Royal Mail row brews – No taxpayer bail-out without full privatisation
Royal Mail is entering a crucial phase in its 345-year history. The next few months will see its regulator decide how much it will be able to charge for stamps until 2010, the publication of the Bain report into its future and the advent of full competition for postal services in January 2006.
Small wonder, then, that there is a sudden clamour about the company’s Pounds 4.5bn pension fund deficit. Royal Mail knows this is one of its strongest cards in arguing for lighter price controls. Allan Leighton, its chairman, also knows that the deficit could scupper his plan to make Royal Mail a partly employee-owned business.
Ministers meanwhile appear split between those who believe that there may be a case for a taxpayer bail out and those who want to resist such a bail out at all costs. The regulator should treat all this jostling for position with a heavy dose of salt.
First responsibility for plugging the hole in the pension fund lies with the company and its employees. Mr Leighton and Adam Crozier, its chief executive, have made genuine progress in turning the business around. But they have much work still to do.
Royal Mail lags behind its continental peers, Deutsche Post and TPG of the Netherlands, in items handled per employee and use of sorting technology. Efficiency gains have been handed back to employees in higher salaries and bonuses, rather than used to plug the pension fund deficit.
Royal Mail should not expect any help until it has exhausted every possible means of freeing up cash flow itself by cutting costs. This will require fundamental changes in working practices, necessary in any event to make the cost base more flexible ahead of full competition.
Even so, additional money may still be needed. That can only come from the customer or the taxpayer. Neither is an attractive option.
Passing on the cost to customers through higher stamp prices would be to allow Royal Mail to abuse its monopoly power. This might be attractive to the Treasury, as it would keep spending off the government’s books. But it would fall disproportionately on older, often poor, letter-writers.
A government bail out would send a terrible signal to the rest of the public sector. It would create moral hazard and in no way guarantee that the state would not be asked for billions more a few years from now.
What then, to do? When, and only when, it is satisfied nothing more can be done on costs, the regulator should set prices to permit some additional contributions. But it should resist any pressure for a rapid closing of the gap.
There is a case for a one-off taxpayer contribution to deal with some legacy pension costs. But only if it can be done in a way that ensures no further contribution. If the government recapitalises it must fully privatise Royal Mail as well. There is no third way.
