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Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

The business secretary's plans for privatising the Post Office are in tatters – after his select committee put the boot in

The business secretary's plans for privatising the Post Office are in tatters – after his select committee put the boot in

The words choke and cornflakes suggest themselves when thinking of how Lord Mandelson responded to a report released (pdf) by the business, enterprise and regulatory reform select committee yesterday.

The committee, chaired by the highly respected Tory MP Peter Luff, is doing a forensic job on the various options for the Post Office network. It seems from the public sessions (where key witnesses are invited to give their views on how the Post Office is and should be run) that it’s a motivated, informed and tough body, intent on finding the right solutions for a great national institution – and applying its keen intelligence to the postal services bill (prop: Lord Mandelson) and its proposal that the Royal Mail be broken up through a 30% sell-off.

The latest report on the bill is an astonishing attack on the business secretary’s plan. Though couched in the silky language of parliamentary discourse – “it is surprising”, “worrying”, “the government is coyly refusing …” – the report, to use a technical term, tears the government plan to bits. It also rips apart the key recommendations of the Hooper report, which Lord Mandelson accepted in its entirety on the day of publication and then used as a basis for his sell-off bill.

The report is a rattling good read. Its main conclusions are unambiguous. It agrees with Hooper and the government that the Royal Mail pension deficit should be taken over by the government. And it agrees that Royal Mail should be differently regulated and governed – taking away the malign political interference (or negligence) that has dogged it over the years. Nobody could disagree.

Then it gets down to business, shredding all the arguments made for the 30% sell-off.

“We do not consider either the independent review or the government has properly made the case that these two reforms, about which there is a broad consensus, can only be made as part of a package that includes the third reform – the involvement of a private sector equity partner in Royal Mail.”

The report points out that the government has not put out the figure it hopes to get from the sell-off – or explained why a much-needed cash injection has to come from a sell-off.

“We are left with the conclusion that either the government has not fully thought through its position about future share sales, or that it has done so and is refusing to reveal its hand. Either case is worrying.

“It is entirely unacceptable for parliament to be asked to approve such fundamental changes to Royal Mail Group when there is no indication of how much money Royal Mail Group needs for investment; while the government appears to have no business plan and has not indicated the use to which any private sector capital would be put.”

After such a slating, it’s hard to see what will be left of the rationale for Lord Mandelson’s plan to break up Royal Mail, given that there is no certainty that there will be a cash injection from a private-sector partnership. There are several questions about the proposed partnership that must be addressed:

The figure cited by Lord Mandelson at the second reading was 30%, but why?

How much openness will there be about the partner’s rights and any arrangements between the parties about sale of the partner’s stake? As the bill is currently drafted, parliament will not have any right to see any agreement before the government enters into it (or afterwards). Is the government prepared to make such details public before a partnership is agreed?

What is the detailed rationale for dividing the Post Office from Royal Mail Group?

What will be the effect on competition if, as is very likely, the chosen partner is already active in the UK mail market?

What will happen if Royal Mail needs further capital injections? The natural assumption is that investors would fund this in proportion to their stake in the company. But such an injection from the Treasury would expose the company to all the state-aid rules that we are told this scheme is intended to avoid.

It’s hard to see how Lord Mandelson can now persevere with his wretched, destructive bill. Nobody – including now this august select committee – wants anything to do with it. Can’t someone throw the noble lord a lifeline out of this sinking ship?

Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

FR Leavis famously said of some transgressing text that he “would not condone it by reading it”.

If you disagree with the Hooper report (pdf) into the future of postal services, with its unpopular and lordly conclusion that the only hope for Royal Mail is a sell off, you may feel the same. But it needs reading for two reasons.

First, it is the sole justification being used by the government for the proposed privatisation of Royal Mail. The Hooper report will be quoted ad nauseam in coming weeks by government ministers trying to force MPs to vote for this dreadful sell-off. Hooper is thus achieving an unlikely status as the last word on Royal Mail, and is being set up as wholly objective besides.

