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2 July 2009

Royal Mail part-privatisation abandoned

Mandelson insists plan will be revived after economic recovery

By Staff Blogger

The government yesterday abandoned its divisive plan to part-privatise Royal Mail after the recession left it struggling to attract bidders.

Lord Mandelson, the Business Secretary, said that the depressed market had made it impossible to agree the sale of a 30 per cent stake in the company. The government had received only one bid, below the asking price of £2bn.

But in a statement to the House of Lords, Mandelson insisted that the plan would be revived once the economy had recovered.

“Market conditions have made it impossible to conclude the process to identify a partner for the Royal Mail on terms that we can be confident would secure value for the taxpayer,” he said.

“There is therefore no prospect in current circumstances of achieving the objectives of the postal services bill. When market conditions change we will return to the issue.”

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The withdrawal by the government is a major setback for Mandelson who announced the plan shortly after his return to the cabinet six months ago.

He had consistently argued that part-privatisation was essential for Royal Mail to survive as business migrated to the internet and as it faces an £8bn pension deficit.

But many ministers will be relieved that the government has abandoned a plan that was fiercely opposed by Labour backbenchers and the Communication Workers’ Union.

Gordon Brown would have been forced to rely on Conservative votes to pass a bill that 148 Labour MPs had signed a motion against.

The Conservatives yesterday accused the government of going soft on public sector reform. Ken Clarke, the shadow business secretary, said: “The government is in a state of paralysed indecision on every difficult issue. Lord Mandelson said recently that the government was committed to the policy of part-privatisation and that the Royal Mail was in a crisis. He is now leaving the Royal Mail to slide into more rapid decline.”

Centre-left figures such as Peter Hain, who recently returned to government as Welsh Secretary, are keen to re-examine a proposal to turn Royal Mail into a not-for-profit company.

The proposal, outlined by the left-wing campaign group Compass, would see Royal Mail become a non-profit company like Network Rail or the BBC Trust.

Ministers previously rejected this option as “unworkable” and a “political fix”. But the plan, which would allow private sector involvement but avoid a divisive sale, may now be reconsidered.

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