Vince Cable announces Royal Mail privatisation

Today Vince Cable announced, to no surprise whatsoever, that the Royal Mail is to be privatised.

Key points

  • This does not affect the Post Office – although options on mutualisation will be considered. No Post Offices will close.
  • A majority stake will be floated on the stock exchange
  • The 6 day a week flat rate service is set in stone.
  • 10% of shares available for employees, free to the employee, to either give them a cash windfall or a say in how the company is run.

Why privatise?

Under public ownership there is simply not the freedom to raise capital in the markets. A share sale will not only give Royal Mail commercial disciplines. It will also give Royal Mail future access to private capital, enabling the company to continue modernising and to take advantage of market opportunities such as the growth in online shopping building on its success in parcels and logistics.  Recent estimates indicate that this market is worth £76bn in the UK.

Assurances for workforce

I would like to reassure employees that ownership change does not trigger any change in their terms and conditions.  The CWU will continue to be their recognised representative and employees’ pensions will continue to be governed by the Trustees.   As part of a three year agreement, Royal Mail is also prepared to give assurances on:

  • the continuation of a predominantly full-time workforce;

  • a commitment to provide and enhance existing services to customers using the current workforce with no change to the current structure of the company in relation to these services; and

  • no additional outsourcing of services

Potential problems?

There are some challenges to be overcome. First of all, the Communications Union is already opposed and will no doubt do what they can to disrupt the sale. I’m hard pressed to remember any change that they have embraced. Perhaps they might find they achieved more if they engaged constructively in the process. You never know.

Protections for workers only last for three years which, although standard practice, is unsettling. That has to be balanced with the commercial opportunities and extra investment the privatisation will give in which could give them greater job security in the long run. You have to remember that 50,000 jobs were lost before the organisation turned around from making huge losses to profitability.

Although the six day flat rate universal service is guaranteed, could there be issues for people who live in rural areas? They may well only have access to Royal Mail and will have to pay its prices and accept its service. Having said that, given that some companies charge ridiculous amounts for delivery to rural Scotland, this may well be the best arrangement that rural residents could get.

It certainly seems as though Vince Cable has put forward a much more reasonable, achievable plan for the future than anyone has managed before.

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  • All sounds jolly good

  • Bob Browning 10th Jul '13 - 2:55pm

    “The 6 day a week flat rate service is set in stone.”
    At a fixed country-wide price?

  • Matthew Huntbach 10th Jul '13 - 3:00pm

    So, if the government borrows money to enable Royal Mail to make the various improvements you call “modernising”, that is a bad thing, but if a private company does it, that is a good thing?


  • Caron Lindsay Caron Lindsay 10th Jul '13 - 3:17pm

    Yes, Bob. That’s right. Flat rate to cover all of the UK.

  • No objections so far. Sounds quite good actually.

  • No one actually wants it. and experience with water , energy and rail suggest that it will cost more to produce a worse service, with worse working conditions for its employees. Plus all the talk of greater investment is meaningless because again as with water, energy and rail the companies will fail to make the investments they were franchised to make.
    And the logic is all over the shop. Royal Mail is in profit, delivers a good service and provides stable employment. That gets dumped so a bunch of ideologues can make a quick buck and further erode the fabric of the country in the name of a smaller state. .

  • “Under public ownership there is simply not the freedom to raise capital in the markets.”

    As a profitable state owned enterprise, the Post Office can afford to do this out of its own cashflow. I don’t think this is much more than a figleaf of an argument.

    Why are we still trying to destroy the state in all its forms? When will it be the right point to say we have had enough privatisation? The Post Office is a public service, and as we know from time worn experience, privatising a public service in the context of a natural monopoly is a recipe for disaster.

    How long will it be before it ends up in foreign hands anyway, which it certainly will. Is that really what we want?

  • Eddie Sammon 10th Jul '13 - 4:13pm

    Personally, I don’t see the great need to sell it, but I trust Vince’s judgement on this one.

