Royal mail privatisation – taxpayer, prepare to be ripped off (again)!

May 27, 2013 6:44 pm 0 comments Views: 55

As a prelude to its privatisation, the announcement yesterday that Royal Mail made £440m profit for the year ending March 2013 was certainly an eye opener.


A combination of rising stamp prices, increased parcel volumes and a proliferation of direct (junk) mail have seen profits surge as revenues hit a record £9.3bn.

Perhaps in a different era ministers might claim this is a public sector success story, a business that is generating enough profits to finance modernisation in the face of competition from private carriers and electronic communication.

Sadly for the taxpayer, small businesses and rural communities, that is not what ministers are saying.

Instead we are told that the one and only way Royal Mail can survive is for it to be sold off. What’s more, ministers threaten that if anyone takes serious steps to oppose a public sale, then the business will be flogged off to one of those nasty private equity funds or an overseas postal administration.

Certainly those kind of profit levels will attract a lot of City interest. The government remains vague about how much of Royal Mail it wants to sell and to whom, but independent valuations appear to have settled on a figure of between two and three billion pounds.

So £440m profit on a £3bn investment is a pretty good bet, even when it is adjusted to reflect that might not equate to 100 per cent of the value of the business. Inevitably investors’ gains must come at cost to someone, and that is where the taxpayer and consumer come in.

As the owner of Royal Mail, the taxpayer might reasonably expect the government to seek the maximum value it can achieve for the business if it is to sell it. However, there is little indication ministers are doing so. The whole process is opaque. A proposed sale is just a few months away yet there is no clear picture of what the government thinks Royal Mail is worth, how much of it should be sold and whom should be allowed to buy it.

The reality is for this privatisation to be a political success it has to be a taxpayers’ failure. No doubt when the time comes ministers will boast of a market eager to snap up Royal Mail, neglecting to mention that the reason is because it is being sold off on the cheap.

In every debate about the future of Royal Mail ministers say privatisation is the only option. The argument is that the business is unable to raise private money as a publicly owned company because its borrowing will increase public debt thus depriving schools and hospitals of cash.

But that fox has now been shot. Clearly Royal Mail is able to raise significant revenues to invest in its modernisation programme. This is the best solution for taxpayers and consumers who face the prospect of a business being sold off on the cheap, prices to escalate unchecked, and services, particularly to rural areas to slowly but surely disappear.

This is a well trodden path for the taxpayer and consumer. Those who look forlornly at their energy bills might question just how privatisation and competition has helped them.

Similarly those taking out a mortgage in order to travel on the rail network will be equally non-plussed about the merits of private ownership.

Royal Mail is now at a crossroads. Privatisation is a very real prospect. So far ministers have been singularly unwilling to debate the merits of their policy. There is no mechanism for Parliamentary debate about this privatisation and Conservative MPs are distracted by other political issues.

However, consumers can be protected from rising prices and service cuts. It is precisely those members of Parliament who need to understand the public strength of feeling about the sale.

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