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The flawed logic of renationalising Royal Mail

25 Jan 2018, 15:28

https://capx.co/the-flawed-logic-of-ren ... oyal-mail/



Ten years ago, Royal Mail before privatisation was 40 per cent less efficient than its competitors
£1.5 billion has been invested since privatisation, and it now delivers more parcels than all its competitors
Employee engagement has more than doubled since the beginning of the decade
Compared with Labour’s plans to nationalise parts of the energy and water industries, bringing Royal Mail back into government ownership is comparatively small cheese. The market capitalisation of Royal Mail is around £4.5 billion whereas, for example, the upfront cost of nationalising the water industry could be in excess of £86 billion. However, the rationale behind nationalising the mail sector is equally flawed.

The sale of Royal Mail was, of course, not without controversy. In 2013, the Coalition government sold 60 per cent of the state’s shares in the company to its employees and private investors at a price of £3.30 each. The share price then increased by 38 per cent on the first day of trading, leading the National Audit Office to investigate whether the sale represented value for money. But Lord Myners, a Labour Peer who oversaw an informal review of the sale, was clear that the price seen in the aftermath of the sale could not have been achieved.

And we should not forget the position Royal Mail was in before privatisation. It was generally recognised that the company’s efficiency was very poor. By 2007, it was 40 per cent less efficient than its competitors, and the Hooper Review in 2008 concluded that its position was unsustainable. Particularly striking was that while private mail companies in Germany and the Netherlands were facing greater end-to-end competition than Royal Mail, they were achieving high profit margins from their mail operations. By contrast, Royal Mail’s financial position was becoming increasingly precarious, making an operating loss in 2007. And, of course, there were other issues, not least that it had one of the largest pension deficits in the UK.

Operating profit margins of Western European postal companies, 2007 (%)
Image

In summary, Royal Mail was crying out for private sector capital and expertise. And now it’s got this. Since privatisation, £1.5 billion of much-needed investment has been ploughed into modernising Royal Mail’s IT and delivery office network. The company is now much more sustainable, delivering more parcels each year than all of its competitors. And employee relations have improved, with employee engagement rising from 20 per cent in 2010/11 to 57 per cent in 2016/17.

The renationalisation of Royal Mail would be relatively small fish – if a multi-billion-pound price tag can ever be described as inexpensive. But as with the utilities, it is hard to see the rational of doing so, given that the service is performing better in private hands.

This is the latest in the CapX series on nationalisation. The other posts can be found here, here and here.

Daniel Mahoney is Deputy Director and Head of Economic Research at the Centre for Policy Studies.

The flawed logic of renationalising Royal Mail

25 Jan 2018, 15:30

The Centre for Policy Studies (CPS) is a free-market British policy think tank whose goal is to promote coherent and practical public policy, to "roll back the state," reform public services, support communities, and challenge threats to Britain’s independence. Although identified as non-partisan, the Centre has strong historical links to the Conservative Party.

It was co-founded by Conservatives Sir Keith Joseph, Alfred Sherman and Margaret Thatcher in 1974 to champion economic liberalism in Britain and has since played a global role in the dissemination of free market economics along monetarist and neoliberal lines. Its policy proposals are claimed to be based on the principles of individual choice and responsibility. It also asserts that it prioritises the concepts of duty, family, liberty, and the rule of law. The CPS states that it has a goal of serving as "the champion of the small state."

The flawed logic of renationalising Royal Mail

25 Jan 2018, 15:43

There's so many flaws in that nonsense it's hard to know where to start but I would like to know if Royal Mail was crying out for private sector capital and expertise since the only investment has come from internal sources and we have pretty much the same faces running the company when exactly are we getting some? It's been nearly 5 years.

The flawed logic of renationalising Royal Mail

25 Jan 2018, 15:49

"Daniel Mahoney is Deputy Director and Head of Economic Research at the Centre for Policy Studies."

He definitely votes Conservative.

The flawed logic of renationalising Royal Mail

25 Jan 2018, 16:43

Surely, and I quote " Royal Mail’s financial position was becoming increasingly precarious, making an operating loss in 2007 " this is partly ( or mainly ) due to Royal Mail having to accept downstream access mail in no small part ?

The flawed logic of renationalising Royal Mail

25 Jan 2018, 16:44

....."and employee relations have improved" Hmmmm 89% voting for strike action would suggest otherwise!

The flawed logic of renationalising Royal Mail

26 Jan 2018, 18:38

Apart from this being a pack of lies - we still don't see massive capital investment and new services since privatisation so basically this article is a right wing biased attack on nationalisation - Utter bollocks!!!

The flawed logic of renationalising Royal Mail

26 Jan 2018, 19:14

Phantom wrote:Apart from this being a pack of lies - we still don't see massive capital investment and new services since privatisation so basically this article is a right wing biased attack on nationalisation - Utter bollocks!!!

worse than that its right-wing Thatcherite.

The flawed logic of renationalising Royal Mail

26 Jan 2018, 19:36

All academic anyway...renationalisation of RM won't ever happen.

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