CWU BRIEFING: THE FUTURE OF ROYAL MAIL
CWU BRIEFING: THE FUTURE OF ROYAL MAIL
Despite widespread opposition, the government is pushing ahead with plans to privatise Royal Mail and hopes to do so within the 2013/14 financial year. The case for privatisation is confused and driven by a determination to see through an unpopular policy whatever the cost. It is crucial that there is greater clarity about Royal Mail and the future of UK postal services. Royal Mail is not a company in crisis The government has framed the arguments for privatisation in such a way as to suggest that Royal Mail faces imminent danger and privatisation is the only answer.
This is simply not the case. The urgency in the government’s case for privatisation is driven solely by its own political timetable and at the expense of Royal Mail and the interests of the public. Royal Mail is doing well in the public sector. The company has faced huge challenges in recent years, but modernisation, action on the pension deficit and changes to regulation have done much to turn the company around. There is still work to be done, but Royal Mail is better placed to compete and is enjoying the benefits of employees’ commitment to delivering its modernisation programme.
• The company saw profits more than double in the last year to £403m from £152m in 2012; revenues grew by 5%. • The government took on the assets and liabilities of Royal Mail’s pension scheme in March 2012, saving the company £300m a year. • The company is well placed to face the challenges of the changing postal market. Letter volumes are falling, but parcel volumes are growing, and the company is adapting its business accordingly. Why insist on privatisation?
The government is running out of arguments for privatisation. Previously, the government argued that privatisation was the only way Royal Mail could modernise and make money.
Now that this no longer appears credible, the government says that Royal Mail can only have access to capital in the private sector. Like any business, Royal Mail will need access to capital at some point in the future. 1 Also, like any business it should be able to borrow this privately. It does not need public investment and it does not need to compete – as the government has suggested in emotive terms – with hospitals and schools for scarce public resources. As a viable company, in the public just as much as in the private sector, it should be able to raise private capital on the strength of its business and its ability to repay.
The government argues that this is impossible as it would count as government borrowing. This need not be the case; policy here is being driven by an artificial accounting convention rather that the interests of the company. The government has already shown that when it wants to it can find ways for public bodies to borrow privately without adding to govern- ment debt. Network Rail is to all intents and purposes a public body. It has borrowed over £30bn from private markets and, despite the borrowing being under-written by the government, it does not count as government debt. The level of borrowing required by Royal Mail is negligible by comparison.
And it would not need to be underwritten by government. Yet still the government claims that it is impossible for Royal Mail to borrow privately while remaining in the public sector. It is not impossible – it is a question of government will. Why is the government rushing?
The government plans to privatise Royal Mail within the next nine months. But still it has not specified what form the sale will take, whether it will be an IPO or a sale to private equity. The government has said that an IPO “is the preferred method of sale” 2 , but is unsure whether it can achieve this. Business and energy minister, Michael Fallon, took the unusual step in May 2013 of warning that Royal Mail may be sold to a foreign buyer if the progress of an IPO is threatened by opposition to privatisation.
There is a danger that the government’s rushed timeframe will mean that an IPO would need to be priced low to ensure institutional investors are attracted.
If it fails then Royal Mail faces being sold at an even lower price to a private equity buyer who would be even more likely to cut services. The government has framed the arguments for privatisation in such a way as to suggest that Royal Mail faces imminent danger and privatisation is the only answer. This is simply not the case. Not only are there credible alternatives to privatisation, but there is no crisis to solve. Yes, Royal Mail will need access to capital, but the urgency in the government’s case for privatisation is driven solely by its own political timetable and at the expense of Royal Mail and the interests of the public.
1 Neither the government nor Royal Mail has specified how much capital is needed, when it is needed or what it is needed for. Also, there is no indication that selling Royal Mail will result in any additional capital for the company. Any revenue from a sale will go to the Treasury not the company. 2 http://www.guardian.co.uk/uk/2013/apr/29/royal-mail-sale-thatcher
Privatisation is deeply unpopular Privatisation is deeply unpopular with the public and with Royal Mail’s employees. Royal Mail needs its employees to continue to engage in the modernisation and development of the company.
A 10% employee share scheme, whose purpose is supposed to align employees’ interests with the company, is intended to accompany privatisation. But employees have spoken loudly and clearly about their views on the future of Royal Mail – 96% are opposed to privatisation 3 .
Royal Mail managers are concerned about privatisation and have expressed their support for the CWU’s position. Unite assistant general secretary Tony Burke said on 20 June 2013: “Our members working in the Royal Mail are in management and senior management positions… they are becoming increasingly concerned about the proposed privatisation and its implications for the public, pensioners, the disabled and small companies – as well as future employment and their pension provisions. Their concerns reflect the overwhelming vote against privatisation carried this week by CWU members.” The universal service is under threat Be in no doubt, the universal service as we know it is under threat.
The affordable six-days-a-week universal service that is so valued in the UK is expensive to provide. It is under threat from competition and would be less secure in the hands of a privatised Royal Mail.
The government claims that the universal service is enshrined in law, but this only covers the bare minimum; many aspects of the universal service are set by Ofcom and could easily be changed. And the government has only committed to leave the law unchanged for the duration of this Parliament. In less than two years the government’s commitment runs out. The regulator has recently consulted on user needs from the universal service. It looked at ways the universal service could be changed to make it cheaper to run. These included getting rid of First Class mail (and therefore the next-day service), reducing quality of service standards and cutting delivery days from six to five a week.
