Royal Mail Minority Stake To Go Ahead

17 February 2009 by Steve Lawson - © Hellmail.co.uk

The UK Government is to push ahead with plans to part-privatise the Royal Mail in the face of an overwhelming rejection by the Communication Workers Union and over 100 Labour MPs.

Rumours have continued to circulate that the government were likely to back down over the proposals but the Cabinet is united in a drive to introduce private capital to what it sees as an urgent need to strengthening of the Royal Mail which is struggling with an estimated £7bn pension deficit and a decline in mail volume.

The Communication Workers Union which represents thousands of postal workers and which just over a year ago resorted to industrial action to oppose pay and modernisation plans, is to host a rally in Central Hall Westminster next Tuesday (24th February) to demonstrate its determination to fight any form of privatisation and present arguments against the government’s plan.

Political and trade union figures will speak in defence of keeping the post a public service to hundreds of postal workers, supporters and the general public. Those intending to speak at the rally include Billy Hayes, CWU General Secretary, Dave Ward, CWU Deputy General Secretary, Geraldine Smith MP, Tony Benn, Former MP and Postmaster General, John McDonnell MP, and Brendan Barber, General Secretary Trades Union Congress.

Other speakers are:

Derek Simpson, Joint General Secretary UNITE, Michael Connarty MP, Linlithgow & East Falkirk CLP, Lord Clarke, Former Deputy General Secretary UCW, St Albans CLP, Katy Clarke MP, North Ayrshire & Arran CLP, Neal Lawson, Chair of Compass, Paul Kenny, General Secretary GMB and Vice Chair of TULIO, Bob Crow, General Secretary RMT, Gerry Doherty, General Secretary TSSA, Alan Donnelly, President ASLEF, Neil Anderson, Union Network International (UNI), Andy Kerr, CWU Deputy General Secretary (Telecoms & Financial Services) and CWU representative on the Labour Party National Executive.

PM Gordon Brown, who is said to be dropping like a stone in opinion polls, and with renewed mutterings from within his own party of a possible leadership challenge, intends to stand firm against strong calls from trade union leaders and backbenchers to abandon the plan to sell a minority stake in the company.

An insider told us that the Hooper report confirms a long-held belief by this and previous governments that Royal Mail should be privatised in one form of another to secure its future, but to date, no government has had the political will to see it through. The £7bn pension deficit has forced the present government to adopt the findings of the recent Hooper report and push for radical reform after what it described as a failure by Royal Mail as a whole, to modernise, despite a £1.2bn loan and increased competition from other operators.

“With tight EU guidelines on the level of support that can be offered to state-owned postal operators and a ballooning pension deficit, the government feels it has to deal with this quickly no matter how unpopular it might be. The Cabinet’s view is that tough choices have to be made, and now. They know only too well what a controversial decision this is, but are determined to see it through.” he said.

It looks likely to be a volatile week ahead with strong opinion from both sides, and so far no clear winners, but the Royal Mail desperately needs to mechanise large parts of its operation to meet the demands of business and direct mail.

In 2006 during an interview with The Spectator magazine, Royal Mail chairman Allan Leighton underlined the fact that with greater choices in terms of the way we all communicate, domestic deliveries were already in decline and not hugely profitable: “The people we deliver to are not our customers” he said.

Since liberalisation, rivals have steered clear of expensive delivery services and concentrated their efforts on sorting and handling business and direct mail contracts which are then fed back to Royal Mail for final delivery through ‘access’ agreements.

The loss of these accounts has had serious repercussions for the Royal Mail and it is still left with the cost of providing the one-collection, one delivery, one-price anywhere service known as the Universal Service. The Royal Mail has already highlighted a serious underfunding of this side of its operations which is now running at a loss. In 2007/2008 it reported a loss of £1m.

There has been growth in cheaper postal services for business through access agreements but the long-term funding of the Universal Service remains unresolved. Plans to part-privatise Royal Mail may help strengthen the company in a commercial sense, but it still does not address the long-term funding of the Universal Service.

However, With mail volume continuing to decline, the pension deficit growing every week, and EU demands for greater competition, the government maintains that part-privatising will give Royal Mail’s commercial operations more bite and open up greater opportunities in Europe.

Those against are still concerned about the Universal Service and how that will be funded in the future. Many fear that the cost of that and the pension deficit will be dumped on the tax payer and all the profitable business gradually sold off. There are also concerns about the lack of freedom available to subpostmasters whilst they continue to operate wholly under the Post Office Ltd brand. The Liberal Democrats have asked for greater independance allowing post offices to develop local services according to need and to appoint a board made up partly of subpostamasters, aimed at strengthening the remaining network.

With lack of clarity on these issues and no detailed plans beyond the intention to create a minority stake in Royal Mail, even the opposition benches have reservations about the government’s ability to fix the Royal Mail and deal with the pension deficit, even if it broadly supported Lord Mandelson.

Kenneth Clarke (Conservative) said during a debate in the Commons last week:

“Instead of having a comparatively low-key debate, as I thought we would, in which we would ask questions and Ministers would give details and some indication of when the legislation would come forward and what form it would take, we find that we are trying to ask what on earth the policy is at all.”