  • What’s the merit of privatisation = competition.

    Where is the competition?

    No competition = no reason to provide a good affordable service.

    Vince is an ———-

  • Liberal Democrat achievements in government: trebling tuition fees, privatising the Royal Mail and presiding over the expansion of faith schools. What the hell is going on?

  • A largely missed opportunity to set the moral high ground with respect to to employee ownership and “grown-up workplace partnerships”.

    Yes, 10% of shares are to be distributed for free to employees, however this is not the same as locking 10% or more of shares into an ESOP, nor does it appear to give the employees the right to elect one (or more) board representatives.

    For the privatisation to be credible, at least 41% of the share capital and probably more like 55% will need to be made available to the wider market.

    Also for a utility with a public service remit, it probably should of followed the corporate structure adopted by Dwr Cymru Welsh Water.

    Ho hum another missed opportunity …

  • The finance argument is utter nonsense. As others have already said if an investment is worthwhile in the private sector it is just as worthwhile in the public sector – actually more so since the government’s cost of funding is a lot less than that of private companies.

  • Peter Hayes 10th Jul '13 - 6:09pm

    So take over the pension fund debt and sell the rest off. How will the universal delivery be locked into law given that any government can ignore or revoke previous government decisions. Vincent I expected better of you but you have sold out.

  • A sad day for Liberals. It was Liberal Postmasters General who made the British Post Office the greatest in the world.

  • I think many Tories are desperate to privatise Royal Mail (Not the Post Office, I correct my earlier point here) just like East Coast on the railways because it is horrendously awkward for them to see public services performing well and doing so at a profit. They just hate the idea, because it torpedoes their anti-state ideology but quite why we are conniving with them in this is a mystery to me apart from the desperate need for short term cash to plug the deficit.

    As for trusting Vince’s judgment, I once tackled him in person on private rail operations, but he failed to come up with any justification for it.

  • Mack(Not a Lib Dem) 10th Jul '13 - 8:39pm

    This privatisation too far confirms what we in the Labour Party have always known: vote for a Liberal Democrat and you are voting for a Tory.

  • John Brunton 10th Jul '13 - 9:59pm

    If you do not abandon your support for this Tory Privatisation of the Post Office, I will never vote Lib Dem again.

    The Post Office exists for the benefit of the community, not to make a minority richer. Privatisation will only ensure a poorer and more expensive service, and see even more branch closures and redundancies.

    Remember the Railways?

    Enough is enough, and I urge you to stop this nonsense before it gets under way.

  • Andrew Suffield 11th Jul '13 - 7:08am

    No one actually wants it.

    Well, that is precisely the problem. People on the political side feel the need to talk up how great the Royal Mail is, but the reason we are in this situation in the first place is that nobody wants it. Specifically, people don’t want to pay for the RM’s services, and have been moving in large numbers to the private postal services. Take a close look at the letters that come through your door – an awful lot of them have UKMail and TNT stamps on them, not RM. Those letters were not handled by the RM. The people whose opinion really matters here – the ones who have mail to send – have decided, and they have decided that the RM is not good enough and they would rather go elsewhere.

    This isn’t about funding. Not really. This is about cutting loose a dying arm of the state to let it sink or swim along with the rest. It is hard to justify the government continuing to fund – through loan capital or otherwise – a service which is so unpopular that people prefer the private alternatives.

    Even if you genuinely believe that it is critical for the government to run a public postal service, the best course of action would be to privatise the RM and nationalise TNT instead (or some kind of franchise deal). They’re actually good at it, and manage to provide a better service at a lower cost.

  • Caron Lindsay Caron Lindsay 11th Jul '13 - 7:54am

    @john brunton – can I refer you to the second line of the post “this does not affect the post office.”

