The privatisation of Royal Mail: a fire sale to dig Osborne out of a hole

Ministers are motivated by the desire to make a quick buck, not by what is best for the taxpayer in the long-term.

As a result of George Osborne’s failed economic experiment, the government is set to borrow £245bn more than it planned. So ministers are now desperately scrabbling around for ways to make a quick buck and dig themselves out of the hole they have created.

Amid reports that the government is considering selling off public stakes in the banks at a knockdown price, ministers have confirmed they are pressing ahead with a fire sale of Royal Mail this autumn. The timing of the sale is curious and seems entirely dictated by what is politically expedient for the Tory-led government in the short-term, not by what is best for the taxpayer in the long-term. In effect, David Cameron and George Osborne are playing politics with the postage stamp.

We opposed full privatisation when the government proposed it early in this parliament because we believe that maintaining the Royal Mail in public ownership gives the taxpayer an ongoing interest in the maintenance of universal postal services. It also gives us an interest in the all-important agreement the Royal Mail has with the Post Office, under which the Post Office provides Royal Mail products and services – crucial to the Post Office in the long term. Public ownership helps ensure the taxpayer shares in the upside of any modernisation and future profit that the Royal Mail delivers too.

Despite all this, the government is pressing ahead with its plans to sell off this 372-year-old institution. In so doing, it has failed to demonstrate why this is the best time to sell and why a sale this year will deliver best value for the taxpayer. Instead they are rushing headlong into privatisation without addressing fundamental outstanding issues for consumers and, in particular, the many small businesses that rely on Royal Mail services. 

Legitimate concerns have been raised regarding the competition posed to Royal Mail by other postal service operators: questions regarding the fairness of the competition and whether it delivers a good outcome for consumers, given other postal service operators are not subject by the regulator to the same high performance and service quality standards as the Royal Mail. 

These different service requirements arguably put the Royal Mail at a competitive disadvantage as compared to its competitors. This was laid bare in shocking detail in last week’s "Secrets of Your Missing Mail" Dispatches documentary on Channel 4, in which mail and parcels were filmed undercover being recklessly thrown around at a private postal operator’s depot. This state of affairs has not been addressed by the government and, as things stand, will surely compromise any price they can secure for Royal Mail for the taxpayer from potential investors.

Most people access a sorting office or Royal Mail office in reasonably close proximity to their home or business. But there is no guarantee that a privately=owned Royal Mail won’t sell off delivery offices - particularly those occupying urban sites where land values are higher - and replace them with distant, out-of-town locations, meaning individuals and small businesses would have to further go to pick up parcels and mail. What safeguards does the government intend to put in place to ensure easy access to Royal Mail locations following the sale? We do not know.

Then there is the future of the Post Office. Royal Mail customers currently rely on being able to access many Royal Mail services through the Post Office under a ten-year agreement between the two companies. This is convenient for many businesses and families. However, a privatised Royal Mail may well have very different management with different priorities. If ministers press ahead with the privatisation, there is no guarantee that Royal Mail under private ownership would continue providing services through the Post Office in the long term. 

We do not yet know of ministers' concrete plans for the Post Office.  What we do know is that they have made noises about fully mutualising it and are consulting on employee-owned models in that regard, among others. If they are considering turning the Post Office into a employee-owned mutual, why are they only giving Royal Mail employees a 10 per cent stake on the sale of shares in their employer? Again, no answers.

Finally, ministers have repeatedly argued that turning the Royal Mail into a wholly privately-owned business is essential to attract new investment. But they haven’t said how much capital they envisage the business being able to raise after privatisation. We are told the Royal Mail needs capital investment in the region of £2bn over the next five years. It is not at all clear - if the government rushes to sell now - that a privatised Royal Mail will be able to raise those sums. In part, this is because it depends on its future earnings.

Back in 2011, when ministers put through the Postal Services Act to pave the way for the privatisation of Royal Mail, the earnings of the business were poor. Two years on, the balance sheet of the business has improved significantly. Royal Mail’s historic pension deficit has been transferred to the government, agreement between trade unions and management has been reached, helping speed up modernisation, and the current CEO, Moya Greene, has proved highly effective. Consequently, operating profits increased from £39m to £120m last year. If the government is intent on privatisation, why not allow more time for the balance sheet to improve, so a higher price can be secured in the future instead of selling the Royal Mail on the cheap in the coming months?

