Understanding Regulation

Facts, Analysis and Comment

Royal Mail Privatisation

This note is for background information only, as privatisation is not a regulatory issue. It should thereore 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.

Early Attempts

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.

Successful Privatisation

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:

Martin Stanley