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29 March 2023

Who killed Royal Mail?

The postal service is almost in special administration and barely delivering letters. Is Vince Cable’s botched privatisation to blame, or are we?

By Will Dunn

Royal Mail is holding a board meeting today (29 March) that may seal its fate. Yesterday the company told the Communication Workers Union, which represents 115,000 postal workers, that it has 48 hours to accept a below-inflation pay offer and job cuts equivalent to 10,000 full-time roles by August. If a deal is not reached, executives may follow through on their reported threat (which they have not publicly denied) to place Royal Mail into special administration. The service that has delivered letters everywhere in the UK for a fixed price since 1839 could be coming to an end.

In its most recent trading update Royal Mail’s owner, the snappily titled International Distributions Services, is clear about who is to blame: the posties, whom it holds responsible for causing £200m of the £295m in losses so far this financial year by striking. What IDS doesn’t say is how strikes could account for almost all of the losses when they took place on only 18 days in 2022. But it does find space to blame someone else: you.

This is probably a fairer accusation, because you (that is, the British public) send ever fewer letters. Addressed letter volume was down 18 per cent on pre-pandemic volumes in the 2021-22 financial year, according to Ofcom.

However, the MPs of the Business, Energy and Industrial Strategy Committee drew a very different conclusion from their recent inquiry into Royal Mail. The company’s “systemic failing” to deliver the “vital public service” of its universal service obligation, or USO (the requirement to deliver a letter anywhere in the UK six days a week) was the result of the “deprioritisation” of letters on the instruction of its management.

In an unusually blunt condemnation, the committee accused Royal Mail’s chief executive, Simon Thompson, of having “misled” MPs on questions including whether the company tracked its workers using digital devices, and whether postal workers were told to prioritise parcels over letters. Either Thompson wasn’t telling them the truth, it concluded, or management at Royal Mail had so little oversight of their processes that their work should be considered “negligent”. The committee also noted that Royal Mail executives had removed the link between fulfilment of the USO and their own pay and benefits (which added up, for Thompson, to a total remuneration for 2021-22 of £753,000).

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After the committee’s report was published Royal Mail rejected the accusation that MPs were misled, and said that its policies clearly stated that parcels and letters should be treated with equal importance.

Royal Mail executives were also criticised by Rico Back, Thompson’s predecessor, who spent 30 years at the company before becoming CEO in 2018 and then leaving abruptly in 2020. In a January interview with the Sunday Times, Back said Thompson represented a “toxic mixture” of inexperience and ignorance at the top of the company, which had “wasted time” and taken an unnecessarily confrontational stance against workers.

That assumes, however, that a peaceful outcome from negotiations was ever the plan. A cynic might suggest that the current period of inflation is the opportunity that the board and ownership of Royal Mail have long sought to split the letters business – encumbered by a well-unionised workforce and the need to provide a public service – from the profitable international parcels division, GLS, which grew revenue by 9.7 per cent this year.

The contradiction inherent in trying to run a privately owned, profit-making business that is required to hand-deliver letters from Osterley to Orkney for as little as 68p (75p from next week) has been evident since talk of privatisation began in earnest during the early Noughties. Is Vince Cable, who privatised Royal Mail as business secretary in 2013, to blame for its present woes?

To be fair to Cable, a series of decisions by other governments had made privatisation more likely. In 1990 Royal Mail was allowed to take what would become a 13-year holiday on payments into its defined benefit pension scheme; by 2009 it had a deficit in excess of £10bn. The EU, too, played its part, legislating for increased competition in mail services. Cable himself – when I asked him who should be held accountable, in 2020 – told me the real cuplrits were Treasury balance sheets. “For about 20 years before we actually privatised the Royal Mail, the Royal Mail had been unable to get Treasury permission to borrow to modernise,” he told me. “That was the central problem.”

But ultimately, it was Cable who pulled the trigger on privatisation, in the process handing tens of millions of pounds to City firms who joined the initial public offering early, and more cheaply, as “priority investors” before selling much of their equity less than a week later at a combined profit of at least £98m. The second-largest of these was the asset manager Blackrock, which would later employ George Osborne, who was chancellor during the sell-off.

Cable told me there was “considerable anxiety that the flotation would fail”, especially as workers were then threatening strike action, but he need not have worried: it was so oversubscribed that fewer than one in 20 prospective buyers were able to invest. In the first day’s trading it became evident that the company had been sold at a discount of hundreds of millions of pounds.

Since then much of the property estate that made up this value has been sold off; 142 distribution centres were closed in the first three years after privatisation. As the parcels business grew, private owners did not see it as something that should support letters – as it does in France, where the state owns an international parcels business (DPD) that effectively subsidises the public service of letter delivery (La Poste) – but as an opportunity that could be cleaved off from the old postal service. This looks ever more likely, and if Royal Mail is to survive as a letter delivery service, it will almost certainly have to do so in public ownership once more.

In 2020 I asked Cable if he regretted the trashing of an organisation that has been a national emblem for more than 500 years. “There’s nothing fundamental about it,” he told me. “There’s a lot of other sentimental brands that have suddenly disappeared. I grew up in York, with Rowntrees and Terry’s, much-loved Quaker companies, and they’ve evaporated or been taken over. And it feels a bit sad, but that’s the way capitalism works.”

[See also: The Royal Mail break up is inevitable]

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