Another Royal Mail fudge

February 26, 2009 2:41 PM

Politics and common sense rarely go hand in hand, and the current debate over Royal Mail is quickly becoming a prime example of this.

The Times reports today that Lord Mandelson - in desperate efforts to avoid a backbench rebellion - will promise to enshrine in primary legislation the public's majority stake in Royal Mail. He will also make further concessions over pricing and regulation.

But the bill (which is to be published today) will still introduce significant reform to Royal Mail, allowing elements of the business to be privatised. Indeed it is unlikely that the proffered concessions will satisfy opponents of the reforms.

Why give the concessions at all then? Conservative support for the original bill gave it a good chance in becoming law (albeit with the future of the Royal Mail's pension deficit still controversial). But this is politics, and it looks increasingly likely that the bill will become a classic piece of government fudge, pleasing no-one, failing to fix the problem and being almost entirely pointless. Both parties are guilty of this, and we have seen it with both hospital and school reform. The people who really lose out are those that use the service.

Lord Mandelson, Prime Minister Brown and other Cabinet colleagues - along with many Conservatives and almost the entire management of Royal Mail - have been convinced that privatisation is the only viable option to secure Royal Mail's future. Last year it made record losses and ranked last in a list of 13 Western European operators in terms of profit margins. The recent Hooper report into the future of postal services recommended whole-scale reform. Mandelson, in response to the report, promised 'gale force change'. Once again though, we are only going to see a weak breeze.

Of course any steps towards privatisation of the Royal Mail are welcome. And not just because it will satisfy some ideological pursuit, trimming down the state and limiting the number of burdens carried by the taxpayer. Rather it is because will probably mean a much better deal for consumers (about whom I have heard very little in the current debate). Politicians who seem so resentful of bailing out the banks seem quite fine with the yearly Government bail outs necessary to keep Royal Mail afloat. Royal Mail clearly supports the 'right' kind of jobs.

Opponents of reform play to the public's natural sympathies, with horror stories of shuttered up regional Post Offices and thousands of jobs lost. Jobs no doubt will be lost through privatisation. Some post offices probably will close. But this is happening already, and without major reform this will continue. And for no real gain.

Union leaders also make much of the fact that users of those postal services that have been liberalised and privatised around the world, invariably see a change in service. In this they are right. What is missing from the observation though is that in the majority of cases (particularly in Europe, where they have occasionally embraced full privatisation) the postal service has improved. For consumers that is. Workforces do shrink, buildings do close, but costs drop and delivery rate improve. Nowhere has found a magic formula, but in both Germany and the Netherlands services improved following total privatisation and the end of direct Government involvement. In both countries a monopolistic provider remained (Deutsche-post in the former, TNT in the latter) following privatisation, just it would here. But with a different set of incentives, efficiencies were found and innovation introduced. In Germany they have established a 'travelling post office' for the more quiet rural areas, travelling around a prescribed area and offering customers the services they enjoyed at their local branch, including some banking services right on their door step. 95 per cent of letters posted in Germany (to a German address) are delivered the next day. 99 per cent of all mail is delivered within two days. And that is all post, not just 'special delivery'. It is not cheaper, but considering the rises in UK stamps, it is not much more expensive either.

If nothing else we should consider the improvements that have been made to those services that have been subject to 'gale force change' in the UK. British Telecom (BT) is most like Royal Mail in that it has a monopoly on the network needed to deliver mail to your door, on in BT's case your phone. Following privitisation it increased its output per person and profitability by over 100%. It is a world class company, even if many of us find it a frustrating provider. Similar improvement came to British Gas, BAA and British Coal. And importantly this wasn't just through 'liberalisation'. Postal services in the UK are already liberalised; they have to be under EU rules. But the retention of the Royal Mail in public ownership means taxpayers are liable to bail it out again and again in the future. It is unlikely to see the improvements that are possible. In short, we all pay more for less. Some will point to the railways as an example of how privatisation doesn't always work. But in fact railway 'privatisation' resembled the 'half-in half-out' muddle that we see emerging over Royal Mail much more than BT reform. Moreover the issues involved were (and are) on an entirely different order of complexity (infrastructure, competition, etc). So if we want to avoid the problems of the railways creeping into our postal services, we need to avoid this increasingly unappealing fudge over Royal Mail.

