Privatise Royal Mail and it may survive in a dying market

Eamonn Butler
BUSINESS minister Michael Fallon has given the green light to Royal Mail’s privatisation. He’s a brave man. Royal Mail was second (after BT) on Margaret Thatcher’s privatisation list. That was until, in the apocryphal tale, Fallon’s predecessor received a call from Windsor Castle, pointing out whose head was on the stamps.

John Major had another shot, but the Communication Workers Union hired a top PR agency and stirred up public concerns so well that the idea was dropped again. But in the meantime, Germany and Netherlands jumped in and privatised their mail systems – with such positive results that all 27 EU countries have now agreed to end their mail monopolies.

Governments are no good at running businesses. The Royal Mail’s success is stymied by regulation. Before 2012, more than 80 per cent of its business was price-controlled, and not all of these restrictions have since been lifted. As recently as 2007, Royal Mail estimated that it was 40 per cent less efficient than its competitors – maybe one reason why nearly 10 per cent of first-class letters arrive late. It is forced to deliver letters to the most remote homes, regardless of cost, for the same price. And it has to pay millions a year to its bloated regulator Ofcom.

Royal Mail remains a big fish, but in a shrinking pool. In 2011 it carried 99 per cent of the 16.6bn letters that fell through our doors, according to Ofcom. But volumes are down 25 per cent from five years before. And much of that is business mail – like bills and statements, often sent at bulk-discount prices. Full-value personal customers use email instead. Increasingly so: even the high-value staples of greetings cards are falling to social networking, texting and e-cards. Ofcom figures from 2012 show that only 31 per cent of 16-24 year olds would send greetings by post, compared to 77 per cent of over-65s.

It’s no wonder that despite big rises in stamp prices, plus scrapping second deliveries and the wildly expensive early-morning drop, Royal Mail’s struggling delivery service made a 2011-12 profit of £23m. And that was eclipsed by a £120m loss in 2010-11.

Privatisation, though, is a tricky political business, and most of the 1980s expertise has been lost. Expect opposition from the unions, which will put out scare-stories of stamp prices going up to £1, from civil servants (naturally) and from the press, which will sensationalise any slip-up.

As for the public, are we bothered? We have got used to having fewer, later deliveries. We are increasingly happy to talk and greet online, rather than on paper. And we know from experience that competition beats monopoly.

Yes, Royal Mail desperately needs privatisation, which will allow it to access new capital and bring in strategic partners with fresh ideas. But the public desperately needs real competition too. The privatisation package must eat into the Royal Mail’s monopoly – both to prevent it bullying its current competitors and to create new ones. Genuine competition would soon revolutionise the whole business. Tricky to achieve, but no-nonsense Fallon is well up to the job.

Eamonn Butler is director of the Adam Smith Institute.