It finally happened. 52 % of the "Royal Mail Group" was sold by the government in a public share-offering, with the first conditional share trading taking place on 11 October. The government provisionally held onto 38% of the shares, with an additional 10% set aside for the postal workforce. It promised that in the first year after the flotation it would pay out a dividend of at least 6%.
The float was wildly successful by City standards. Despite the opposition of the overwhelming majority of postal workers and at least 70% of the general public, according to a YouGov Sunday Times poll carried out in September.
Once the share applications opened, they were quickly oversubscribed, with as much as £27bn of investors' money attempting to buy the available 52% of the shares, valued at £1.7bn. The portion of shares (67%) which had been allocated for sale to institutions like pension and other investment funds, was 20 times oversubscribed and the 33% allocated for sale to retail/individual investors was 7 times oversubscribed, apparently attracting more than 700,000 applications. Not surprisingly, the government's valuation of the Royal Mail, which had been set at £3.3bn, with an initial share price of £3.30, was immediately put into question. Quite obviously it was in the interests of big investors, rather than the government, that the shares be cheap.
Due, however to the huge over-subscription, the initial share allocations had to be rationed. Retail investors who expected to be able to buy the maximum of £10,000-worth got none. Those who applied for shares worth between the minimum of £750 and £10,000, found themselves with the minimum allocation - £750-worth - only 227 shares each, in fact. Apparently most institutional investors, who were allocated their shares on a first come, first serve, basis, got no stock at all. But Royal Mail executives, including CEO Moya Greene, not only got the same free share allocation as postal workers - but they were able to buy another £500,000 worth... or so we are told by the press.
Anyway, when conditional trading (bids to sell and buy, but with no shares actually changing hands) opened on Friday 11th October, there was a mad buying and selling frenzy, with 10 million shares traded in the first 30 seconds, almost crashing stockbrokers' websites. Shares rose to a peak of £4.59 and then settled at the end of the first day at £4.55, already 38% above their initial price.
Labour shadow business minister Chuka Umunna, Billy Hayes, the Communication Workers' Union leader, and quite a few other commentators and financial experts wasted no time in accusing the government of "grossly undervaluing Royal Mail", and thus losing out on another £1bn - or at least £900m, according to BBC economics editor Robert Peston.
On the first day of "normal" trading on Tuesday 15th shares went up even higher - closing at £4.89. The day after this, on the 16th October, when the CWU announced a positive strike ballot result over Royal Mail's pay offer (with 78% in favour of strike) the share price was expected to fall. But this is what the Financial Times reported: "The shine is (slightly) off Royal Mail shares, with the stock now down 3.3 per cent on the day after postal workers - as expected - voted in favour of a strike. (...) Royal Mail is trading at 473p, down about 16p from Tuesday's close. That's of course still well up on the 330p price at which the UK government sold the shares to investors in the largest privatisation in a generation". The shares closed up - at £4.75 and opened at £4.80 on the 17th... In other words the strike vote caused hardly a flutter.
In fact this vast over-subscription and crazed share trading just goes to show how much "spare cash" there is sloshing around in the British economy - much more than we are led to believe. And all of it money which could be taken from wealthy speculators and institutions and used to rebuild the country's social infrastructure for instance, which has been cut from under the feet of the population over the past many years of budget cuts and austerity using the excuse of the financial crisis. Not to mention money which could be used to ensure that public services like the post, remain public services.
A "good" launch, for them, for now
Why was this flotation such a success? Of course, Royal Mail was undoubtedly a "good buy". All the more so, since it guaranteed to pay a good dividend in the first year of flotation. But this was only a sure thing after the government had taken over the Royal Mail Pension Plan - with its historic black hole - an £8.4bn deficit, thanks to the 13 year pension contribution holiday which had been taken by Royal Mail management. By doing so the government not only made the Royal Mail saleable but it also acquired the £26bn pension fund's assets - since the deficit is a "paper" one, based on liability projections even if the government has now taken over responsibility for these liabilities. Very convenient for the government balance sheet, in fact.
