SAS: When privatisation works

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By Jeremy Hutton, Policy Analyst

For decades the Communication Workers Union (CWU, formerly the postal workers union) fought privatisation of Royal Mail under both Conservative and Labour governments. But the union proved no match for the combined forces of the Conservatives and Liberal Democrats from 2010. Despite repeated strikes and protests, the postal workers union in the end accepted the inevitable and waved the white flag, rather than the traditional socialist red.

This week, the CWU is holding its annual conference, and one of the flagship policies on the agenda is, unsurprisingly, re-nationalisations across the board.

As it turns out, the privatisation of Royal Mail was largely successful. Reporting on the state of the company annually, Ofcom states that general performance is improved, including in terms of efficiency and delivery performance. Additionally, customers are reportedly satisfied with both the service and value for money. Part of this has been made possible by increased investment following the privatisation, which has allowed the company to invest in greater automation and its overseas subsidiary GLS.

However, despite this Royal Mail remains one of the most popular companies to be re-nationalised. YouGov reported that 65 per cent supported this policy. But what people tend to forget, is why Royal Mail was privatised in the first place. The 21st century has brought with it substantial change for the postal industry, with fewer letters being delivered and more parcels. Royal Mail simply did not have the capacity to pivot towards the digital age. As the Hooper review concluded in 2008, it was becoming increasingly inefficient, modernisation was lagging behind other leading postal operators, and its financial position was becoming ever more unsustainable.

What was generally feared about privatisation was that it would mean higher prices, reduced services and lower standards. But as the Ofcom report shows, this has not happened. What is conveniently forgotten is that, when still nationalised, Royal Mail was no guarantor of quality anyway. Packages went missing, branches were closed and prices still rose.

The same is apparent across other popular contenders for nationalisation. But why? A few railway companies may have experienced severe disruption last year, but despite that 79 per cent of passengers are still satisfied with their journeys against just 9 per cent being dissatisfied (12 per cent neither). 9 per cent is hardly enough to justify renationalisation and a return to the disruption of national rail. As my colleague Ben Ramanauskas explains here, the railways were in a dire state before privatisation. Conversely, since being privatised passenger growth has greatly outpaced population growth, currently by a factor of about 10 to 1. This has only been made possible thanks to the reversal of decades of public sector underinvestment that left our railways unsafe, unreliable and in decline.

This is not to say everything is fine and dandy. The current model doesn’t provide for effective competition and delays are rife. However, those delays are usually caused by the nationalised Network Rail, and even railway operators are calling for a substantial shake-up to create more competition. Clearly then, state-wide re-nationalisation is not a panacea to these problems. When people ponder the purported benefits of re-nationalisation, they would be prudent to think about what things were like beforehand.