  • This just does not fit comfortably with me. It just feels wrong. Smells bad. The logic for privatization is very weak. I am shocked that this is happening under the Lib Dem watch … and under a man that I respect very much, Vince Cable.

  • Andrew Suffield, I feel i must respond to you as your post is full of what i can only class as half truths at best. Firstly you state noone wants to pay for Royal Mail , well nobody has to, it returned a profit of 403 million last year. This is an increase on the profits it made the year before. Royal Mail actually puts money into the government coffers not take it out.
    You are right that many letters that come through peoples doors have other company logos on them. But to say Royal Mail doesnt handle them is not true. Royal Mail have to deliver the competitors mail at a reduced rate, so what happens is the competitior processes the work and then gives it to Royal Mail to do the final mile delivery. As the competitior can cherry pick where they deliver the only place that Royal Mail dont handle the competitiors mail is in west london where tnt have their own postal workers. If you think that the likes of tnt are interested in processing and deliverying your christmas cards youre very much mistaken all they want is the profitable bits , the bulk posting from companies hence why once Royal Mail is privatised the universal service wont last for long because Royal Mail will no longer be a service it will be a cash cow for its shareholders.
    As for TNT being better at deliverying mail, go to Holland and see what TNT have done to their mail service, people get deliveries twice a week from a part time workforce that work from home and in many cases arent even vetted. If making as much money as you can out of the postal service is your idea of TNT doing a good job then you’re right about them. Personally i think the postal service in this country should offer a little more than that. It should be there to make a profit -yes but alongside that it should be a service, a service that everyone gets at the same price irrespective of whether you live in a city or a remote rurual area.

  • @Andrew

    You miss one rather important point – there is a difference between sending out bulk mail and its delivery. Likewise there is a difference between universal collections from mail boxes and collecting/receiving bulk mail from a relatively few places that are paying for the privilege.

    As yet there is no real competition to Royal Mail in the delivery space for letters. Whilst others will happily do the ad-hoc deliveries of packages, no one else has regular rounds covering ALL properties in an area. In some ways this universal delivery service bears comparison to BT’s local loop and broadband delivery – where Sky et al will happily sign up new customers but if you’re out of area, you’ll just get the BT service.

    So Royal Mail like BT is a modern utility company, hence I don’t see it going away but neither do I seeing it making the profits that UKmail, TNT etc. are making from mail.

  • Postie makes some good points and expresses genuine concerns as do other commentators. Hopefully the legislation will be further amended to protect postal workers AND the general public……….

  • John Whitney 11th Jul '13 - 10:55am

    Oh how sad Vince Cable!
    A Social Democrat standing up in the House of Commons advocating Privatisation of the Royal Mail, “Shame on you”! Back to Thatcherite Policies! being pushed through by a Lib Dem. What ever next?
    Royal Mail belongs to the State and MUST remain in the State. We can only vote Labour at the next Election.
    John Whitney

  • One other thing that you mighte be interested to know about are the proposals the CWU gave to Vince Cable around a new model for how Royal Mail will operate in the future. This was very much i believe in line with what many lib dems class as proper worker involvement.
    The plan set out to remove Royal Mail from the public sector but to make it a not for profit company with all profits being re-invetsed into the industry. This would have allowed Royal Mail to borrow money direct from the markets which is the argument the government have used to justify privatatisation.
    Twenty five per cent of shares would have been kept in trust for the workforce and the government would have also kept a percentage of shares.
    The board would have been appointed by both the government, royal mail and a lesser amount by the CWU on behlaf of its members. With the proviso being that none of the appointed board members would come from Royal Mail and the CWU. In ther words they would be totally independent.. This would be proper employee involvement rather than giving postal workers a few shares which other than giving posties a small pay off give them no say in the running of the business.
    Despite Mr Cable recieving extrememly detailed proposals n the above (above was just a rough description) the proposals have been ignored. I find that a shame because i thought the above was the exactly the type of employee involvement the Lib Dems believed in.