Many questions, very few answers and so far little justification for doing a fire sale now. But there have been successful privatisations in times past which have delivered for the British people, ministers cry. Yes, there have also been examples, in rail and energy under the last Conservative government, where badly executed privatisations resulted in substandard services that were poorly co-ordinated, complex to navigate and have since resulted in people being ripped off. That is why any government intent on a sell off should proceed in a considered way, and exercise care, rather than dashing to sell for short-term political considerations.

This privatisation has the strong whiff of desperation from a government eager to dig itself out of a £245bn hole at any price. It is the taxpayer who will lose out.

George Osborne delivers a speech at media company Unruly, on April 25, 2013 in London. Photograph: Getty Images.

Chuka Umunna is Labour MP for Streatham.

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Metro mayors can help Labour return to government

Labour champions in the new city regions can help their party at the national level too.

2017 will mark the inaugural elections of directly-elected metro mayors across England. In all cases, these mayor and cabinet combined authorities are situated in Labour heartlands, and as such Labour should look confidently at winning the whole slate.

Beyond the good press winning again will generate, these offices provide an avenue for Labour to showcase good governance, and imperatively, provide vocal opposition to the constraints of local government by Tory cuts.

The introduction of the Mayor of London in 2000 has provided a blueprint for how the media can provide a platform for media-friendly leadership. It has also demonstrated the ease that the office allows for attribution of successes to that individual and party – or misappropriated in context of Boris Bikes and to a lesser extent the London Olympics.

While without the same extent of the powers of the sui generis mayor of the capital, the prospect of additional metro-mayors provide an opportunity for replicating these successes while providing experience for Labour big-hitters to develop themselves in government. This opportunity hasn’t gone unnoticed, and after Sadiq Khan’s victory in London has shown that the role can grow beyond the limitations – perceived or otherwise - of the Corbyn shadow cabinet while strengthening team Labour’s credibility by actually being in power.

Shadow Health Secretary and former leadership candidate Andy Burnham’s announcement last week for Greater Manchester was the first big hitter to make his intention known. The rising star of Luciana Berger, another member of Labour’s health team, is known to be considering a run in the Liverpool City Region. Could we also see them joined by the juggernaut of Liam Byrne in the West Midlands, or next-generation Catherine McKinnell in the North East?

If we can get a pantheon of champions elected across these city regions, to what extent can this have an influence on national elections? These new metro areas represent around 11.5 million people, rising to over 20 million if you include Sadiq’s Greater London. While no doubt that is an impressive audience that our Labour pantheon are able to demonstrate leadership to, there are limitations. 80 of the 94 existing Westminster seats who are covered under the jurisdiction of the new metro-mayors are already Labour seats. While imperative to solidify our current base for any potential further electoral decline, in order to maximise the impact that this team can have on Labour’s resurgence there needs to be visibility beyond residents.

The impact of business is one example where such influence can be extended. Andy Burnham for example has outlined his case to make Greater Manchester the creative capital of the UK. According to the ONS about 150,000 people commute into Greater Manchester, which is two constituency’s worth of people that can be directly influenced by the Mayor of Greater Manchester.

Despite these calculations and similar ones that can be made in other city-regions, the real opportunity with selecting the right Labour candidates is the media impact these champion mayors can make on the national debate. This projects the influence from the relatively-safe Labour regions across the country. This is particularly important to press the blame of any tightening of belts in local fiscal policy on the national Tory government’s cuts. We need individuals who have characteristics of cabinet-level experience, inspiring leadership, high profile campaigning experience and tough talking opposition credentials to support the national party leadership put the Tory’s on the narrative back foot.

That is not to say there are not fine local council leaders and technocrats who’s experience and governance experience at vital to Labour producing local successes. But the media don’t really care who number two is, and these individuals are best serving the national agenda for the party if they support A-listers who can shine a bright spotlight on our successes and Tory mismanagement.

If Jeremy Corbyn and the party are able to topple the Conservatives come next election, then all the better that we have a diverse team playing their part both on the front bench and in the pantheon of metro-mayors. If despite our best efforts Jeremy’s leadership falls short, then we will have experienced leaders in waiting who have been able to afford some distance from the front-bench, untainted and able to take the party’s plan B forward.