Royal Mail Threatened with Privatisation (Again)

On 10 September 2010, the coalition government published a report by the businessman, Richard Hooper CBE,(1) which updated his December 2008 ‘Independent Review of the Postal Services Sector’. Perhaps unsurprisingly, this new report – entitled Saving the Royal Mail’s Universal Postal Service in a Digital Age – repeats many of the flawed conclusions of the earlier report but in enflamed, crisis-ridden tones.(2) Having consulted many parties from the private sector, including Royal Mail’s competitors, TNT Post UK Ltd and UK Mail, and management consultants, PriceWaterhouseCoopers, Ernst & Young and Bank of America Merrill Lynch, Hooper’s renewed assertions are centred on the Royal Mail’s allegedly worsening financial health and the threat to the universal service that this poses, on the basis that:

• the market and Royal Mail’s market share both continue to decline;• the company has, despite good progress, still not modernised sufficiently;• the accounting pension deficit has increased from £2.9bn in March 2008 to £8.0bn in March 2010;• the current regulatory regime is not fit for purpose.(3)

To take each of these claims in turn, the market itself would not seem to have been as badly affected by e-substitution as Hooper suggests. Royal Mail accepts that, while its mail volumes declined by 7.3% in 2010, those of its competitors rose by 20%. And, although this suggests that the volume of letters handled by Royal Mail has dropped, calculations of the quantity of letters in mailbags may yet prove to have been artificially lowered, judging by the whispered claims of workers in the postal sector. Whatever the case, the threat to Royal Mail’s market share would seem not to be the e-substitution(4) that the capitalists claim but rather the introduction of competition to the postal sector imposed on the UK by the European Union in 1999 and enthusiastically implemented by New Labour. Notwithstanding, the operating profit of the letters business doubled to £121 million in the financial year ending in March 2010 (5), which must be considered against Hooper’s claim that ‘Pre-tax losses for Royal Mail Letters have grown from £200m to £333m’.(6) Another important point in this discussion is that letter volumes arguably lost to e-substitution are largely compensated for by packages and parcels of goods ordered over the internet. Across Royal Mail Group as a whole (including Parcelforce and the network of post offices), profits increased from £321 million to £404 million last year.(7) But, one of the early decisions ostensibly designed to handicap the letters service was the eradication of cross-subsidy within different parts of the group.

Hooper’s point about Royal Mail’s alleged loss of market share is indirectly linked to his next point about modernisation, as the rhetoric surrounding the Royal Mail has consistently linked competition to efficiency. The idea underlying this argument is that Royal Mail could easily compensate for the introduction of competing mail companies if it were a more modern, efficient organisation. This drive towards modernisation and increased efficiency seeks to reduce the operating costs and increase profit margins within the letter-delivering business. Never is it asked these days why it is that the Royal Mail, a vital public service which even Hooper concedes is ‘part of the country’s social and economic glue’,(8) should be forced to be profit-making. Adding insult to injury, the UK Treasury has extracted sizeable amounts of revenue from the Royal Mail over the years while simultaneously failing to invest in its infrastructure. Thus, it now falls to Royal Mail to fund the modernisation that the government has neglected to implement, in order to fend off the competitors that the government willingly introduced. Hooper goes even further than this to suggest that, ‘given Royal Mail’s refusal to, or inability to, modernise historically, competition was needed to force the pace’.(9)

The next point concerns the oft-quoted pension deficit, which is shown to have risen by more than £5 billion in the past twenty months. Again, this claim does not stand up to scrutiny. In December 2009, it was reported that the pension deficit, which had stood at £3.4 billion three years earlier (December 2006), was to rise to £10 billion.(10) Thus, Hooper’s claim that, in the fifteen months to March 2008, the deficit had dropped to £2.9 billion is disingenuous at best and seems deliberately designed to overstate the trajectory at which the deficit is increasing. Nevertheless, Hooper suggests that the government should clear the pension deficit using revenue from the public purse. Yet, as was the case in 2008 when the first version of Hooper’s report was published, this seemingly altruistic gesture is made not for the benefit of those postmen and women who have contributed to the fund all their working lives but rather to stabilise the mail service in a bid to make it more appealing to a potential buyer. Furthermore, Hooper attempts to make state-funded benevolence contingent on modernisation, arguing that ‘it is still difficult to justify to taxpayers that they should take on the deficit if Royal Mail cannot deliver faster modernisation’.(11) Quite why taxpayers would find this more difficult to swallow than the bailout of the banks is not explained. The Communication Workers’ Union suggests an altogether more sinister motive for government intervention into the Royal Mail pension fund. Alongside the overall deficit, the union argues, stands more than £26 billion in assets which a government in financial crisis (and its corporate allies) would be only too keen to appropriate.(12)