So yes, this share flotation was a very good bet. Just as Railtrack was, back in 1995... (But let us not jump the gun, by going into that notorious catastrophe right now. We will come back to it later.) Not only has Royal Mail Group been making profits steadily for the last several years, (£403m in 2012, £152m in 2011), but it has a huge property portfolio, a highly successful international logistics business and parcels operation, plus its, albeit less profitable, but still thriving, "Royal Mail Letters and Parcels" network, which covers the whole country and still boasts, despite cuts and competition, a near-monopoly, thanks to the so-called Universal Service Obligation - its legal obligation to deliver mail to around 28m addresses, six days a week - for the time being.
On top of this, Royal Mail Letters benefited from a loan from government in 2009 to automate its operations, (now apparently paid off), buying thousands of sophisticated sorting machines - which add to its valuable fixed capital assets, as does its fleet of spanking-new vans, trucks and articulated lorries, plus its state-of-the-art delivery equipment. And almost all its operations are now run from new, or refurbished purpose-built, centralised, regional mail centres and delivery offices, after an unprecedented 10-year programme of multiple office closures and 30,000 job cuts, which has devastated the workforce.
Even the giant, listed, art deco Mount Pleasant Sorting and Delivery Office, in central London, which had been earmarked for closure 15 years ago, has now been done up according to a design by Farrell Architects, as a state-of-the-art mail centre, at huge cost - estimated to be £32m, with plans drawn up by the same firm, to redevelop the rest of the sought-after site for private commercial and residential use. Three other historic London mail offices (in addition to Paddington) have been closed, with some of their own lucrative property already sold, and most of their work relocated within Mount Pleasant, i.e., Nine Elms in South London - whose site is partly occupied by the new US Embassy, Rathbone Place delivery office, located in prestigious Oxford Street - and the East London Mail Centre, whose site was required during the Olympics.
All this to say, that Royal Mail was certainly not privatised in order to allow it "access to private funds for investment", as the government's song goes! Quite the contrary. Much of its necessary investment, well into the future, and most of the cutting of expenditure - on the back of its most valuable asset of all, its workforce - has been done already, to make it lean and profitable, before the flotation. And this is is what makes this share flotation a little different from that of the rail infrastructure "company", Railtrack, whose infrastructure was worn and aged and certainly needed investment after the flotation - but did not get it, with disastrous consequences - which contributed to its collapse just 5 years later.
But back to Royal Mail. To give the opening share auction a little additional fillip - if it was needed - on the 10 October, Royal Mail bosses announced that "many" more job cuts were to follow the sale. Not that there is a surplus of workers anywhere in the network! But since RM also pledged not to change the ratio of full-time to part-time workers from the existing 75% full-time to 25% part-time for 3 years, they probably wish to cut absolute numbers of both types of worker, and damn the consequences, in order to maximise profits.
Obviously this flotation is against the interests of the postal workforce - whose opposition to it wasn't softened by the 725 free shares each which they are to receive, but won't be able to sell before 3 years. The fact that as many as 360 workers went out of their way to refuse these shares says a lot. The other 8 refusals were Royal Mail non-executive directors including the chairman, Donald Brydon - who apparently said it was not appropriate to accept them. However, like Moya Greene and the rest of the Board, he joined the executive directors in the priority purchase of £500,000 worth of shares.
The CWU's long surrender
The sale was a success. But the opposition to the sale - despite the fact it included the majority of the workforce and the majority of the population - was a failure. Why was that?
Well, it turns out that the Communication Workers' Union, which had led the anti-privatisation campaign, had already given up the fight well before the government announced the flotation.
Not that union leaders dared to admit it, of course. In fact they made out that the CWU was "fighting" privatisation all along, even if its "campaign" was so obviously rubbish - being aimed at getting mainly (but not only) Labour MPs to oppose the privatisation on its behalf. The public activities were largely staged by full-time staff from union HQ and a few select activists. Nobody among the real workforce was even invited to participate. The last public intervention was an open-air bus driving around a few chosen areas, with "Don't buy it, you already own it!" written on the side.
