Hooper gets near universal stamp of approval

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With two important exceptions, the response to Richard Hooper’s report on the future of Royal Mail from those with an interest in the postal system was little short of ecstatic on Tuesday.

“Great job,” said Allan Leighton, Royal Mail’s outgoing chairman. “Brilliant,” said Guy Buswell, chief executive of Business Post, one of the state-owned group’s main rivals. “One of the most thorough and comprehensive reviews of the British postal sector,” said DX, another competitor.

Much of the spadework had been done by May’s interim report, which concluded the status quo was unsustainable. Three forces made change imperative: a lack of investment, the crushing pension deficit and the structural decline in the mail market. That report also drew universal acclaim but many wondered if Mr Hooper could go further and devise solutions.

His fans believe he has. It is not just the individual recommendations, such as government action to lift the historic pension deficit, a new regulatory regime and the introduction of an experienced strategic minority shareholder.

Equally crucial is his emphasis on the need to implement the recommendations as a package. For example, under European Union rules banning state aid, the pension deficit can be removed only if the business is seriously restructured. A fresh approach to regulation is essential if Royal Mail is to respond to the digital world, which erodes its profits by five times as much as competition from private sector mail operators.

Mr Hooper also had a stroke of luck with the arrival of Lord Mandelson at the business department. He has long seen partial privatisation as an antidote to Royal Mail’s ills and quickly grasped that the blueprint must be adopted in its entirety. “We intend to take forward the recommendations as a coherent package,” he told the Lords.

TNT is the only bidder to have shown its hand, but others may turn up, including Deutsche Post and Fedex of the US, which would find Royal Mail’s European parcels business attractive.

But the report specifies the partnership should be with “one or more private sector companies with demonstrable experience in transforming a major business, ideally a network business, in circumstances comparable to those now faced by Royal Mail”. That in effect rules out a private equity firm such as CVC Capital Partners, which has stakes in the Danish, Swedish and Belgian post offices.

Dissenters are few but there are two groups that matter. One is the parliamentary Labour party. Fury at any move that could be interpreted as breaking the party’s manifesto commitment to keep Royal Mail in public ownership was etched on MPs’ faces on Tuesday.

The other is the Communication Workers Union. “This was meant to be a report about competition,” said Billy Hayes, general secretary. “But Mandelson has ignored the damage done through irresponsible liberalisation and advocates more involvement by private companies.”

The rave reviews will be welcome, but there are many obstacles before Mr Hooper’s vision can be turned into reality.