Why is Mandelson trying to push for Royal Mail privatisation?

April 21, 2009

According to the Independent (21 April), Gordon Brown faces growing pressure from mutinous Labour backbenchers to ditch or delay moves to partly privatise Royal Mail. Party whips have warned the prime minister, who is already dealing with the ’smeargate’ scandal, that the plans have stretched the loyalty of his MPs to breaking point.

‘Lord’ Peter Mandelson, former EU Trade Commissioner, now UK Business Secretary and architect of the ‘plan,’ has made little headway in winning them over. He appears oblivious to the damage he is doing by fighting a divisive and largely irrelevant battle for a relatively small amount of privatisation loot in the context of the deep recession and the looming certainty of heavy defeat in the EU elections followed by a General Election. Until recently, Mandelson was pushing hard for an uncontested sale to TNT, part of the former Dutch Post Office KPN Group, but allegations in the UK satirical magazine Private Eye and the Telegraph that TNT executives fraudulently avoided paying a tax bill of at least GBP 150 million to the UK Inland Revenue at the time of the Dutch takeover was the subject of a tabled Parliamentary Question. TNT also attempted to have Royal Mail censured a couple of years back for what it claimed were ‘illegal’ state subsidies. This appears ill-advised in hindsight, given that Royal Mail planned to offload its GBP 8 billion pension liability into the public sector in order to give the illusion of profitability to the postal services division and sweeten the TNT deal. More recently TNT complained to the EU that Germany’s minimum wage laws constituted a barrier to competition against Deutsche Post in the German market – campaigning to abolish the UK minimum wage would guarantee a strike which would cripple, not destroy, what remains of Royal Mail. Holland liberalised postal services on April 9, which explains why the Royal Mail deal was so attractive to TNT, but it will be interesting to see how it fares without a captive home market. There are few other candidates to take on the politically-poisoned chalice of Royal Mail. Deutsche Post, which owns DHL, recently announced losses of EUR 1.69 billion compared to a profit of EUR 1.38 in 2007.

147 Labour MPs have signed a Commons motion condemning plans to sell the Royal Mail minority stake. A rebellion on that scale would leave Brown in the humiliating position of relying on Conservative votes to push the part-privatisation into law. Research by the (left-leaning) think-tank Compass suggests the amount of money the Treasury would raise from the sale has almost halved since last year, claiming a price of £1bn is realistic in the recession but said a minority stake would have fetched an estimated £1.9bn if it had been sold a year ago. Mandelson responded acidly to the Compass claims, clearly still committed to a course of action which, at this price could only benefit one party – TNT – two, if you include the Tories – the government discomfiture would be another gift. Royal Mail, meanwhile, which has been run unremarkably (apart from his vast salary) since 2003 by the Blair-appointed ‘dream team’ of former FA CEO and advertising man Adam Crozier and part time Chairman Alan Leighton, argues that it could be run profitably without need for overseas ‘investment’ if the pension liability was cleared off its balance sheet. Delivering letters is not rocket science. Realists argue that the traditional letter post delivery is on a steep and terminal decline and that it should stay as a public service until such time as the public no longer need or are prepared to pay for it. Adding costs in the form of profits for a private sector partner will only increase costs to the consumer and forestall the inevitable.

Mandelson’s Post Office crusade defies rational analysis. If he proceeds with the sale, he stands a good chance of terminally wounding New Labour and losing a government vote for little or no gain. He is either motivated by arrogance, an inexplicable love of Dutch postmen or he is determined to undermine Gordon Brown and entertains notions of running for leadership after the inevitable trouncing in the next election. Alternatively, he could just be plain bonkers. My guess is all of the above.