Vince Cable has detailed what the government wants to do with our Royal Mail. For him in an ideal world the public will line up in droves to buy a few shares in the business they already own. In the real world that will not happen. Instead, major financial institutions such as pension funds will be encouraged to buy chunks of the business.
The government estimates that the 60% of Royal Mail that they want to sell will be worth around £2.5billion. It's no small amount and of course those who speculate with large sums of cash will want to be assured that their investment will grow at a satisfactory rate.
How does that work? There are limited options for Royal Mail. They can increase prices, but as we are constantly reminded the competition is snapping at their heels, particularly in the areas where they make money such as urban deliveries. In a competitive market there are limits to how much Royal Mail can increase its prices.
The new owners will want to look for increased efficiency. We keep hearing that it is a bloated monolith which just needs a little private sector discipline to cut out the fat. Sadly, however, that is largely not the case. The business is in the middle of a lengthy mechanisation programme. Significant investment has been made to automate the sorting of mail. There are limits to how much this can be accelerated by the new owners.
The real efficiency savings can only come from reducing headcount. This is a labour intensive industry. Royal Mail employ around 150,000 people (down from some 200,000 a few years ago). Even so it is very expensive for Royal Mail to send postal workers around all parts of the country collecting and delivering mail every day of the week bar Sunday. Indeed in rural and remote areas the business loses substantial sums of money but this is cross subsidised by profit making activities. Yet we are told the six day a week delivery to all 29 million UK addresses is sacrosanct.
It just does not add up. Something has to give. Private businesses are anaemic to loss making activities. Despite the government's short term pledges, it is inevitable that at some point Royal Mail will want to trim those losses. That can only mean a reduction in the number of times it trundles around rural areas each week. Economically it makes little sense. If you live out of town expect to see less and less of Pat over the next few years.
But we can still stop this. Visit our website saveourroyalmail.org, sign our petition on change.org and let you MP know just how you feel.
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