Britain - Royal Mail: the government's latest shark-lure

Apr/May 2009

On the 25 February this year, the government presented its Postal Services Bill to the House of Lords, outlining its proposals for what it euphemistically calls the "modernisation" of Royal Mail.

There are two main proposals in the bill - the "part-privatisation" of Royal Mail, i.e. the sale of a 30% stake in this presently 100% state-owned service to a private bidder, and the taking over by the government of the Royal Mail pension scheme - supposedly in order to take responsibility for a growing projected deficit - of £7 or £8bn. This latter condition is meant, of course, to facilitate the former.

But if anyone heaved a sigh of relief that "only" 30% is to be privatised, they should be warned that the bill, if passed, would actually allow a share of up to 49.9% to be sold, without further legislation.

Of course, Royal Mail, being the last big state-owned "utility" and a potentially profitable one at that, was always likely to be considered for privatisation, even if this option was rejected in the past - including by Thatcher's last Tory government.

The current Labour government's business secretary "Lord" Mandelson has, however, justified his Bill with a claim that Royal Mail is in seriously bad shape and that these measures are essential to prevent it from going under. But in fact Royal Mail announced a tidy profit of £225m for the 9 months to Christmas 2008. Even if suspicions were raised that this could well have been in anticipation of a possible auction.

The government's press release accordingly explained that: the only way to "secure the future" of Royal Mail would be "by allowing for a strategic partner to bring experience and investment to transform the Royal Mail, with the government taking on its pension deficit".

This is a little surprising. Because ever since the appointment of Alan Leighton, a Thatcherite private equity millionaire, 7 years ago, as non-executive chairman of the Royal Mail, the public was told what a wonderful job he and his CEO (the disgraced ex-Football Association director, Adam Crozier, who was appointed a little later), were doing - especially with regard to cutting jobs. Now, apparently, such home-grown talent is considered not to have enough "expertise". What is more, the investment for automation (i.e., modernising equipment) was already put in place a year ago, and most of it has not yet been spent. So why is outside investment suddenly so crucial?

So this leaves one wondering what the government is really up to and why? The so-called "cost of modernisation", in order to maintain the Universal Service Obligation (delivering post to the 28 million residential addresses in the country) which is apparently the main justification for part-privatisation, is peanuts compared to the hundreds of billions which the government has found out of nowhere in order to fill the coffers of the private financial institutions over the past 18 months!

And since it has taken this money from taxpayers, past, present and future, without so much as a "by your leave"... in order to all but nationalise the failed private banking system, it should be perfectly acceptable - all the more so - to bail out the public postal service. But no. Mandelson has actually said that the government cannot expect (without having asked) "the taxpayer" to fund a postal service from which, unlike the banks, all of us benefit directly, in many different ways, every day!

As to what might be gained in the short term, it is highly unlikely that the proceeds of the sale of 30% of Royal Mail will be a great boon to the government. Because to date, a major obstacle to the progress of the bill seems to be that private companies cannot even find the money required in order to register serious interest. Dutch postal company, TNT, which has been named as the most interested (and interesting) party of all, just announced a fall in its profits in February of 37%.

All of the world's postal services are suffering from the self-same problem affecting Royal Mail (RM) - the current slump in mail traffic due to the recession and the longer-term problem of the decline in some types of letter post thanks to the increase in use of the electronic media.

Aside from the fact that public services like RM should not be run for profit in the first place, to point to a lack of profitability and future likely falls in profits from letter post as a reason to privatise the system is a little mad. If anything, it would be a reason to increase state subsidies to letter post so that the smaller number of evidently more important letters can be delivered nevertheless! Anyway, the projected continual fall in letter post which RM bosses and the government-sponsored"analysts" who wrote the Hooper review into Royal Mail, both assert, as a reason to keep cutting jobs, is just not credible, as there will be a level where this fall will stop. This is fairly obvious, since, so far, a method of transmitting matter electronically has not been discovered... and, moreover, there is an equivalent (if not greater) increase in the traffic of small packets which have been bought on the Internet. But these comparative measures are absent from Hooper's so-called "analysis", no doubt because it does not suit the government's argument.

