Privatisation is still best option for UK Post Offices
Queues at post offices apparently were longer than usual in the run-up to Christmas, as people sending different sizes of cards and gift parcels had to worry about the new rules on dimensions and weights of envelopes.
For many, this experience will not be repeated. One in six of the UK's 14,300 post offices will be closed either this year or next. Add in about 4,000 that have already gone since Labour came to power a decade ago and a third of the network will have been cut in a dozen years. Commercial banks could only stand and admire this brutal approach.
Protecting and improving public services was top of Labour's agenda. Post offices count as a public service to many people. but not perhaps in Whitehall's definition.
If asked, most voters would oppose closures per se. Some might think differently if presented with the figures given to ministers by Royal Mail. It claims that only 4,000 offices are profitable and network losses will double to Pounds 200 million in this financial year. Such alarming figures are inevitably a matter of choice in any integrated business, or the NHS. Internal accounting is flexible because overheads can be allocated wherever management wants. Under EU rules, the state ought not to subsidise competitive mail or parcels services. It can still fund post offices that were, until recently, used heavily as outlets for state business.
Whatever the calculation, state ownership is no guarantee of any public service.
When the same organisation owns, funds and judges a service, accountability disappears. Democracy, exercised with one cross on a piece of paper twice a decade, is no match for the reality of budgeting. Gas, telecoms, electricity and water privatisations taught us this. Services are much more accountable when they are subjected to competition or to regulation by someone unconnected to the owner.
An "independent" regulator appointed by the owner or subsidy provider is no remedy.
Blame for wholesale post office closures therefore rests ultimately with Conservative MPs who, in the summer of 1994, sided with opposition parties and a weak Cabinet to thwart Michael Heseltine's plan to privatise the Post Office.
They claimed that this would lead to closures of rural post offices and bring higher prices, losing votes. They could hardly have been more wrong, and they lost their seats anyway after backing the sale of loss-making railways.
Lord Heseltine, as he later became, rejected the idea of a state monopoly acting as a profit-maximising business -for reasons that are now apparent to all. No hindsight is needed to see that privatisation was the only way to protect the post office network. It was argued repeatedly in this column at the time.
Unfortunately the Heseltine plan featured the Cabinet's twin obsessions of the time. It aimed to raise as much cash as possible by selling the Post Office to the public as a plc dedicated to maximising shareholder returns, and would subject Royal Mail to full competition to curb abuse of monopoly. The Post Office group was highly profitable then, although returns at Post Office Counters were low.
There was bound to be an element of monopoly and cross-subsidy to maintain the universal pricing policy.
The Post Office could have been privatised as a sort of statutory company, financed by index-linked stock with a price regulator and an obligation to maintain a specified minimum number of post offices and to treat its sub-postmasters fairly. Profit bonuses for staff would have provided the incentive for efficiency and profit lacking in the financial structure.
A dozen years later this intrinsically labour-intensive business still needs to leave the public sector as soon as possible if it is to become accountable and sustainable. We still need a service with rights, obligations and incentives for staff to make the mail more efficient and to win business for post offices.
Alistair Darling, the minister responsible, must reject any get-rich-quick scheme that would give lots of shares to bosses to fatten the business up for sale to its privatised German or Dutch equivalents. Giving 10 per cent of the company to staff as reward for cutting services would hardly fit the bill.
The John Lewis Partnership now offers a better model. A chunk of shares could be given to a board of trustees and used to pay profit bonuses to employees, with the rest of the capital converted into saleable index-linked debt. In the public sector, 10,000 post offices are liable to go by 2017.
