Is The Government Screwing Us Over With a Privatised Royal Mail?

By Chris Mills on at

Royal Mail, the backbone of the postal system -- itself one of the key bits of infrastructure that makes the country go round -- is getting flogged off to the tune of £3bn. Although that'll have the politicians jumping for joy, things might be a little different for us mere mortals.


The Royal Mail Will Still Have to Deliver to Every Household

Yep, the Business Secretary, Vince Cable, has been clear that the Royal Mail's mandate to provide a delivery to all of the UK's 29m households, six days of the week, still stands. (Side note: Royal Mail's dedication to this is pretty neat. It has its own ship, and up till 10 years ago, ran its own little version of the London Underground, all in the name of delivering letters.)

Moreover, the concept of the stamp -- one price to send a letter, whether it's going off to the Hebredies or Hertfordshire, will remain. However, the price of the stamp may well go up. Last year saw an unprecedented price rise of 14p for a first-class stamp. Most likely, a privatised Royal Mail will still retain its price-setting powers for stamps, and with the volume of letters falling, we may well see the price of stamps being jacked up to keep business ticking over.


Royal Mail Will Still Be The Only Wholesale Letter Carrier

One thing that won't change is the Royal Mail's effective monopoly on the letter postage system. While we've got dozens of parcel couriers nowadays (and despite the legal liberalisation of the postal system) there's still the one and only venerable mainstream carrier of letters, and that's set to stay the same.

In the short term, that's probably a good thing -- given that one company alone can't really make money off sending letters, it's difficult to imagine that multiple, competing companies would get enough market share to justify the infrastructure needed to ship letters around. For once, a monopoly might be the best thing for consumers.


The Post Office Will Stay the Same

In our minds, Royal Mail and those mind-boggling Post Office queues are one and the same. However, the Post Office and Royal Mail are actually two separate entities -- Royal Mail does the sorting and delivering of letters and parcels, whereas the Post Office is a High Street presence for post, local and governmental paperwork (which is why you can pick up a Passport application form at the Post Office, for example). For the time being, the Post Office is staying firmly within the government's grasp.


Will The Royal Mail Get Worse?

This is really the crux of the argument. There's no doubt that privatisation will be good for the government in the short run -- a spare £3bn will look pretty good in Mr Osborne's pocket. But there's a fear that making Royal Mail a private company -- and therefore far more concerned about the bottom line -- will lower the standards of service, just like some believe privatising National Rail or British Telecoms did.

On the one hand, there's the old fear that a private company is one which only cares for the shareholders, not its employees or the customer. The counter-argument, of course, is that a free market and competition -- which there is more than enough of, in the parcel-shipping market -- will drive companies to lower costs and improve the quality of service.

That's an argument for the economists. But looking at examples from around the world, it seems like the privatisation nay-sayers might have a point. According to an EU-funded study of the privatisation of the post system in Austria:

"Large-scale and business customers have been able to profit from the liberalisation through more offers and falling prices. Household customers and workers, however, have rather been among the losers. Letter-post prices have been raised and the restructuring of the universal service provider – in particular the closure of a large number of post offices and massive job reductions – involve conflicts and repeatedly lead to public debates and protest." [Emphasis added]

The story from Germany and Belgium, both of whom have also privatised their postal systems, is similar -- benefits for large businesses and shareholders, but bad news for households (and anyone who wants to send letters).


Is Now The Right Time?

The government's second argument for privatisation is all about investment. In such a fast-moving industry, it says, the Royal Mail needs a boat-load of investment to stay afloat. That money, Georgie-boy reckons, would better come from the private sector than a cash-strapped government.

However, that's a rather narrow view. Although the Royal Mail's had a bad few years, it managed an operating profit of £403m in the last year, up from £100-odd million the year before. Those profits aren't a one-off, either -- they were driven mostly by a rise in parcel volume, something that's only going to rise as we buy more and more stuff online. With that in mind, the government's valuation -- of £2-3 billion -- looks shockingly low. (For comparison, Facebook was valued at around £66bn, on profits of about £600 million. Even if that figure was way off, it shows how far the government is under-selling Royal Mail.)

And even the government's argument that the Royal Mail needs private cash to invest in its future is flawed. As a government-backed entity -- and one making £403 million a year, at that -- the Royal Mail is able to borrow at far lower rates than most private companies, making its investment in the future cheaper.

Even if the Royal Mail should be privatised, then -- which is a dubious argument, looking at the evidence -- now seems like a catastrophically bad time to do it. Playing The Stock Market 101* says that you should buy low, sell high; it seems like the government's doing the exact opposite.

*probably not a real book

Image credit: Postbox from Shutterstock