Eamonn Butler

The Royal Mail - a tough sell

The Royal Mail - a tough sell
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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