Privatising Royal Mail: now is not the time

Way back in 1970, the IEA published my first monograph recommending the abolition of the then Post Office’s letter monopoly. In 1983, I followed up with Liberating the Letter: A proposal to privatise the Post Office.

Circumstances have changed radically since then. In particular there has been the astounding technical advance of the internet and e-mails. This means that letters are now declining in volume. I believe that in 10 to 20 years they will be extinct.

The second major change is that Royal Mail has been disastrously over-regulated by Postcomm. From its formation in 2000, Postcomm arguably took the view that the more it hurt Royal Mail, the better it was doing its job. It micro-managed Royal Mail’s prices and profits, transforming a once healthy business into a basket case that has had to go to the government cap in hand for loans and requests to fill the hole in its pension fund. 

Enter Peter Mandelson. He leaps on a report by Richard Hooper that recommends a solution to Royal Mail’s problems: sell off 30 per cent of Royal Mail’s shares to TPG, the Dutch postal system. Granted this is an efficient and profitable company with its shares traded publicly. However, the very existence of a regulator who meddles with prices and profits means that any value ascribed to Royal Mail’s shares depends on the whims of Postcomm’s commissioners at the time.

The way forward towards privatising Royal Mail requires three steps:

1. Abolish Postcomm, leaving Royal Mail to make good profits subject to not abusing its dominant market position.

2. Allow Royal Mail to accumulate sufficient profits to fully recapitalise the pension fund.

3. Float Royal Mail on the market in full but with a ban on shareholdings by any postal administrations such as the French post office whose national markets have not been liberalised and fully opened to competition.

Ian Senior is an independent postal economist.

Surely the most important step of all is:4. Abolish Royal Mail’s monopoly on street collection and household delivery.

And how about ending the universal service obligation, or at least reducing it to one delivery per week? It is surely unfair to subsidise people who choose to live in remote rural areas in this way.

Surely the most important step of all is:4. Abolish Royal Mail’s monopoly on street collection and household delivery.

And how about ending the universal service obligation, or at least reducing it to one delivery per week? It is surely unfair to subsidise people who choose to live in remote rural areas in this way.

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