I’ve been leery of writing about the Government proposal to part privatise the post office, because most of what I’ve read has been (on the one hand) jargon rich policy briefing papers and (on the other) high decibal outrage.
When that happens I like to try and get into the thickets a bit, and frankly, what I write as a result is long and boring. So steel yourselves, mon freres.
The trouble I have with the anti-privatisation arguments is that the best ones I’ve heard are tactical ones.
These can be summed up as: “It’s incredibly unpopular and will divide the party when it needs to be united, so we should leave it until after the next election (or to the Conservatives, should they win). Why pick a fight now?”
That’s very true.
But the problem is that it raises the question of why you bother to be in Government at all. If something needs to be done and you put it off merely for your own electoral convenience, you’re only storing trouble up for yourselves. I thought we learnt that lesson from 1997 to 2001.
And besides, the version of privatisation a future Conservative government might introduce could be radically different from the third of equity a Labour government will open up.
So what are the arguments?
The government, and the Royal Mail, argue that they need capital to modernise and to meet their pension obligations. The CWU agrees on the pensions, and to a certain extent on the need for modernisation, though they’re not so impressed by the argument on efficiency.
Compass argue that Royal Mail is not inefficient by European standards, but that it’s too cheap. The Compass paper argues that the German Mail charges a lot more than the Royal Mail, and implies that by bringing UK prices in line with Germany, enough revenue would be created to fund any needed modernisation.
There’s one obvious downside to making the mail more expensive for consumers – you’re making sending letters and packages more expensive. Generally it’s good to avoid that if you can.
So, setting aside the idea of jacking up Mail prices substantially, the debate is about funding Royal Mail pensions and modernising the organisation. Both of these require significant sums of capital.
The question is should this capital investment come from the state, from relaxed rules on allowing the Royal Mail to raise debt or from outside partners?
The argument for debt would be most effective when debt is incredibly cheap and easy to access. Sadly, that’s no longer true.
I’m sure that Royal Mail would be able to raise funds, but the servicing of that debt would be relatively expensive, and would really just replace one future liability (Pension Fund) with another (debt). The Royal Mail currently spends about £800 million a year servicing it’s pension fund. Replacing that with spending a little more servicing debt seems rather pointless.
The next obvious source of funds is the owner – the state.
The Government is proposing to pick up a £6 billion charge on the Royal Mail pension scheme. In the great tradition of union negotiation, this part of the offer has been accepted and the debate has moved on. But it’s worth pausing a while to look at this.
“The cost of this obligation will be so huge it will dwarf the funds raised by the partial sale… ..the Government is in fact proposing to pay someone to take the Royal Mail off its hands… …if the money the pension fund needs was instead diverted into the business, it would pay for enough investment to transform Royal Mail’s prospects”
The CWU doesn’t seem to follow the implication of how that course of action would affect the pensions of their members.
But there’s an important point here – if the State is able to pick up the £6 billion for pensions, why should it not just offer the extra couple of billion the Royal Mail needs to modernise?
Good point. The answer is: it did.
The Royal Mail has a debt facility with the government of almost £1.2 billion to fund modernisation. It’s used £85 million.
That suggests that the problem with the Royal Mail is organisational and cultural as much as it is capital based*. Which is why the Hooper report suggests that there’s a fundamental shortcoming in the Royal Mails ability to drive through change which requires management transformation at all levels.
So if there exists the possibility of getting the capital for modernisation and the expertise to make it happen from a private partner, why oppose it?
Well, you would want to avoid outside partners if experience showed that introducing private equity into nationalised industries doesn’t work, that the industries collapse. However, even the hardest line left winger finds it hard to argue that, given NATS and the performance of various wholly privatised bodies.
You’d also want to avoid outside partners if history showed that the consequences of private involvement would be so negative for both the workforce and customers that it wouldn’t be worthwhile.
Here I have sympathy with the unions, which is why having a private partner has to be a better solution than a private owner. Frankly, what we’re talking about here is the managment of the transition from burdened to modern- whether it is sympathetic or brutal. Consumers are also protected, because although the Mail is a monopoly, the regulator controls prices, so a private firm wouldn’t just be able to jack up prices and act as a monopolist.
Finally, you’d want to avoid private partners if they got all the profit and the state was left with nothing. Which is why minority partnership, rather than full privatisation is the proposed plan. If modernisation works, the Government would own seventy per cent of the Mail, and get seventy per cent of the dividends. Since there’s been little sign of modernisation happening without that private support, this seems like a good deal.
I accept that the governments proposals on Royal Mail are deeply divisive and difficult, and that there’s a strong tactical argument for leaving this fight well alone. I suspect a lot of Labour people feel like that.
The trouble is, if you decide to leave every tricky fight alone, pretty soon you’re just running from fight to fight, without actually doing anything.
Do we need to pick this one? Tactically I’m not convinced. It’s going to require a huge expenditure of political will at a time when the Government is facing many pressures.
Yet I can’t help feeling that if this is the right thing to do, the government deserves a lot of credit for being willing to argue a hard case at a cost to Labour’s own political unity.
If nothing else, it shows the Government is prepared to act, not quietly defer tough choices to some later time or some other party.
*It could also suggest that no modernisation is needed. But since Lindsay Mackie of the New Economics foundation says in the Guardian website “everyone is agreed that there needs to be modernisation… …and for that there has to be capital investment.” (See her comments to her article) and both the Royal Mail and the CWU seem to agree on the shortcomings of Royal mail management, I have no trouble believing that the fault lies with the organisation.)
Full Disclosure: I’ve got history here too. I once wrote a long post on Post offices during which I condemned Lib Dem plans to part privatise the post office and using the proceeds to fund Post Offices as “superficially attractive.. but.. just pouring money at the problem“. My problem then wasn’t with the basic concept of a private partner, but with the way the proceeds was used.)