UK Royal Mail plans worker buyout to beat privatisation

ROYAL MAIL is preparing to sell part of its postal business to its employees in order to ward off what it fears will be a full-scale £5 billion privatisation of the industry.
Senior Royal Mail executives say that the Government is considering privatisation to boost the public finances and are alarmed that a key government adviser has been in talks with banks.

The Times has learnt that Allan Leighton, Royal Mail’s chairman, is preparing plans that would bring in billions of pounds in private cash and give employees shares in the business which would pay dividends. Part of that cash would be made up of bank borrowing, where the level of debt would be greatly increased.

Mr Leighton, who was asked by the Prime Minister to take control of the postal group two years ago, opposes full-scale privatisation and would quit if it were imposed. His three-year contract ends next March but he wants to stay on.

The organisation announced a £105 million profit yesterday, its first for three years, but was condemned by the industry regulator and postal users for missing all 15 of its service targets.

It is thought that Richard Gillingwater, head of the Government’s Shareholder Executive which looks after state business interests, has been meeting bankers about Royal Mail. The responsibility of the executive, which reports to the Cabinet’s Permanent Secretary, is to develop commercial and policy objectives for organisations such as Royal Mail, British Nuclear Fuels Limited (BNFL), British Energy, the National Air Traffic System and the Royal Mint.

Selling off the Royal Mail would be a dramatic move for a Labour government. It was the one big privatisation that Margaret Thatcher balked at and a later attempt by Michael Heseltine was blocked by opposition from Tory MPs.

However, it faces growing competition, with rivals moving into the business market and all postal services due for deregulation within three years. A sell-off could value Royal Mail at more than £5 billion if it continues to make a profit. It also owns property worth about £2.5 billion.

But these figures are regarded as optimistic within the Government, which was angered by the claims of a sell-off last night. Both the Treasury and the Department of Trade and Industry said that there were no such plans.

Privatisation would be politically difficult, but the Government has shown that it is prepared to sell Royal Mail. Two years ago the group admitted that it had held talks with the Dutch postal group TPG.

There were accusations that the Royal Mail was raising the “straw man” of privatisation to push through its own preferred buyout plans. One government insider said that the Government would be mad to go for privatisation and that the Royal Mail’s claims were a “ruse”. “They should be thinking about improving the services they offer before they think of selling the business off,” he said.

Mr Leighton, who serves on a range of boards, is believed to have discussed an alternative privatisation plan with the main postal union to try to present a united front. The Communication Workers Union (CWU) is certain to resist a full sell-off and will press the Government for a cast-iron guarantee of no privatisation.

Dave Ward, deputy general secretary of the CWU, said: “We believe that it is pretty clear that privatisation is on the agenda. But we are not going to allow Labour to get to the election without spelling it out that Royal Mail remains a public service.”

In order to appease opponents of privatisation, the Government could sell only the Royal Mail letters business and keep the post office network in public ownership.

But Royal Mail is one of the Government’s few aces if it wants to raise cash, especially now that it is back in profit. There is little scope to sell any other large organisation. A flotation of the nuclear reprocessor BNFL was outlined several years ago, but huge problems have pushed it off the agenda.

If Royal Mail wins the battle and opts instead for a semi privatisation, which may see postal employees with non-voting shares owning 51 per cent of the business, it could attract up to £2 billion into the business. Some of the cash would go towards helping it to compete with European rivals, who are far more efficient. But some would also go into pay to take the weekly basic rate up from £300 to £400.

The union is expected next month to outline demands for a £500 weekly wage. It will use its conference to press for the increase and for a change to the Postal Services Act 2000 so that a sell-off is impossible.

Royal Mail’s alternative to privatisation is also likely to call on the Government to take back responsibility for pensions. It is having to pour in more than £200 million a year to the pension fund.

The battle will come to a head over the next two years. It is thought that private investors will find the organisation most attractive when it has been profitable for a couple of years but before it begins to lose market share in the shake-up of competition.

FACTS AND FIGURES

Total value of business is about £5 billion
Property assets £2.5 billion
190,000 employees
Handles 82 million letters a day to 27 million addresses
The No 1 for brand recognition on the high street
Its name was changed from Post Office to the much-derided Consignia in 2001; it then became Royal Mail in 2002
Has 16,000 post offices
1635 Charles I opened the Royal Mail to the public. All postmasters had to have enough horses to deliver the mail May 6, 1840 The Penny Black, the world’s first adhesive stamp, became valid for postage on any letter weighing up to half an ounce (14.2g) anywhere in the UK

1881 Henry Fawcett, the Postmaster-General, introduced the postal order, originally for people without bank accounts

1919 First airmail service started when the RAF delivered mail between London and Paris

1929 Imperial Airways became first private carrier of mail