It must be said that the privatisation of the postal service was an old idea, dating to the mid-1980s. This was when the telephone system was split off from the "Post Office", as the public post and telecomms company was called, re-christened British Telecom and sold in 1986 by share flotation. Thatcher and then her successor Major famously backed off from privatising the Royal Mail, however, due to opposition from rural constituents, Tory MPs afraid to lose their seats, and small businessmen, in that order. It was left to Tony Blair's Labour to prepare the post for the private sector, which Peter Mandelson, his business secretary, did with enthusiasm, passing the Postal Services Act in 2000. This legislation was based entirely on a poorly researched report by Richard Hooper an ex-BT top functionary who made his own career out of privatised BT offshoots. His conclusions were tailored to suit the government's plans, advising that Royal Mail had no future because of e-mail, was financially bust anyway, thanks to the pensions black hole, and that the only way to save it was to sell it.
In the end, Labour failed to find a buyer and the 2008 stock market collapse excluded the possibility of a flotation.
After the ConDems came into office, Hooper "revised" his report for them, coming to the exact same conclusions, so that they could pass a revised Postal Services Act in 2011, allowing the privatisation process to go forward, along more or less the same lines as Labour, as soon as the conditions on the stock market allowed it.
This meant that the CWU leadership has had 2 years to prepare itself and its membership for a confrontation - given the direct threat the privatisation poses to the workforce and the public service ethos - not to mention public need - of this utility.
But all it did was huff and puff and pass resolutions. After its annual conference this year resolved yet more hot air, and Royal Mail remained ominously silent over the new agreement it was due to negotiate with the union, the leadership felt obliged to do something.
So in May they held a "consultative ballot", among Royal Mail workers (but not Post Office and Parcelforce workers). Its aim was to show Royal Mail, before their negotiations, that the "membership supported the union", even if the membership were in fact in the dark as to what exactly they were supporting.
It's worth explaining here, that holding ballots "to get members to back the union" (and for "union" read "union leadership") has become a regular feature of CWU policy. Apparently it has forgotten what should be an elementary trade union tradition - that "the members are the union". But never mind. At the time of this particular ballot, Royal Mail management was already a month late in tabling a new pay offer. Its excuse was that there were still outstanding issues (mostly stemming from revisions of walks in delivery offices, which workers had already said were impossible) from the previous three-year agreement made with the union - known as the "Business Transformation 2010 and Beyond" (BT2010) agreement, popularly known as the "beyond belief" agreement because most ordinary postal workers could not believe that the CWU leadership actually signed up to it.
It is worth saying just a bit more about this "BT2010 Agreement". This is how it was described at the time in an article of our journal: "Let us summarise the worst: they have actually agreed a pay cut over 3 years. They have allowed Royal Mail to dress up bonuses already owed as new bonuses to be paid over 3 years and tie new strings to them (acceptance of operational change), they have agreed to facilitate the closure of mail centres, with the loss of probably 24,000 more jobs and worst of all, they have removed the time limit on delivery walks and agreed to integrate junk mail into the round with a small "tip" in payment to sugar the pill. The union leadership turns out to be the sole beneficiary of this agreement. As the London Divisional Committee says in its leaflet: 'The Business Transformation 2010 and Beyond puts the CWU right back in the room'. Too true. And that is not all it does. It provides a framework through which the union officials will be expected to help implement the same revisions which the bosses had to reverse, temporarily, as it will turn out - and they will be expected to act as the 'policemen' of every stage of 'change'. That is, if the workforce allows it. The odds are that they will not. "
It was precisely these BT2010 untenable delivery "revisions" which Royal Mail claimed were holding up the new pay deal.
The pay claim saga
Anyway, back to the present: the CWU leadership had circulated their own "simple" pay claim - which was a two year "no strings attached" deal with a non-specified "above inflation" pay rise. At this stage the privatisation seemed a long way off, with the date not yet set, but due to be implemented "before March 2014".
The consultative ballot (held among 112,000 Royal Mail workers only - again neither Parcel Force nor Post Office workers were included) asked 4 questions and its result, announced on 19 June, on a 74% turnout, was as follows:
Question 1: "Do you oppose the privatisation of Royal Mail?" 96% voted "yes".
Question 2: "Do you support the boycott of competitors' mail?" 92% voted "yes"
Question 3: "Do you support the CWU Pay claim?" 99% voted "yes".