Anyway, for almost 3 decades, it was always considered by government ministers as unwise and unnecessary to privatise the postal service. After the NHS, it was perceived by the population to be the most important public service, after all.

So now we get to 2009, in the middle of one of the worst economic crises in memory, with unemployment rising at an incomparable rate, with even the official figure of jobless passing 2 million! And the government decides, nevertheless, to subject a nationalised, essential, public service employing around 161,000 workers in its core sections, to the privatisation axe and the inevitable cuts in jobs and conditions which will result!

This does not seem to make any sense at all. Why do it and why do it now? That is the question.

Hooper or whopper?

There are one or two clues in the above-mentioned Hooper Review into the postal services, entitled "Modernise or decline", published last December.

It should be said first that this is a primarily political review, written in order to back up a strategy already decided upon - with foregone conclusions. In fact it is this review which the government has used verbatim in parts to provide the rationale for its Bill. Behind the rather short title and in between numerous pie charts and graphs, one finds that Hooper's "modernisation" is little more than a proposal to squeeze more sweat out of a lot fewer postal workers. And this sounds distinctly like the good old axe and whip policy which the public sector bosses and the capitalist class always resort to when they want to cut costs and increase profits. Nothing in the least "modern", nor "new" about this method!

Richard Hooper, (CBE), who was chosen to head this "independent review of the UK postal services sector" is someone who has certainly shown expertise in privatising his own career. He emerged from a series of senior appointments in the old state-owned BT, to scoop up several business opportunities from privatised BT offshoots, like Informa plc., Superscape, United News and Media and lately, Yell Group plc., (the old Yellow Pages), where he is CEO. He was also appointed to help run "regulatory" bodies like the Radio Authority from 2000-2003 and then Ofcom from 2002-2005 - set up to watch over the privatised companies which came out of BT, but in reality, a way of allowing the sharks to patrol their own waters.

The other two on the team of Hooper's review were "Dame" Deirdre Hutton, who is described as "a leading consumer affairs expert", previously deputy chair of the Financial Services Authority and presently chair of the Food Standards Agency, and Ian Smith, former CEO of Taylor Woodrow, the construction company, prior to its merger with George Wimpey.

In fact Smith has been CEO of a string of companies, many of which have benefited from government contracts and privatisations - like Exel, the General Healthcare Group and Monitor Company Europe, a "strategy consultant" firm. He begun his career with Royal Dutch Shell, working for them in the Middle East for 10 years. What more could Mandelson ask for?

Certainly all three of them are government "insiders" - Dame Hutton sits on the board of HM Treasury - and would be unlikely to stray from their remit to provide a justification for opening up one of the last potentially profitable state assets to the private sector, at a time when sources of secure profit are scarce.

Royal Mail is obviously a highly secure bet (or maybe bite!) for a private shark. It remains the backbone of the mail distribution network, necessary for the maintenance of the so-called "Universal Service Obligation" (delivery to all 28 million residential addresses in the country) as well as the delivery of mail to many small and medium sized businesses. All the private sector mail companies - for whom Brown opened the market in 2006 could not possibly replicate this network, but they have to access it, in order to be viable. And for that, they have to pay.

This end of the mail process, (known as the "downstream" end) is unavoidably labour intensive, even with the promised automation, still to be rolled out to most offices. This is no doubt why downstream workers - delivery postmen and women - are singled out for attention by the Hooper review.

Indeed, what is immediately striking about it, is its repeated allusion to 3 main problems with Royal Mail: firstly, the "inefficiencies" which exist, secondly the pension fund deficit, and thirdly the "difficult" union.

In other words, this report's political agenda is plain for all to see. It is actually the present postal workforce which needs to be "modernised" according to Hooper! The review just baldly states, offering no evidence whatsoever, that workers are not working the hours for which they are paid, and that actually they are paid far too much (much more than postal workers anywhere else in Europe!) and horror of all horrors, they have pensions which are far too generous and which have pushed the fund into deficit and now threaten to ruin the "business", cutting into its profits and pushing it into loss!