The final of Hooper’s concerns, about the regulatory framework, is slightly less controversial, with the current regulator, Postcomm, having prioritised the introduction of competition into the postal service over considerations of protecting the universal service. However, Hooper’s proposal, to move postal regulation to Ofcom, may prove yet more damaging to a former public corporation in a ravaged commercial market. If the Royal Mail were privately owned, as the business secretary, Vince Cable, has recently suggested,(13) it is hard to see how any regulatory framework could be designed that would protect the ‘privileges’ the mail service currently enjoys in order for it to deliver on its universal service obligation. A hint of continued attempts to hamper Royal Mail’s provision of the universal service is to be found in a series of recommendations by HM Revenue and Customs published in June 2010.(14) In this document, the VAT exemption that has historically applied to postal packets will be lifted in the areas where competition exists; similarly, passenger transport – from post buses to ships to planes – will also be subject to the imposition of VAT, combined measures which will serve to diminish any revenue increases brought about by modernisation.

Overall, the subtext of Hooper’s thinking is a desire to turn Royal Mail into a going concern, the kind of thrusting, profit-making business, unencumbered by union struggles and pension deficits that investors would be keen to acquire. With this in mind, it comes as no surprise that his ramped-up report was commissioned by the coalition government within its first month in office. On the basis of Hooper’s recommendations, it has been argued by the coalition government that the private sector would not only introduce much-needed capital into Royal Mail but also ‘inject private sector disciplines into the business’, thereby reducing ‘the risk of political intervention in commercial decisions (called in the original report “the spectre of political intervention”)’.(15) It is at this point that Hooper really pins his political colours to the mast and proves the homogeneity between the outgoing government and the incumbents, by evoking boundless trust in corporate decision-making and an inherent aversion to government responsibility in the public sector.

Radical thinking is now needed to save the Royal Mail from the neoliberal dogma that has brought it to its knees. Consistent with Conservative thought, UK policy in the postal sector might firstly be decoupled from that dictated by the European Union. Once this was achieved, the UK government would then be in a position to decide whether a competitive environment was appropriate to protecting the right of UK citizens to pay a uniform price to send mail from one end of these islands to the other. While acknowledgement of a monopoly (albeit a natural one in the case of the final mile of Royal Mail deliveries) runs counter to Conservative ideology, this would seem to be the most effective way of ensuring the viability of the so-called universal service. At the same time, the coalition could canvas public opinion about filling the pension deficit and rethink its role as sanctioned asset-stripper. The next step would be for the government to secure the VAT-free future of the letters and parcels business. Finally, bold factions within the coalition need to look again at permitting cross-subsidy within the Royal Mail Group in a bid to reverse the damage done to the Royal Mail by its predecessors.

1. See announcement of publication by the Central Office for Information at: http://nds.coi.gov.uk/content/detail.aspx?NewsArea.... Richard Hooper, Saving the Royal Mail’s universal postal service in the digital age, September 2010 http://www.bis.gov.uk/hooper-report3. Hooper, op cit., p. 7.4. The replacement by digital methods of communication once relying on the postal service.5. Chairman's Statement, Royal Mail Annual Report and Financial Statements Year Ending 28 March 2010, p. 5. ftp://ftp.royalmail.com/Downloads/public/ctf/rmg/2.... Hooper, op cit., p. 18.7. Chairman's Statement, op cit., p. 4.8. Hooper, op cit., p. 7.9. Ibid, p. 29.10. Terry Macalister, 'Royal Mail predicts record £10bn pension deficit', The Guardian, Thursday 10 December 2009 http://www.guardian.co.uk/uk/2009/dec/10/royal-mai.... Hooper, op cit., p. 31.12. Communication Workers' Union, 'Privatisation is politically motivated' 10 September 2010 http://www.cwu.org/news/archive/privatisation-is-p.... Graeme Wearden, 'Royal Mail to be privatised or sold', The Guardian, Friday 10 September 2010 http://www.guardian.co.uk/uk/2010/sep/10/governmen.... HM Revenue and Customs BN41 22 June 2010 http://www.hmrc.gov.uk/budget2010/bn41.pdf15. Hooper, op cit., p. 31.