Postal reform won t deliver a truly competitive market

John Blundell discusses forthcoming changes in postal regulations

There is a good reason why Germany's Deutsche Post and America's UPS are considering bidding for British logistics group Excel. On New Year's Day, in three months, the ancient, almost venerable, monopoly over our mail will at long last be relaxed. The once mighty Royal Mail will be subject to the impertinent intervention of commercial rivals - as well as foreign companies- who may be so cheeky as to be faster or cheaper or, utterly subversive, both. The state has preserved its constricted, antique hold on our mail for only two reasons.

Creating a statutory letter monopoly allowed the Elizabethan secret service to monitor the treasonable activities of Catholics. There is something splendidly comical in us still carrying the institutional debris of the religious tensions of the Reformation. The other reason for this nationalised body to have suppressed all competition was more banal. It was a lucrative monopoly which has remitted cash to the Treasury every year for 400 years. It was a subtle form of taxation.

Yet the trumpets greeting the newly opened mail industry in January seem to me to be premature. Will there be a free market ? No. All that will occur is "licensed operators" will be permitted. Who are these officially authorised firms ? They are the ones that have reached comfortable accords with the Royal Mail. They will be permitted to use the "pipeline" of the Post Office's distribution system.

The analogy is with the phone companies still obliged to use the local loops of BT at the exchanges. The reforms at the dawn of the new year strike me as far too tentative and timid.

I can think of no single, easily accomplished reform that could be such a blessing to British business. For every company mail costs are oppressive. Even with their bulk discounts every bank and insurance company could ensure huge savings from a truly liberalised mail market.

The Confederation of British Industry, the Institute of Directors and the British Chambers of Commerce are strangely mute on this topic. Yet back in the early1980s they were equally silent about the opening up of the telecoms market, which everybody now agrees was an unmitigated success.

The central failure of the present package of reforms is that it preserves the Royal Mail's primary fig leaf. This is termed the "Universal Service Obligation" and it obliges the postmen to deliver a first and second class delivery to every address and to also make at least one collection. This is nothing but a licence to preserve the monopoly but under a benevolent camouflage.

Our mail services have been protected from day light for so long we simply have no idea what could evolve and the industry would look like in a truly open market. As Friedrich von Hayek, the great economist and Nobel Prize winner, once famously put it: "Competition is a discovery procedure." In the matter of mail delivery and collection we simply have no knowledge of what will emerge.

It is an arresting fact that the direct marketing industry represents a greater advertising spend than either broadcasting or newspaper advertising. Direct marketing achieves an intimacy and effectiveness as they refine their techniques by knowing our preferences and addresses. Is it possible these operators could offer stamps with adverts? Our magazines are a fraction of their costs as the advertisers pay to reach the readers. It is possible the stamp could be far more than a picture of Queen Elizabeth II.

Can we even be sure we want doorstep delivery? It may be we would prefer to pick items up ourselves if they are a fraction of the cost. My guess is we will still want a delivery service but why is it limited to letters? Let delivery experts carry every other sort of item. Tesco and others are already delivering groceries across th