Rural services would inevitably be hardest hit many of the changes.
The regulator recently stepped back from recommending any changes – possibly due to their politically sensitive nature – but it is very likely that we will see these issues revisited in the near future. A privately owned Royal Mail, under pressure to generate a return for shareholders, will want to cut the burden of the universal service and will lobby for such changes. The privately run Post NL in the Netherlands has put pressure on both the regulator and the government regarding their universal service obligations with the result that there are now plans to drop Monday deliveries 4 .
Competition in deliveries and the CWU boycott The CWU is challenging the model of competition in the postal market.
We want to see a healthy postal market but we do not want to see competition at the expense of decent jobs. Royal Mail’s business model is now under threat from TNT’s entry into the direct delivery (end-to-end) market. TNT has set up a delivery service in west, central and now south west London. It is able to win business because it can choose where, when and what to deliver, without any quality of service or performance standards and by undercutting the jobs, pay and conditions of postal workers across the UK. This model of competition means cherry picking the most profitable parts of Royal Mail’s business and cutting costs at the expense of decent jobs.
TNT competes by paying poverty wages.
TNT employs workers on “zero-hours” contracts, which mean workers are not guaranteed any hours. One journalist who went undercover in a TNT depot reports how workers are forced to “hustle” each day to get a day’s work. Bosses over-hire staff to ensure that there will be more than enough people available for a shift, meaning workers get turned away. Workers never know whether they will get enough hours a week to make ends meet. Pay is only £7.10 ph in London, £1.45ph below the living wage 5 .
Even business secretary Vince Cable, who is responsible for the postal industry, has questioned the growing use of zero-hours contracts in the public and private sectors and called on 12 June 2013 for a review 6 .
Ofcom has stated that it is monitoring TNT’s entry into the postal delivery market, but despite having powers to act conferred through the Postal Services Act 2011, it is choosing not to regulate to prevent TNT from cherry picking. Royal Mail workers have voted overwhelmingly in favour of a boycott of competitors’ mail in protest at the effect of competition on Royal Mail’s future ability to provide the universal service and in protest against a competitive model which is predicated on low wages and poor terms and conditions across the postal industry.
3 The CWU announced the results of its consultative ballot of 112,000 members in Royal Mail on 19 June 2013. There was a 74% turnout and members answered as follows to the four questions posed: do you oppose the privatisation of Royal Mail? YES 96%; do you support the boycott of competitors’ mail? YES 92%; do you support the CWU Pay claim? YES 99%; and do you support the policy of non-cooperation? YES 92%. 4 http://postandparcel.info/56186/news/regulation/end-of-monday-delivery-will -have-limited-impact-on-postnl-staff- claims-minister/ 5 http://www.guardian.co.uk/commentisfree/2013/apr/29/postal-privatisation-ze ro-hour-workers 6 http://www.independent.co.uk/news/uk/politics/zerohours-contracts-for-worke rs-to-be-reviewed-by-coalition-8656328.
There is an alternative There is a positive future for a strong Royal Mail which properly engages its employees. This will only happen through an approach to business operations which reflects strong values of public service and which empowers employees to have a genuine say in the running of the company. Small but important changes in the way Royal Mail operates can bring a strong sense of purpose to the company. A new business model for Royal Mail should set out in clear terms the vision, values and operating model of the business, through a legally binding charter. This should include a commitment to public service, social obligations and the universal service.
It should establish Royal Mail as a not-for-dividend company. A charter for Royal Mail should incorporate a new system of governance which ensures employees, customers and the public have a meaningful say in the way the company is run, providing Royal Mail with the independence and the freedom from political interference to which the government aspires.
As we have seen in the case of Network Rail, a public body, overseen by a membership board which sets corporate policy, can be authorised to access private capital without affecting government borrowing and without competing with other services for limited public resources. Royal Mail’s results for 2012/13 show that it can raise investment capital through its own profits; this is a step towards becoming a self-financing, not-for-dividend company. Without changing ownership, Royal Mail could borrow from money markets, at a cheaper rate, in line with companies like Network Rail. Such methods of investment operate throughout the EU for government related entities such as Royal Mail.
A new model for Royal Mail Royal Mail should remain a public body, with access to private capital, a legally binding charter and governance structure which enshrine a culture of strong public service. Royal Mail’s board should operate in line with the company charter and with safeguards and corporate governance in place to ensure these values are adhered to. Structures at all levels of the company should ensure the opportunity for employees to input into strategic policy development. All areas of governance should be linked to and consistent with Royal Mail’s charter.
Royal Mail’s charter should contain explicit statements on the company’s approach to rewarding employees, including ethical pay principles and employment practices.
It should set out a firm policy on growing the business and investing in the future; executive reward should be aligned with the achievement of these goals and consistent with the company’s values.
FOR FURTHER INFORMATION REGARDING OUR CAMPAIGN PLEASE VISIT: OR CONTACT: John Colbert CWU Communications & Campaigns Manager 020 8971 7244 email@example.com
04111 Published by the Communication Workers Union 2013 T: 020 8971 7200 150 The Broadway, Wimbledon, London, SW19 1RX Billy Hayes General Secretary www.billyhayes.co.uk