2023: Looking back at the Royal Mail fire sale
Looking back ten years to 2013 when the UK Government privatised the Royal Mail, we should have seen it coming. As predicted, prices immediately sky-rocketed after the sell off. The government promised that competition would hold prices down but, as soon as the private equity firms got control of Royal Mail, prices went up. Competition was maintained, every major courier company immediately hiked their prices in line with Royal Mail.
Two years after the sale, Royal Mail EU was incorporated in Luxembourg. The investors argued that all stamp sales were with Royal Mail EU. Royal Mail UK Ltd merely provided logistics services and paid royalties to Royal Mail EU, hence making massive losses. No corporation tax was ever paid for UK postal services to HMRC.
Along with the formation of Royal Mail EU and majority ownership by the French government, the monarch’s head ceased to grace UK stamps from the 1st of January 2016. The only people that were delighted were the anti-Monarchists and stamp sellers on eBay who saw their final sale prices triple for pre-2016 UK stamps.
Of course, we all believed the government that prices were controlled by law, but politicians only spoke of the price of a second class stamp being regulated by Ofcom. They didn’t tell us that all other prices were already deregulated and naturally the sparse profits Royal Mail made in the run up to privatisation didn’t satisfy the shareholders. Prices had to rise to pay for the investments which only the private sector could provide, they said.
Three years later Royal Mail was split into two, the lucrative parcels business – basically anything delivered in a van – was floated as a separate entity with the argument that Royal Mail could then concentrate on delivering the Universal Delivery Service. Remember when that was a six day a week service?
It was only a few years later that the Royal Mail went bust. Without the parcels business and with ever increasing competition from third parties using Royal Mail for the final mile, costs were rising and stamp sales were down. With the obligation to provide a six day a week service and inability to put up stamp prices, the Royal European Postal Service was launched.
With a stamp price of just €2 the new Royal EU Postal Service promised to deliver letters across the EU once every three days. Workers would be expected to work anywhere within the EU with a new harmonised wage structure. In reality posties couldn’t afford to work for the wages, so UK letters are now delivered by EU workers. Sadly it’s a hit and miss experience as many mail delivery workers don’t actually speak English.
What’s being said about the Royal Mail sell off
I just made the history above up – no one really knows what will happen when the Royal Mail is sold off. What’s being said however is:
- The government price promise only refers to a 2nd class stamp. Almost all other prices and services are deregulated and can be increased at will.
- Investors will be greedier than the government. They’ll want a “reasonable” return on their investments and that can only mean price increases.
- Privatisation solves nothing. The Royal Mail will have the same modernisation programme in place after the sell off as it already has.
- The Royal Mail has sometimes made a loss and sometimes been profitable. In the last two years Royal Mail has made a modest profit for the country (£440m in 2013).
- Royal Mail will still cost the tax payer money – the government are only selling off the profitable bits, and will still have responsibility for pensions, and the parts that make a loss
- The government says Royal Mail needs access to private investment to flourish and that’s why it must be sold off. That’s a lie, there are many Private Finance Initiatives (PFI) in the UK. Hospitals, Prisons, Roads and Schools have all been built with Public Private Partnerships so why not the new Royal Mail processing facilities?
- Most important of all – does it matter if Royal Mail sometimes makes a loss? It greases the wheels of the most advanced ecommerce infrastructure anywhere in the world. Ecommerce is the only part of the economy to see double digit growth throughout the recession. Ecommerce needs Royal Mail and if that sometimes needs support from the tax payer isn’t it a price worth paying?
The truth of the Royal Mail sell off – Facts from Royal Mail
Access to External Capital
Many previously Government-owned companies – Rolls Royce, BP, etc. – have flourished under private ownership. The Government has said it is not a good owner of large businesses. Private ownership will enable Royal Mail to become more flexible and fleet of foot in the fiercely competitive markets in which we operate. Some of our competitors are successful, privately-owned global players – which invest when they need to. Like them, we need to access to capital from time to time, but the Government has made clear it doesn’t have the money to allocate to Royal Mail ahead of schools and hospitals. Access to the capital markets will allow us to be more nimble to seize the opportunities available to us.
Royal Mail operates in a competitive market that will constrain its ability to raise prices. The parcels market is highly competitive. Letters volumes are in severe decline and are very sensitive to price rises. Ofcom, our new regulator, said last year that Royal Mail needs “to materially increase prices in order to support the sustainability of the universal service.” Ofcom has retained a safeguard price cap on 2nd class stamped services up to 2kg as a further constraint on postage prices.
Royal Mail is honoured to provide the six-day-a-week, one-price-goes anywhere Universal Service to over 29 million addresses in the UK. There is a clear and unambiguous legal commitment around the Universal Service. It is protected by law – enshrined in the Postal Services Act 2011. Any change would have to be passed through an affirmative vote in both Houses of Parliament.
Quality of service
Quality of Service is one of the key drivers of our success. The Quality of Service regime that applies to Royal Mail under public ownership will continue to apply under private ownership. The regulator for UK postal services, Ofcom, has already specified the minimum standards. Our customer service will be an advantage for us in the private sector.