But very few, if any, of Hooper's assertions stand up to scrutiny. If British postal workers are the highest paid in Europe, and have the most generous pensions, this should be seen as a terrible indictment on the other countries' policies. One look at a postman/woman's wage is enough to see that it is well below the British average, at a basic take-home of £300 per week, full-time. Nor can pensions be considered generous, by any measure. They used to be based on at most 1/60 of final pensionable pay, although after recent "reforms", it is now less. Today, someone with 45 years(!) service retiring at 65 could expect an annual pension of just over £7,000 a year. A pittance and hardly enough to keep the wolf from the door.

Indeed, the report scrapes the bottom of the barrel when it comes to blatant prejudice against the workforce, even repeating that old and tired assertion made so many times by the current Royal Mail bosses Leighton and Crozier, who xenophobically claimed that workplaces are riddled with "Spanish practices", like workers sloping off early before they have completed their rounds.

Apparently Hooper & Co did not notice that workers went on strike during 2007 against the introduction of a pay freeze, against the introduction of flexible working and against efficiencies (further job cuts) and also against radical changes to the pension scheme - under the pretext of its deficit. Apparently they also did not realise that after the strike, Royal Mail went ahead and implemented most of these measures anyway - precisely those which Hopper's review recommends. And that these "clever" measures have been causing such havoc with the service and with the workers, including serious overwork among delivery postmen and women, that more strikes have been provoked and more are being considered!

What is more, many of the reforms in the pension scheme have, by now, also been imposed without workers' consent. The retirement age will be increased from 60 to 65 years in 2010, and the final salary pension scheme is ended for everyone already - replaced with a lesser, "career average" scheme for existing workers. A defined contribution scheme has been offered for new starts (but anyway, they are likely to be working only part-time and often on temporary fixed term contracts, so many may not even be eligible for a pension).

Of course, the authors had to acknowledge that 40,000 jobs have already been cut since 2002. Costs were cut by "between £460m and £600m", according to the report. Royal Mail's own plan for the next 7 years was already to implement cost cuts of a further £1.6bn. So does that mean another 80,000 job cuts? Because that is how it might seem to translate!

When Royal Mail reported that it was 40% "less efficient" than its rivals, it actually meant that its labour costs were higher than the postal companies which had entered the British "postal market" like UK Mail, Datapost, Citipost, etc. It would like to reduce these costs, but it cannot do so directly, so its main way to cut the wage bill is to turn full-time jobs into part-time jobs (the same amount of work to do in less time). As well as the (now) usual cuts and closures it has also embarked on merging mail centres, hoping for economies of scale and the magic effect of giant automated sorting machines!

But cutting the numbers of workers a lot further than that, let alone cutting their wages, would be a different ball game. In that perspective, by bringing in a "private partner" the government may hope to be able to hide behind the demands of such a partner on the Board of Royal Mail and to justify new attacks against workers wages and conditions, by blaming this partner. Such considerations may be especially important for the government in the context of rising unemployment in the run-up to next year's general election.

The government's double robbery

As to the Royal Mail pension fund, Mandelson says the government will "take over responsibility for the deficit", but only, of course, in order to make the "business" more attractive to potential private buyers.

Obviously, no matter how rich a potential buyer is, they would find it nigh impossible to cope with the Royal Mail pension fund, let alone its deficit. This fund is one of the largest in the country, with 450,000 members, (161,000 current employees, 171,000 pensioners and 113,000 deferred pension holders). The deficit is, accordingly, higher than any FT100 company!

The estimated £22bn assets of the fund minus its estimated £29bn liabilities give the present £7bn deficit, which has suddenly (and very conveniently for Mandelson's blackmail) increased by 75% since 2006. That said, everyone knows that the bosses speak with forked tongues. And in the case of the pension fund they speak with a fork and a knife.

But first of all, if a deficit exists at all, it should be blamed primarily on the 13 years of pension contribution holiday taken when successive governments, Tory and Labour, from 1988 to 2001, nicked the pension fund surplus. (At the same time they also pocketed the profits that Royal Mail was then making, year on year, without reinvesting to modernise. Nor did they put money away for the workers' pensions, "just in case" of a rainy day.)