Second, its arguments seem quickly to have made their way into the body politic – that’s us. Hooper goes as follows:

  • Fewer and fewer of us write letters any more. That market is going the way of the horse and cart so Royal Mail is going to lose more and more money.
  • Royal Mail is losing loads of money anyway.
  • Royal Mail is way less efficient that smart European companies that have modernised (aka made job cuts) and it has far too many staff and mail centres. Hooper says Royal Mail is 40% less efficient than its European counterparts.
  • The pension deficit is huge and is going to cripple Royal Mail.
  • Management of Royal Mail is so awful that it can’t be trusted to take it into the future.
  • Labour relations are terrible.
  • The only solution is to sell off a big chunk to a private company because they know best how to be efficient, make money and save institutions for the future. (Hooper suffers a bit from not mentioning the current economic crisis at all)

But all of these conclusions can be easily challenged. Some of them are plain wrong.

This week Adam Crozier, group chief executive of Royal Mail, gave evidence to the BERR select committee looking at the future of the Post Office.
He pointed out:

Although letters are obviously decreasing in volume in every country, parcels (via internet ordering) are shooting up. 75% of postal profits are now from parcels. In fact next year Royal Mail will double its profits on this financial year – in which all four of its sectors made a profit.

On the 40% less efficient argument, Crozier told the committee that every state-owned postal service was less “efficient” than the new operators. He didn’t spell it out but it’s clear why – new operators pick their markets, they don’t deliver everywhere, they can mechanise more easily. They often pay low wages.

So Hooper did not compare like with like. And even if you compare like with unlike Royal Mail actually looks good. It costs Royal Mail less to deliver, per item, than TNT and Deutsche Post, and the customers pay very much less.

The Royal Mail pension deficit is huge. (Royal Mail has employed millions of people over the years). But the government is taking it over and thereby freeing up £280m a year of Royal Mail charges. Why hand that to a private operator?

And on management efficiencies and union relations – well, Royal Mail has shed 50,000 jobs in the past six years and they will cut £1.5bn out of the service in the next five years. With union agreement. “Our people have been through a hell of a lot in the past few years.” Crozier told the committee.

The management has reached all its service agreements. It has shed jobs. It is modernising. The unions agree with these targets and have produced their own modernising ideas. Royal Mail is efficient and 85% of its users are well satisfied with it.

What on earth is the government thinking? And why is it using the flawed Hooper report as its justification?

Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

postoffice-closeup1Today there begins another investigation into the future of the Post Office network. The BERR (Business, Enterprise and Regulatory Reform) select committee will be taking oral evidence about what should constitute the future of our unique and fiercely valued postal organisation.

It follows hot on the heels of the Hooper review (pdf) into the impact of liberalisation (read: deregulation, competition and sell-offs) on postal services. This review (with its recommendation that up to a third of Royal Mail be put for sale to other organisations) plaintively said that the future of post offices was outside its remit.

But as BERR begins its investigation, which will be speedy, it’s extremely important to put an alternative view not only to the Hooper recommendations, damaging though some of them are, but as importantly to the assumptions underlying the whole report. These assumptions could too easily be made the basis for decisions about the future of the Post Office network too.

The first thing to say about Hooper is that it already reads like a historical document. No mention of the disasterous failure of the whole debt-laden apparatus of private equity companies (one of which was reported yesterday to be sniffing round Royal Mail), no examination of the crashing of markets, no examination of the consequences for decent companies of endless takeovers and buyouts.

Planet Hooper is one where assumptions of public inefficiency/private competence still reign unchallenged. “We recommend a strategic partnership between Royal Mail and one or more private sector companies, with demonstrable experience of transforming a major business.”

But we know that public sector sell-offs and mergers to the fabled expertise of the private sector, often driven ruthlessly by either shareholder value or the insensate greed of partners and top executives, have awful results for customers – higher prices, no consideration of public good, and savage job cutting.

Hooper falls for this too. “Since the 1990s Royal Mail’s national distribution network is virtually unchanged, where modern European companies have reduced the number of mail centres by around 50% to optimise their operations. At Royal Mail postal workers sequence their letters by hand before setting off on their rounds. By comparison European operators sequence 85% of their letters by machine.”

To put it another way, job cutting is the way to go.

The Hooper review had an interim report last May in which it said honestly that liberalisation had only benefited a few big companies. This conclusion is lacking from the final report but it should be in there. And as the select committee examines the future of our remaining 12,000 Post Offices it should base its deliberations on the assumption that our postal service is a public good, that it is a complex network rooted in community, national cohesion, public utility, and that parliament’s job is to devise a future rooted in those values and not in the now derided beliefs that the public sector can only improve by being sold off.

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.