Question 4: "Do you support the policy of non-cooperation?" 92% voted "yes".
What was this ballot really for? In fact talks with Royal Mail had never stopped and neither have they now, despite the fact that one of the ballot's questions, which 92% agreed with, was a "policy of non-cooperation".
Royal Mail did react to question number 2 though, getting its solicitors to go to court, declaring that any kind of boycott of "downstream access" mail would be illegal. Ironic, since this action against competitors' mail would of course be "helping" RM bosses against rival private companies - which the CWU argued was getting its "final mile" deliveries on the cheap!
Soon after though, Royal Mail made a "closed" pay offer - meaning it was not to be revealed to the workforce. It included a condition that the CWU sign a no-strike agreement with Royal Mail (something they have done in the past, even if it lasted only a few months) and, according to the union, "unacceptable pension changes". It was turned down, but never "opened" to the workforce. Then at the beginning of July, Royal Mail came up with a new offer, a summary being published as a "news flash" in the Royal Mail newspaper, The Courier.
It proposed a new 3-year agreement, which pledged that the terms and conditions and contracts of the "core" workforce would remain the same for "at least" a three year period -including after the private share offering. It also said that the pension scheme would remain open for existing members but ominously added, "subject to certain conditions". The CWU revealed that these conditions meant that defined benefit pensions would only be protected for 5 years and that the link to final salary after 2008 would be replaced by a link to inflation, with a cap of 5%. What's more Royal Mail's proposals would amount to allowing the bosses to take a contribution holiday estimated by the union to be worth £2bn. Obviously that wasn't acceptable.
On pay, the new agreement offered an "8.6% increase over the 3 years": but only 2.6% for 2013/14, albeit backdated to April 2013, 3% for 2014/15 and 2.8% for 2015/16 - "subject to review" if inflation went below 2.3% or above 3.3%. An additional £300 was to be payable in December 2013, as a "no strike bonus", to individuals who refrained from industrial action! This of course caused a predictable reaction, and in the end it seems that the union requested RM to make it a non-conditional bonus.
Royal Mail also reiterated in this offer, that the 2011 Postal Services Act had legislated for 10% of shares in the business to be set aside for employees and reminded workers that they therefore "would have a meaningful stake in Royal Mail". But of course no date had yet been set for privatisation. Even at this stage, it was thought to be later rather than sooner - that is, closer to the deadline of 14 March. And the formal announcement by the government on 10 July, that it had decided to sell shares in Royal Mail via a stock market flotation still did not set a timetable.
The CWU surrenders without a fight
By August 1st, the union had called its elected reps together - to refuse the pay offer and vote for a strike ballot. By now, however there was no longer any pretence that the union was going to try to stop privatisation. It clearly asked for support from the workforce, through a decisive "yes" vote, so that it could secure a better agreement on its terms and conditions, post-privatisation.
More specifically, it asked for guarantees lasting for longer than 3 years, which would be legally binding and enforceable - and would secure the position of the CWU as the continuing "custodian" of postal workers' rights, at the post-privatisation bargaining table.
But it took until the 2nd of September for the union officials to announce their timetable for this ballot. They eventually served notice for it only on the 20th September - 7 weeks later, claiming that this was to avoid an injunction. But on 12 September, Royal Mail had announced its timetable for privatisation - ensuring that it would all be done and dusted by the time the strike vote was counted. It was that confident of its flotation that it even placed a notice on the share offer website explaining the possibility of a strike by Royal Mail workers during this period.
Was it impossible for the privatisation to be stopped - or at least disturbed enough to make it flop? Certainly it wasn't. But on the day of the announcement of the flotation timetable, the union was actually holding a meeting in Birmingham for its activists,with Moya Greene attending in order to try to get them to accept the pay offer and call off the ballot. The union leadership knew that the public announcement was taking place that day. But instead of being out on the streets and pavements, organising walkouts in response, which could have undermined investor confidence in the share offer, it decided that having pictures of its activists uselessly jeering Moya Greene on the TV news was more useful! Ironically, it was the media which turned up with TV cameras at the gates of Mount Pleasant - the biggest mail centre in London, expecting precisely that workers would be angry and walking out over the announcement. But activists were 100 miles away and while workers were angry, they were unsure as to what the union plan was. In other words, left totally disarmed.
