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.

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