Besides, what is the real significance of this alleged £7bn, especially in the middle of today's extreme market chaos. It is based on a prediction of prices on the financial markets in 2 or 3 decades from now, when in fact the actuaries are not even capable of knowing what the markets will be doing tomorrow! Why should workers take for granted such a figure taken out of someone's hat?

As to Mandelson claim about the government's plans concerning the pension fund, it should be clarified. Clause 20 of the part of the Postal Services Bill devoted to the Royal Mail Pension Plan (RMPP), states that: "the secretary of state may by order make provision for the transfer of assets of RMPP to:

"(a) the Secretary of State, (b) a nominee of the Treasury (c) a fund established by the Secretary of State for the purpose of holding the assets pending their disposal."

In other words, the estimated £22bn pension fund assets can be taken into the Treasury coffers, never to be seen again!

This whole exercise which Mandelson is conducting - under cover of the Hooper recommendations - actually only begins to make sense when one considers this possibility. Obviously, it was never credible that the government was going to pay up for the pension deficit out of a real sense of responsibility, even if this is actually its statutory duty as sole owner of Royal Mail!

If the Bill gets passed, it does however, allow for a number of possibilities. One could be that the government takes over he assets, and ring-fences them, but still counts them as its assets in the balance sheet of the Treasury. This would artificially inflate the government's real assets at a time when it really needs it. This is one possible scenario.

But another possible scenario is that they do not ring-fence the RMPF assets and integrate them into government assets, which they have the power to do, according to the clause quoted above. In this case, they would just absorb the money and then would have to pay pensions out of government income. And in fact when asked Pat McFadden, the postal service minister has not even denied that this could be the outcome.

Following from this possibility, the bill also allows the government to launch a new pension scheme for Royal Mail employees. This would be a bitter irony, given that the full implications of the pension reforms imposed on postal workers last year have not been felt yet. At the time, moreover, the workforce was given an assurance from management that the new pension arrangements would not need to be changed again in the future, since everything, including the deficit, was being taken into account and sorted out!

But never mind this assurance: the £22bn assets of the pension fund would come in very handy for a government which has overstretched itself in giving a helping hand to the private financial system. No doubt it would very much like to take these pension assets and run.

CWU leaders still wooing Mr Brown

What has the Communication Workers Union been doing in the face of this new threat posed by the Postal Services Bill - and one which is superimposed on the background of ongoing attacks on jobs and conditions, under the guise of "flexibility"?

It is worth diverging briefly, to mention the current attacks, in fact. After the failure to stop the Royal Mail bosses from implementing the flexibility plan in 2007, things have gone from bad to worse.

Not one sorting or delivery office is untouched - and many smaller offices have been quietly closed already without resistance. This is on top of the closures of 2,500 post offices - closures which were petitioned over and which were protested over, but which have also just gone ahead nevertheless.

Even at this moment, jobs are being cut left, right and centre; the remaining workers are expected to cover all the extra work and on pay which barely covers the bills and in some cases does not even do that.

This is therefore the context of the government 's proposals to part-privatise. And the closure programme of sorting offices (mail centres) was started long in advance, in anticipation of it.

The attacks on jobs have, up to now, been tolerated by the CWU leadership - which has always had a policy of accepting bribes on behalf of the workforce in the form of bonuses or a "share" in the savings made on workers' backs. It called off a strike against the programme of closure of mail centres before Christmas, claiming that there were new negotiations taking place. But now these closures are going ahead again - Reading Mail Centre is to close by Easter and Oxford by June, for instance. What the union has been doing about this closure programme is a mystery.

But the CWU leadership has been busy, in its own way, with a campaign against the privatisation of the Royal Mail, focused almost entirely on Labour Members of Parliament, to get them to sign and Early Day Motion against privatisation as part of their "Keep the post public" campaign. To date only 140 MPs have done so, out of 646 members, of which Labour members number 350.