 Politics and common sense rarely go hand in hand, and the current debate over Royal Mail is quickly becoming a prime example of this.

The Times reports today that Lord Mandelson - in desperate efforts to avoid a backbench rebellion - will promise to enshrine in primary legislation the public's majority stake in Royal Mail. He will also make further concessions over pricing and regulation.

But the bill (which is to be published today) will still introduce significant reform to Royal Mail, allowing elements of the business to be privatised. Indeed it is unlikely that the proffered concessions will satisfy opponents of the reforms.

Why give the concessions at all then? Conservative support for the original bill gave it a good chance in becoming law (albeit with the future of the Royal Mail's pension deficit still controversial). But this is politics, and it looks increasingly likely that the bill will become a classic piece of government fudge, pleasing no-one, failing to fix the problem and being almost entirely pointless. Both parties are guilty of this, and we have seen it with both hospital and school reform. The people who really lose out are those that use the service.

Lord Mandelson, Prime Minister Brown and other Cabinet colleagues - along with many Conservatives and almost the entire management of Royal Mail - have been convinced that privatisation is the only viable option to secure Royal Mail's future. Last year it made record losses and ranked last in a list of 13 Western European operators in terms of profit margins. The recent Hooper report into the future of postal services recommended whole-scale reform. Mandelson, in response to the report, promised 'gale force change'. Once again though, we are only going to see a weak breeze.

Of course any steps towards privatisation of the Royal Mail are welcome. And not just because it will satisfy some ideological pursuit, trimming down the state and limiting the number of burdens carried by the taxpayer. Rather it is because will probably mean a much better deal for consumers (about whom I have heard very little in the current debate). Politicians who seem so resentful of bailing out the banks seem quite fine with the yearly Government bail outs necessary to keep Royal Mail afloat. Royal Mail clearly supports the 'right' kind of jobs.

Opponents of reform play to the public's natural sympathies, with horror stories of shuttered up regional Post Offices and thousands of jobs lost. Jobs no doubt will be lost through privatisation. Some post offices probably will close. But this is happening already, and without major reform this will continue. And for no real gain.

Union leaders also make much of the fact that users of those postal services that have been liberalised and privatised around the world, invariably see a change in service. In this they are right. What is missing from the observation though is that in the majority of cases (particularly in Europe, where they have occasionally embraced full privatisation) the postal service has improved. For consumers that is. Workforces do shrink, buildings do close, but costs drop and delivery rate improve. Nowhere has found a magic formula, but in both Germany and the Netherlands services improved following total privatisation and the end of direct Government involvement. In both countries a monopolistic provider remained (Deutsche-post in the former, TNT in the latter) following privatisation, just it would here. But with a different set of incentives, efficiencies were found and innovation introduced. In Germany they have established a 'travelling post office' for the more quiet rural areas, travelling around a prescribed area and offering customers the services they enjoyed at their local branch, including some banking services right on their door step. 95 per cent of letters posted in Germany (to a German address) are delivered the next day. 99 per cent of all mail is delivered within two days. And that is all post, not just 'special delivery'. It is not cheaper, but considering the rises in UK stamps, it is not much more expensive either.

If nothing else we should consider the improvements that have been made to those services that have been subject to 'gale force change' in the UK. British Telecom (BT) is most like Royal Mail in that it has a monopoly on the network needed to deliver mail to your door, on in BT's case your phone. Following privitisation it increased its output per person and profitability by over 100%. It is a world class company, even if many of us find it a frustrating provider. Similar improvement came to British Gas, BAA and British Coal. And importantly this wasn't just through 'liberalisation'. Postal services in the UK are already liberalised; they have to be under EU rules. But the retention of the Royal Mail in public ownership means taxpayers are liable to bail it out again and again in the future. It is unlikely to see the improvements that are possible. In short, we all pay more for less. Some will point to the railways as an example of how privatisation doesn't always work. But in fact railway 'privatisation' resembled the 'half-in half-out' muddle that we see emerging over Royal Mail much more than BT reform. Moreover the issues involved were (and are) on an entirely different order of complexity (infrastructure, competition, etc). So if we want to avoid the problems of the railways creeping into our postal services, we need to avoid this increasingly unappealing fudge over Royal Mail.

 

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