Thursday, 5 March 2009

A somewhat shorter post - on the post

Have agreed to meet up with Billy Hayes from the CWU for a one-to-one chat about the Royal Mail. Next week probably.

I'm tempted to ask if I can invite Hopi along too, as he's done an intelligent (as ever) blog on the issue, which, setting to one side the 'public good, private bad' debate, looks at what is the core issue: does the Royal Mail need someone to sort out its pensions deficit, along with significant investment, modernisation and efficiency gains? (To which the answer is yes.)

The next question then is where do you get this money from? Internal generation of revenue by raising the price of postal services, changing the competition rules so that the Royal Mail can compete on a level playing field, using the rest of the £1.2bn it was given by the Government to fund modernisation, and (possibly) a degree of cost-cutting? Would that be enough to ensure the Royal Mail's survival, in the face of a 7-8% drop each year in its business (and that's without the price rises) without future Government subsidy? I don't know - the CWU suggest, I think, that it could be.

If it's not enough, then it's about either about a Government bail-out, borrowing, or a private sector partner. The Government has already pledged to sort out the huge pension deficit, and, quite reasonably, doesn't want to stump up any more cash. And I don't have much patience with the 'what's a few more hundred million more amongst friends?' line. (Ditto the 'well you spent £Xm on the war' or 'you're spending £xm on bailing out the banks' - that doesn't mean there's loads of money to go round, it means there's a lot less!)

Could the Royal Mail borrow on the open market? Hopi thinks not. I don't know. Admittedly, interest rates are incredibly low (and have just got lower as I've been typing), but that's not being passed on to loan rates and the banks are still reluctant to lend. Could this be facilitated with a Government guarantee? The alternative is to bring in someone from the private sector who does have the funds. The union's fear is that they would then seek to recoup their investment by slashing jobs and terms and conditions. They say that is how the private sector makes money. Sometimes that's true. But it's a distortion of how the private sector works. You can also make money by winning more business, being better than others in the market, making efficiency gains which are nothing to do with terms and conditions.

The other aspect I'd be interested to know about, is that the CWU say that the postal service has lost 40,000 jobs over recent years. This shows its willingness to modernise. But how many of these job losses are jobs that no longer exist anywhere in the mail market, and how many of them are now in the private sector, with their competitors? Mail volumes have gone down across the board, there has been significant automation, so inevitably this will mean fewer workers are needed - but some of them must have been taken on by TNT and others. How do you put a figure on the number of jobs that could be lost if a private partner came in? And would those jobs be lost as a sad but inevitable consquence of modernisation or because of a dash for profits? Discuss.

Epolitix have just told me through Twitter that they're running a poll on this.


Guthrum said...

Why is full privatisation not an option ? The public are going to pay for the service either way- either through high postal charges or through taxation, There is no such thing as 'Government' money.

The actual postal workers are having a really bad deal out of this and so are the public. We need an efficient postal service, and the lads and lasses on the frontline are the frontline have shown over and over again they are will to modernise, but with a sclerotic, overpaid state controlled management that it is the most inefficient way of delivering services.

The Post is a service like any other it has to provide that service at a price the user will bear.

Old Holborn said...

"The Government has already pledged to sort out the huge pension deficit,..."

Really? I missed that. Got a source?

Paul said...

I would be interested to see a CWU costed option for public ownership. It is true that the private sector has poached the cheap work - moving stuff between railway stations - and left Royal mail to then deliver it to addresses at a hopelessly low cost to the private carriers. No commercial business would act like this but RM's hands are tied behind their back by the regulator. We liberalised too early and without enough thought - but we are where we are.

Ruskin said...

So, sucessive governments take a pension holiday, creating a substantive hole in the pension fund, create a regulator, who despite having their primary obligation of the protection of the universal service, chases their neo classical monopoly bad agenda, creating downstream access, which has allowed competitors to remove the most profitable elements of work,undermining Royal Mail's profits, whilst reducing costs for big users and hence increasing costs for the general public (sometimes called voters), wait until an economic downturn, and then say look they arn't very efficent are they !!!! Looks like your shooting the messenger, or at least putting him out to tender!!

Bristol Dave said...

From The Telegraph letters column:

SIR – At this week’s Prime Minister’s Questions, Ann Winterton asked whether “the real reason for part-privatising Royal Mail stems directly from European Union postal legislation”. The answer referred to the Hooper report, which explains that the real reasons for part-privatising the Royal Mail are European Union postal legislation and EU state-aid rules.

Why do our elected representatives not want the British people to know the truth?

Stuart Noyes
Andover, Hampshire

Kerry said...

That's the liberalisation issue which has been mentioned. The problem stems from the fact that the UK liberalised ahead of some other key EU countries - i.e. before we absolutely had to do so. Soon, all other countries will have to follow suit, but the Royal Mail has, it is true, been disadvantaged in the meantime.

Ruskin said...

1)There is no obligation through Europe to privatise Royal Mail.
2)The issue with Liberalisation was that the regulator has activly encouraged the downstream access agreements that restricted Royal Mail's ability to compete on bulk postings.
3)The adverse effects experienced by the general public are as a result of that "competition"
4)the "competition" is defacto only doing the first mile, the easiest bit, the profitable bit, which thankfully is finally being addressed through the current legislation.

Kerry said...

1) I didn't say it did
2)3)and 4) I've made those points already - but would levelling the playing field alone be enough to secure the Royal Mail's future?

Ruskin said...

1) No, but Bristol Dave Suggested it.
2) It would certainly help the long term viability of Royal Mail if we could have that level playing field. But ongoing investment is also necessary, but at what level and from whom ? It is clear from the comments Peter made tothe BERR committee, that we are looking at hundres of millions, but there is the loan facility from the government (you will get it back) and with the government dealing with the pension problem, RM will have an extra £280 million for the next 17 years to re-invest above current commitments. said...

The smilie's a cummin!

Kerry said...

You really know how to win friends and influence people, don't you?

Mystery Green Blogger said...

To touch on the where is the money coming from issue, prior to hooper at no point had anyone with a interest in RML/RMG said the 1.2 billion loan wasnt enough. RMG is on course to almost double its profits this year , Allan Leighton's words not mine as published in the latsest issue of the royal mail staff newspaper.

Has anybody in favour of a sell off said how much money is actually needed for investment and if not why not.

Why does the sell off have to take place if the governmnet take on the pension issue. Take the saved funds and the amount to be saved once the current loan is paid off and were looking at nearly three quarters of a billion pounds year on year extra in royal mail kitty.

Lets have some hard facts about how much money/income/outgoings is needed for RM to survive.

Lets not forget the cwu co-operated with trials for automation to sort letters into delivery order and it was RM board that dithered over which manufactures machine to purchase!

Lets have realistic budgets in delivery offices. My Delivery office manager says his budget is not realistic yet he is expected to put right a over spend of nearly 200 hours a week and save hours on top of what his budget is set at. I want evidence that a sell off is the only way of getting enough money into RM and to do that we need to know how much is needed.

Public good private bad is not the issue its the lack of evidence for the sell off that bothers me.

Case not proven!!!!!

Mystery Green Blogger said...


Have you studied the compass document case not made, if not I invite you to read it and then look again at the plans of government.


Ruskin said...

can you tell me why the Government, are talking to TNT about their ability to modernise Royal Mail ? TNT charge three times as much as RM do on the price of a first class letter, what is the efficency they talk of ? Can UK consumers expect to see a three fold increase in the cost of stamps?