Of course Billy Hayes, the union general secretary and Dave Ward, deputy general secretary and leader of the postal section, state their commitment to a "fully publicly owned Royal Mail". Hayes has said "Why should we nationalise the debt (in the form of the pension deficit) and privatise the profit?" True, but then why has the government not paid up, in order to close the pension fund hole years ago, having been the chief cause of this deficit in the first place? But Hayes always speaks about the 13-year long pension contribution holiday as the responsibility of the Tory government, even though Labour took over nicking workers' pension surplus between 1997 and 2001 (and maybe until 2003, although this is not clear). Anyway, whatever party is or was in power makes no difference - the pension contributions should always have been paid in full!

As far as the membership goes, the union leaders are much less concerned to get them involved in any action to prevent the government from implementing its plans. They seem determined to prevent action from being taken in fact.

So far, there has been one token "national" rally on the 24 February in Westminster Central Hall, to which only CWU members and their families were invited - but this meant mainly union officials, since it took place in the middle of a weekday morning. No strike was prepared, even though this would have quite been possible to organise in advance. After this, the union began a series of local demonstrations in the constituencies of MPs who have not opposed privatisation.

The first of these, on 24 February, was supposedly a "national" mobilisation in the constituency of the Postal Minister, Pat McFadden - which happens to be Bilston, part of Wolverhampton. Unsurprisingly, only a few hundred postal workers (mainly union reps and officials) actually made it to this small and relatively hard to reach corner of the Midlands. It was not even felt necessary by the leadership to ensure a good turnout.

In fact it seems that postal workers are so far considered superfluous to the union's "campaign". In an interview with the Times newspaper recently, Hayes made a threat that the CWU might consider disaffiliating from the Labour Party - putting it to a vote of the membership, if privatisation went ahead, after the event!

If here are problems in implementing modernisation Hayes said "don't blame the union. We're up for modernisation. Obviously we want investment in the company. The delay has been mainly the company. I can't think of any way we delayed it. Obviously, there has got to be a reduction in major sorting centres. You'll never find a bit of paper that says we don't recognise that there are going to be job losses."

So, the CWU leader thinks sorting centres should close and jobs should be lost? And yet a report by a left-leaning Labour think-tank, Compass, shows that Hooper's arguments for these mail centre closures are a nonsense: "Two of the examples given by Hooper are Germany and France which, for mail centres, achieved reductions from 328 to 83 and 100 to 45 respectively. By contrast, the UK currently has 69 mail centres which does not seem disproportionate to Germany's 83 and could just as easily be taken to suggest that it is simply a network that has never been as bloated as that of its peers". The report comes to the conclusion that although Royal Mail is not as automated, or into its modernisation process as its European peers, there is no evidence that it is less efficient - in other words that there is any need for job cuts. They also point out that Britain has far more collection points than its peers, which already requires far more workers and more time and resources, thus making it difficult to find equivalence when comparing with other countries.

Indeed, if there are problems, these have actually been caused by job cuts - which have been made as a result of a policy to cut the service - like cutting out the second daily delivery in 2004/5, like cutting the number of collections (now only one per day in many areas!) and therefore slowing down the delivery of mail significantly!

The strength is there to win

In this context, of a union leadership which is entirely orientated towards lobbying parliament and hoping for the best - while accepting job cuts and closures to the point where the cuts in the service become harder and harder to reverse - postal workers are left to play a totally passive role.

But if ever there was a section of workers under threat today, which is in a good position to fight back, it is these same postal workers. The reasons are obvious: their numbers - over 160,000 - and the fact that they are spread all over the country and are potentially in touch with every other section of the working class through day-to-day contacts!

Of course some will ask why they should fight, yet again, after so many defeats and half victories? The fact is that this time, the issue not only concerns them directly, but it concerns all other workers as well. There is every reason to expect that postal workers will not find themselves alone. After all, the targeting of postal services for the purpose of generating profits for the government's "private partners" will have to be paid for, not only by the workforce but also by the users of these postal services - i.e., all ordinary people.

In a period of deep crisis such as the present one, it is blatantly obvious to everyone however, that the resources of the state should be used in the public sector to create jobs, not to cut them, by privatising facilities that the public needs.

This is not a difficult point to put across. That is why postal workers have everything to gain by preparing to resist against the government - and if they are determined, they will convince other workers to join in. And then there will be chance to win a lot more than the reversal of government policy on the postal service!