This note is for background information only, as privatisation is not a regulatory issue. It should therefore be read alongside my separate note on the regulation of postal services.
There is no strong regulatory reason to prefer a private sector Royal Mail to state ownership, but state owned companies generally find it hard to live with private sector competition because of political interference in (or delay of) urgent commercial decisions and/or a reluctance to invest and/or a reluctance too stand up to union pressure. The introduction of competition in 2002 therefore probably made eventual privatisation inevitable, although this did not happen until 2013.
Conservative politician and President of the Board of Trade, Michael Heseltine, mounted the first serious attempt to privatise Royal Mail around 1993/4, but ran into far too much opposition.
There was a particularly interesting episode in 2002 when the Labour Government tried to persuade the Dutch company TPG/TNT to buy Royal Mail, only to find that TPG would not proceed with the acquisition unless Postcomm agreed to relax a recently announced price control and to postpone the introduction of competition for several years. Postcomm told Ministers that such decisions were incompatible with its statutory duties, but said that it would not object if Ministers were to decide to suspend the relevant legislation so as to facilitate their wider objectives. However, Ministers were reluctant to do this, and no doubt even more reluctant to face a grueling battle with the union, and decided not to proceed with the privatisation.
There was then another (Peter Mandelson-led) attempt to part-privatise the company in and around 2009 but the steadily weakening Labour Government did not have the political muscle to complete the task.
Somewhat to commentators' surprise, Royal Mail (including Parcelforce) bounced back into decent profitability in 2012-13, partly on the back of increased packet and parcel volumes, thus sharply increasing the chance of a successful privatisation, which the Conservative/LibDem coalition government decided should take place in October 2013. Royal Mail employees were given 10% of the company in the form of shares. By way of preparation for the sale, the company's management stressed the increasing importance of mail as a delivery mechanism for companies such as Amazon and eBay, and began to consider moving to seven day a week deliveries, so helping protect jobs for Royal Mail's current 150,000 staff.
The staff's union, the Communications Workers Unit (CWU), was strongly opposed to privatisation, partly because privatisation may eventually lead to less attractive employment terms and conditions for their members, and partly because the union's very well paid executives might themselves expect to lose out, especially if the company becomes less unionised, as has happened following many previous privatisations. The union deployed three arguments:
- "Privatisation threatens the universal service." This is nonsense. The universal service is politically and legally sacrosanct and - even apart from this - the USO is a huge benefit when offered by any postal operator to its customers.
- (There is a separate question of whether the universal service obligation should be relaxed so that it still requires deliveries to every house, but maybe not every day - maybe every second day for instance. That would help cut costs and so defend postal jobs. But I doubt that privatisation brought this development any closer, and it would still require Parliamentary approval.)
- "Privatisation threatens rural post offices." This was a better argument and much will eventually depend on whether post offices continue to provide cost-effective access to Royal Mail services. The post office network was not being privatised, and (despite their name) post offices these days do not do much postal business. They mainly provide other government services, such as paying pensions and benefits. Plenty of other places sell basic stamps, for instance. All will be well for a good many years as Royal Mail signed a 10 year exclusivity agreement with Post Office Ltd in 2012. However, after 2022, Royal Mail may find a less expensive way of offering packet and Special Delivery services, at which point the government may need to decide whether - and to what extent - to subsidise post offices.
- "Privatisation may one day lead to the Treasury deciding to impose 20% VAT on 'the price of a stamp', just as VAT is added to the prices charged by Royal Mail's current rivals." There may be something in this concern (that first class stamp prices, for instance, might rise from 60p to 72p). But it hardly seems fair that Royal Mail should continue for ever to benefit from what is in effect a significant anti-competitive subsidy. And the arrival of email etc means that voters are nowadays much less concerned about postal prices, so the change may one day become politically palatable.
Those with a deep interest in this subject will be interested to read Eri Shirakabe's comparative study of postal privatisation in Britain and Japan.