  • There is no need for this at all, RM now making a profit. Make the other companies TNT etc deliver door to door that
    will be true competing . We will see a reduction in wages and salaries resulting in more state benefits to the underpaid workforce. Who will be responsible for the Pension deficit us? the taxpayer.?
    This is a nonsense idea and I am appalled that the Lib Dems are actively dealing with this. I am aware that it is difficult
    working in a coalition but why do it when there is a profit with some monies being available to cover this deficit in the
    following years. As a Londoner I can seem quite clearly that our rural friends and relations will suffer as they are charged higher and higher postal costs.Ah well it will save me money as I discontinue my Lib Dem membership fees.

  • Bob Browning 11th Jul '13 - 12:10pm

    ” Royal Mail have to deliver the competitors mail ”
    FYI we have two postmen. One Royal Mail, the other with orange bags from TNT. The only difference I can see is that the TNT guy has a bike.

  • Philip Moss, whilst I understand the opposition to privatisation, I do however see the inevitable logic behind it.
    From what I’ve seen, it would seem that one of the big problems Royal Mail has is that it has been highly profitable, resulting in the Treasury getting addicted to to taking it’s profits – rather than just it’s corporation tax. This in turn has meant that essential capital investment has been held back (by the Treasury) and blocks put on entrepreneurial ventures eg. expanding into the EU. Hence the politicians and Whitehall over the decades have probably done much to create the opportunities for Royal Mail’s competitors and to provide fertile ground for many of the union problems that bedevil Royal Mail.

    The shame is that when you can get and keep the politicians and Whitehall out of the way things can happen, as we are starting to see with Directly Operated Railways (DOR) running of the East Coast mainline.

  • Bob Browning, then you live in London. As i pointed out in certain parts of London, TNT deliver their own mail.

  • John Roffey 11th Jul '13 - 7:07pm

    @ Matthew Huntbach

    You echo my thoughts. If a publicly owner industry has great potential – privatise it!

    Privatising the Royal Mail was a step that even Thatcher considered to far – given the corrupt practices of the energy and water companies – surely the gloss has been knocked off privatising utilities.

    Perhaps Vince is intending to retire from politics after the GE and he wants something with his name on it for future generations of Cables to brag about!

  • nvelope2003 15th Jul '13 - 6:38pm

    This is all sentimental nonsense. Almost all of the mail is junk advertising and I accept that is necessary to subsidise the handful of important letters but we are not living in the 1950s let alone the 1850s as Mr Clegg and his pals keep reminding us and there are a multitude of ways to communicate now which either did not exist then or were very expensive and not available to most people. These methods are much more efficient and economical than putting letters in letter boxes – how many of those who have posted here have sent more than the odd letter or indeed any in the last year or 10 years ? Most of the Royal Mail profits come from delivering parcels and this is growing. Why should the state run a parcels service when there are several private companies already doing so ? Royal Mail (then called the General Post Office headed by the Post Master General who was a Government minister) did not start a parcels service until the late 19th century when they saw how well private parcels services, including the railways were doing. The nationalised railways lost all their parcels business although the old pre 1948 private railways made large profits from it but private companies have continued to operate competing with Royal Mail..

    Do we really need a daily delivery of junk mail. I used to look forward to seeing the post man making an occasional call but now I groan when I see them pushing another load of rubbish through my letter box. Many people in my street have signs saying no junk mail but it does not stop it coming. Getting rid of all this junk can be a problem especially if it is personally addressed because of the possibility of identity theft and you have to remove the name and address.

    Re John Brunton – how many branch closures have occurred on the railways since privatisation – there have been some re- openings but closures ? What is the relevance of Mrs Thatcher’s views ? It seems we have nothing less than an ideological argument for keeping things in the public sector. Tesco and Sainsburys provide public services – are they so much worse than the C o-op ? How many of those who post here actually use the Co-op apart from me ?

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