No plans for UK Royal Mail sell-off

The Government today insisted it had no plans to sell off the Royal Mail.

The Department for Trade and Industry said ministers were not planning to privatise any element of the business.

A spokeswoman said: “We have no plans to privatise the Post Office, no plans at all. We have no plans to privatise any element of it.”

The unequivocal statement comes after reports that Royal Mail chairman Allan Leighton has privately been given permission to privatise a huge chunk of the business.

He has apparently been trying to persuade ministers it is the only way to ensure the company's survival beyond 2007 when rival firms will be able to bid for contracts to deliver letters and parcels anywhere in Britain.

The Mail on Sunday said 20% of the Royal Mail would be handed to its own workers and 31% sold on the market, raising about £4 billion.

The chairman of the House of Commons' trade and industry select committee, Martin O'Neill, said he had received assurances from ministers just days ago that the Royal Mail was not for sale.

“I was assured just 10 days ago that this was not on the Government's agenda,” he told the Mail on Sunday.

“This will not find favour with the workforce because the record of partially-privatised companies on job security and working conditions speaks for itself.”

Any move to sell off the Royal Mail would cause fury among trade unions.

Billy Hayes, general secretary of the Communication Workers' Union, said Mr Leighton should abandon any ideas of privatisation.

The Royal Mail also insisted it was not being sold off.

Head of press relations David Simpson said: “As far as we are concerned this is not the case.

“It is not the Royal Mail's prerogative to do anything at all like this, it is a matter for the Government. And it is our understanding that this is not on the Government's agenda.”

December 14, 2004 6:35 PM GMT (Datamonitor) – Although Royal Mail has dismissed reports of privatization, such a move would provide a significant injection of cash to help prepare for deregulation. However, for the company to compete successfully in the future, whether public or private, performance and customer relations will have to continue to improve.

Royal Mail has denied newspaper reports that it will be privatized after the next general election. However, such a deal would raise an estimated GBP4 billion, which would certainly prove helpful to Royal Mail in competing once the UK postal market is deregulated in 2006.

The company has certainly made good progress in attempting to remodel itself in the style of a private operator. In an attempt to cut costs, the first two years of its renewal plan have seen reductions in both post office and staff numbers. Subsequently, H1 profits surged to GBP217 million, and the company is confident of reaching its full year target of GBP400 million.

Strategic changes have also occurred in pricing, with Royal Mail justifying its increase in first class postage to 30 pence next April on two counts. Firstly, the UK rate is below that of other European countries and secondly, the move will bring the price of its letter services more closely into line with the cost of delivery.

Significantly, the extra GBP100 million generated will allow the company to reduce the amount it charges to bulk business users, whose mail is cheaper to process. These large customers will be crucial to future success, with around 100 business customers accounting for half of Royal Mail's letters business. Therefore, unless it can compete on price in the deregulated market, Royal Mail will lose clients to competitors, who will target specific companies and cities rather than attempt to set up an expensive countrywide network.

The company must also address the hole in its pension fund, its continued failure to reach minimum performance targets and the losses made by other parts of the group such as Parcelforce. With no further stamp price increases allowed until deregulation and the majority of the easy cost cutting already done, Royal Mail will have to find alternative means to compete in an open market. Although simultaneously dealing with competition and privatization would be daunting, the cash injection would certainly prove useful at a critical time.