Welsh Water can provide a model for Royal Mail

Peter Hain says a Labour government should adopt a Welsh ‘not-for-dividend’ template for the postal service

The Government badly undersold Royal Mail shares – rewarding private investors at the expense of taxpayers – by selling the public shares in a service it already owns. And privatisation has also placed the proud legacy of the universal postal service under serious threat. Yet there is an alternative model which could avoid that threat, and is achievable even under the 2012 Postal Services Act which delivered Royal Mail privatisation. It hails from Wales in the form of Welsh Water.

But first, the problem. The National Federation of SubPostmasters (NFSP) has called privatisation a “reckless gamble with the future of the post office network” because rewarding shareholders will inevitably push what remains an essential public service to cut corners and cut quality of service.

Experience elsewhere of mail privatisation – for instance in the Netherlands or New Zealand – demonstrates that. Although the Universal Service Obligation – the right of every address to receive a delivery through their letter box whether in remote Snowdonia or central Cardiff – is enshrined in the Postal Services Act,  it only covers the bare minimum.

Much of the essential detail is set by the regulator Ofcom and could easily be changed whilst still remaining legally compliant. For example, Ofcom recently looked in various ways at what the public has come to expect from the universal service and what could be modified to make it cheaper to run.  Ofcom considered getting rid of First Class mail to all areas (and therefore the next-day service), reducing quality of service standards and cutting delivery days from six to five a week.

Meanwhile on 23 December 2012 the Daily Telegraph reported that Conservative ministers were thinking about future changes to the USO and that an all-Conservative government could seek to relax the USO.

Costlier elements of the universal service such as Royal Mail’s air network would become vulnerable to cuts, leaving areas of Northern Ireland, Scotland, South Wales and parts of England losing between a quarter and half of the service standards enjoyed by urban areas. A worry highlighted by many is that like other privatised utilities – gas, electricity and telephones – different services and tariffs might spring up, further entrenching the potential difference in service for the rich and the less well off, for the inner city and the rurally remote. These tariffs could make the difference between home delivery and picking post up from the sorting depot – a genuinely fear-inducing prospect for the elderly or disabled.   Private companies like TNT already charge extra – sometimes a third or a half more – to deliver to more remote locations.

Yet the universal service provided by Royal Mail makes a vital contribution to life in remote and rural communities. The daily delivery helps people in these areas to access online shopping and prevents many older residents from feeling isolated. The Post Office is the heart of the high street in many rural areas and helps to sustain local economies

But it could be fully protected by converting Royal Mail into a not-for-dividends company rather like Welsh Water which originated from a similar stock market flotation in 1989 but hit problems until it was eventually transformed in 2000 into its current status as a private company limited by guarantee.

Royal Mail’s recent profitability means it could comfortably raise investment capital through its own profits, becoming a self-financing, not-for-dividends company like Welsh Water. Royal Mail could then borrow from money markets at a significantly cheaper rate, just like Welsh Water. The website of Glas Cymru/ Welsh Water describes how they have operated since 2000, summing up exactly what a privatised Royal Mail should be: “A single purpose company with no shareholders and that is run solely for the benefit of customers.”

Not only is it perfectly compatible with the Postal Services Act 2012 but it also successfully combines social obligations and commercial imperatives. There is nothing in the legislation that would prevent a future Labour Cabinet from establishing for Royal Mail a similar structure such as a Company Limited by Guarantee that was used for Network Rail.

This plan is also supported by the Communication Workers Union which represents Royal Mail Workers, 96 per cent of whom were against the Government’s plans.

Such a model would not necessitate adding to Government debt and there would be no cost to the taxpayer.  As a not-for-dividends company itself, Welsh Water’s financial surpluses are reinvested in the business.

The company has the highest credit rating in the water sector which enables it to borrow money more cheaply to fund investment. Welsh Water finds it cheaper to raise capital at below market rate because it is not caught up in the usual speculator driven merry-go-round and under the terms of its license Glas Cymru may not operate in sectors other than water, just as Royal Mail would be restricted in its operations.

Welsh Water provides a cheaper and more reliable service across Wales (and some border areas in England) than any other UK provider. If our collective pride in the universal postal service that Royal Mail provides is to survive, I believe that Labour should include in its manifesto a pledge to establish Royal Mail on a similar basis to Welsh Water.

Peter Hain is MP for Neath, a former Secretary of State for Wales and a Government Minister for 12 years. This article features in the current Winter 2013/14 issue of the IWA’s journal The Welsh Agenda.

13 thoughts on “Welsh Water can provide a model for Royal Mail

  1. Err. we already have a Labour government. Yet it doesn’t want the powers to mutualise the postal service now. It’ll be too late afterwards.

    So this is another example of “jam tomorrow”. Or simply electioneering, as it is not British policy. Cynical, but hardly seasonal.

  2. Astounding… I think this is probably word for word taken from Plaid Cymru’s recent call for Post Cymru. Has Hain put in for membership?

  3. Rearrange these words into a well known idiom: has. horse. bolted. shutting. door. the. stable. after. the.

  4. While the general thrust of Mr Hain’s article is reasonable and worth following, I do have to point out that DCWW’s bills on average remain higher than in England. This is a historical legacy going back to 1989 and the catch-up work needed over the past 24 years. However, the gap between average bills charged by DCWW and those in England has certainly decreased and ought to cease within the next decade or so.

  5. Interesting that Peter Hain has come round to supporting Plaid Cymru policy. In Scotland, the SNP government’s White Paper makes it clear that following independence the Post Office in Scotland would be taken back into the public sector. Will Peter Hain and others in the Labour Party now support devolving control over postal services to the National Assembly for Wales so that we too could have a square deal?

  6. This is worth reading – not least to show how the dead hand of the EU has affected the UK’s national postal service and the UK government’s ability to run it as it sees fit.


    Perhaps the key part is this:

    Additionally, the Post Office was converted from a statutory corporation to a public limited company, whose sole shareholder was the Government. Statutory Instrument 2002 No. 3050 amended the [2000] PSA to take account of the changes required by EU Directive 2002/39/EC.

    After that it was arguably only a matter of time before one UK government or another began the privatisation process. For the record I would prefer that it had remained a statutory corporation.

  7. Peter Hain backing the nationalists policy again! First he delivers more separation for Wales from the UK while Welsh Secretary, now he’s pushing Leanne Woods policy ideas. Is he on the Plaid Cymry payroll? How long will the Labour party tolerate this? I’m so glad Ed Miliband dumped him out of the shadow cabinet.

  8. I may have read this incorrectly but appears to me, contrary to many of the comments above, that Peter Hain is proposing a Dwr Cymru model for the whole UK postal service, not for a separate Welsh service.

    Plaid certainly proposed such a model for a Wales but did not extend that to England (in as much as England, of course, may choose to pursue a market-orientated solution).

    Peter Hain is seeking a UK Labour Party manifesto pledge for a UK policy.

    Some clarification from the author or editor would be helpful.

  9. John R Walker is wrong. British Labour members on the Council of Ministers SUPPORTED the EU laws which allowed privatisation of postal services. No doubt, Tories would have done the same. And that is UKIP policy too!

    So, the problem we face is that all British nationalist parties embrace Anglo-American liberalisation. This is the opposite of the European social model, which includes mutualisation.

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