Royal Mail - a privatisation too far?

Did Thatcher try to do so, too?
No, even she balked at the idea of interfering with such an entrenched part of our social infrastructure. In the 19th century, the British postal service - thanks to Sir Roland Hill's invention of the penny post and Anthony Trollope's development of the pillar box - played a historic role in pioneering the concept of a universal postal service. Today the same priced stamp still takes your letter to any address in the country; delivery still takes place six days a week. When John Major did try to privatise Royal Mail, in the early 1990s, he soon ditched the plan after opposition from his MPs.

Why is this government risking it?
Because Royal Mail now operates in a quite different world. Email, texting and other forms of social networking have slashed the volume of mail: Royal Mail delivers five million fewer letters a day than it did two years ago, at a cost of £500m a year in lost profits. Today a mere 14 per cent of letters handled each year are sent from households, and a lot of those are Christmas cards. The remaining 86 per cent are sent by businesses, much of it junk mail. So while Royal Mail started out as a public utility, it is now a service primarily for business.

Is that side of its operations also being eroded?
Yes. The EU's postal services directive requires the gradual liberal-isation of those services (with full liberalisation by 2012). Eager to oblige, Britain in 2006 (unlike, say, Holland) gave private-sector companies full rein to compete in the business mail market. Royal Mail thereby lost some of its most profitable work, while retaining its costly statutory obligation to deliver mail anywhere in the British Isles for the price of a single stamp. Even the most astute management would struggle in the face of such changes.

So why assume privatising it would make any difference?
Because according to the recently published Hooper Report, aptly entitled Modernise or Decline, Royal Mail is burdened not just by a radically altered business environment, but by huge inefficiencies and by its massive pension fund deficit of £8bn-£9bn. (Between 1990 to 2003, successive governments gave the Royal Mail a holiday from having to make any contributions at all.) True, it still makes a notional profit – £255m in the first nine months of this financial year – but in reality it's insolvent. The Government, following the recommendations of the Hooper Report, is prepared to let the taxpayer bail out the pension fund, but only if Royal Mail agrees that a private company, such as Dutch operator TNT, can take a third of the business and help clean up its act.

Has part-privatisation worked elsewhere?
The model that the regulator, Postcomm, wants to