Between the 12 September and 16 October, the union machinery produced a new "campaign". This time it was not about stopping privatisation, but winning a "yes vote" for an agreement to protect terms and conditions post-privatisation - whoever owns Royal Mail... There was the usual flood of leaflets from HQ and the local officials, and workplace meetings. In fact workers were very worried about their futures - and understandably so. Everyone knows what happens to the workforce after a privatisation - that wages and conditions spiral downwards. And nobody believed the Royal Mail bosses' pledges that nothing would change after the share flotation. Anyway, everything was publicly up for change - including the Universal Service Obligation (to deliver to all addresses six days a week) which is only protected until 2015.
The union leaders' real agenda
Many workers were still waiting for the direct confrontation against Royal Mail and the government over privatisation - even at this point. But the propaganda from the union was pretty clear: they wanted a "yes vote" to get a post-privatisation agreement, no more, no less.
In the end, the CWU's own reason for its surrender over privatisation was put in a nutshell - but only after the sell-off had taken place - by Dave Ward the union's deputy leader. Addressing workers at Mount Pleasant on the first day of unconditional share trading, he said: "We could not fight privatisation, because none of the mainstream political parties opposed it".
Of course, having the support of a "mainstream political party" for a strike, would be like expecting the moon to drop from the sky. In fact, despite a unanimous resolution at the Labour party conference opposing the sale and calling for the re-nationalisation of the postal service under a Labour government, Labour's shadow business secretary Chuka Umunna, ruled this out just 4 days later, saying that Labour would not sign a blank cheque to renationalise the service (whatever that means), but would keep the price of stamps down, and extend the Universal Service Obligation beyond 2015!
But why should that have prevented the CWU leaders from organising a fight back? Why should workers agree to submit themselves to the diktats of the politicians of the capitalist class, whoever they may be?
It is possible however, that the CWU leadership had decided to to play its surrender cards close to its chest for as long as possible, hoping to maintain its bargaining position in front of the Royal Mail management. Hence the pretence of a fight. But there is no evidence that the bosses fell for it, given that in the end, their sell-off was so consciously timed to take place in the middle of a strike ballot!
The ballot result was no surprise, when it was finally announced: 78.29% voted "yes" for strike on a turnout of 62.74%, slightly lower than usual for such ballots. But despite the exchange of rhetoric, behind the scenes, union negotiators are still talking with Royal Mail managers over the agreement. When urging workers to vote "yes" for strike, Ward was pretty explicit in this regard, stressing that this "yes" vote was needed "to get an agreement". It is obvious that in his mind the strike threat - an all-out one day strike is announced for 4 November - is first and foremost a bargaining chip. Even if the idea is to stage "the biggest march of postal workers since 1971" through London. As some workers put it, this is like closing the stable door after the horse has bolted.
Ward's speech following the ballot result is a caricature of the abject aspiring "partner" with no sense of the class antagonisms which exist in this society: "The government and Royal Mail have completely alienated the workforce and it's time for serious negotiations to find a solution that really can align the interests of workers, customers and the company. If not, then prolonged industrial conflict is inevitable". As if the interests of the workforce could ever be the same as those of the RM bosses!
He went on to threaten a further ballot over boycotting competitors' mail: "On a mail boycott, Royal Mail workers have shown they understand the threat to the universal service from unfair competition and the race to the bottom on their own terms and conditions. The way competition is being introduced does not benefit customers, small businesses or postal workers in whatever company they work for".
So now Ward and the CWU officials are intending to defend the interests of the "Royal" Mail against rivals, for the benefit of shareholders!
Of course, as mentioned before, the strike announcement caused scarcely a flutter in the share price, which remained on the day afterwards, at 43% above its starting point (475.13p compared to 330p). But it remains to be seen what will happen in the weeks to come. And that depends on the postal workers themselves, rather than their union leadership's quasi-militant rhetoric, since its main stated objective is merely to agree with Royal Mail bosses, with whom it has been talking behind closed doors all the while, despite the carpet having been ripped from under its feet by this precipitate flotation.
20 October 2013