left but N.H.S,Royal Mail and 999 services. FOR goodness sake this our Royal Mail.You do'nt know what you have till it is gone. I am a postie I will fight all the way.
Mr Beagle
September 9th, 2010 9:49pm Report this commentMr Dee
When did I mention union ownership? Perhaps you're happy having the utility companies owned by foreigners?
Tim
September 10th, 2010 6:05pm Report this commentAs a postman myself the amount of post is increasing NOT decreasing on a yearly basis but the figures are manipulated downwards for reasons that only management know.
The internet has significantly increased thr mail traffic to volumes that i have never seen in my 22 years at Royal Mail.
Where will the lies stop! Propaganda more propaganda, lies, deceit and serious FRAUD.
Tim
September 10th, 2010 6:23pm Report this commentI remember when i started at Royal Mail 22 years ago.... we had a van bring the post to the office, we loaded it onto a wheel barrow, a big one mind.... and that was full, that was a heavy day... now 22 years on we get 30 to 40 cages of mail daily delivered by four lorries every night.... Jeeez mails going down alright!
CM
September 10th, 2010 6:35pm Report this commentThe general public are lead to believe through mainstream media, Royal Mail and the Hooper Report that mail volumes are decreasing. This is simply untrue and the sooner it is known just what a postie has to sort, carry, deliver the better. It would make a good report if someone were to follow up on actual mail volumes, not the fudged figures Royal Mail come out with.
Quite unbelievably, Royal Mail do not count letters we posties deliver on behalf of UK Mail, TNT and other rivals (we do the last mile for the competitor)into their figures when "deciding" mail volumes are dropping. They are quick to point out 1st class letters are falling in volume, but clearly omit the amount of rising junk (and competitor mail) as mentioned above by another reader. Coupled with this, and as highlighted again by the reader above, the internet has seen the amount of packets/parcels treble in volume, yet we don't read about this..
As far as Royal Mail mamagement go, I am a firm believer, that from top to bottom, rank and file, a mass clear out is required here. It is this poor mis-management which is hindering RM; clearly not mentioned in the Hooper Report.
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