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Royal Mail in a falling market

Robert Peston | 17:39 UK time, Thursday, 2 July 2009

On 22 October last year, Gerry Sutcliffe, the sports minister, told MPs that the privatisation of the Tote - the horse race betting business - would be shelved for the foreseeable future. These were his reasons:

"In my Ministerial Written Statement on 21 July I said that, whilst the Government remained of the view that it should remove itself from detailed involvement in the affairs of the racing and bookmaking industries, the Government would need to be satisfied that it was right to proceed with a sale in the light of prevailing market conditions.
"After further work over the summer, I have now concluded that it is not appropriate to pursue a sale in these market conditions. I have therefore decided that the Tote should be retained in public ownership for the medium-term, and brought to the market when conditions are likely to deliver value for the tax payer and racing."

Sutcliffe seems to have read the market pretty well.

And market conditions have not yet improved sufficiently for the government to want to flog off the Tote - even though it's widely viewed as a highly attractive business.

Curiously, less than two months after the Tote disposal was shelved, and at a time when the economy was in freefall and credit was almost impossible to obtain, Peter Mandelson took a rather different view of the state of the marketplace.

He embarked on his auction of a sizeable stake in Royal Mail.

Which can only show, I think, that he rather likes making bets on 100-to-1 outsiders.

Perhaps he believed that a tentative offer from TNT, the Dutch post office, was more serious than it turned out to be. But even if he did somehow persuade himself that TNT was unlikely to walk away - which is what it has done - he surely can't have expected there to be any serious competitive tension in the auction.

It was fairly clear at the time that the going would get tougher for almost all possible bidders from the postal industry, such that their appetite for a substantial acquisition could well shrink to nothing.

That said, in view of CVC's sizeable investment in continental postal services, that private-equity firm was always likely to make an opportunistic bid. However CVC's partners did not become stupendously wealthy by overpaying for assets.

So a decent price could not possibly be extracted for the taxpayer if CVC ended up bidding against itself - which was the predictable outcome.

It's possible to say, and not just with the benefit of hindsight, that Peter Mandelson took quite a punt when pressing ahead with the partial privatisation of Royal Mail. And what he wagered - according to some of his colleagues - was the unity of his party at a time when political conditions were as fraught and unstable as market conditions.

Doubtless, now that he's shelved the sale, they'll carry him shoulder high as a hero once more.


  • Comment number 1.

    It is absolutely essential that we keep the Tote in public hands. Betting on horses is a basic human right and we should maintain this public service at all costs, even if it means pouring in billions of pounds from people who do not bet.

    No private company could ever run a bookie.

    "Tough on Socialissn, tough on the causes on Socialism"

  • Comment number 2.

    So is the UK.

  • Comment number 3.

    Were there or could there be other hidden "benefits" in pretending to intend to part privatise RM, with the full intention of climbing down?

    I can't help thinking there's some hidden agenda there - just haven't a clue what it might be.

  • Comment number 4.

    And what about the 10 billion pound pension gap that Royal Mail has?, how is the government going to resolve that?.

    Does Mr Brown expect me to contribute to paying someone elses pension?, I have enough trouble paying the premiums on my own private pension which is worth far less since he decided to tax it.

    Mr Brown and his party need to do something about Royal Mail, and they need to do something now.

  • Comment number 5.

    In reply to no 4, you and the rest of us including all us pensioners are contributing greatly to the bloated secure pensions of those in the public service. There is no one in the government that has the relevant experience to make such a decision.

  • Comment number 6.

    If ever there was a sign that times are hard it is that The Treasury cannot even flog off a glorified betting shop.

    There is an irony that those who came to power singing that `things can only get better' are now scratching the bottom of the barrel. May be they should just roll it out and we can all have an old time sing-song.

    Gordon could do `My old man said follow the van' whilst Peter does the Lambeth Walk just like Herbert Morrison.

    Gor blind me, guv'nor, such happy times we never `ad, not since the landslide of 1945.

  • Comment number 7.

    Forget privatisation, only the state can deal with the pension's issue anyway, sack the management as clearly they failed by Mandelson's implications, devise a strategy of downsizing through new technology and natural wastage, pinch the management from the most successful postal operations (including the private sector) Get TU sign up on a "there is no alternative basis" Allow local government to subsidise rural post offices and throw some cash their way.
    In my town they did not do away with the second post - no they abolished the first post - I get deliveries at noon so no more 'modernising' just improve the services!

  • Comment number 8.

    Now then Robert, I think some time ago I wrote to put things straight about the old Royal Mail. Surely they can't forget that RM isn't a private company, it's wholey state owned, in fact it was the Government who were grateful when the RM took a pension holiday back in the 1990s taking excess profit that should have filled the coffers of the pension fund.

    Can anyone tell me why if someone owns something they can walk away from responsibility for it, RM isn't a US sub prime mortgage after all.

  • Comment number 9.

    Are you sure this has nothing to do with the EU postal directive obliging the opening up of member states' internal postal services - 2010 and 2012 are deadlines...?

  • Comment number 10.

    So it was pure politics from the beginning, as well as at the end - who'd have thought it ?!

    And it leaves things even worse than before.

  • Comment number 11.

    In reply to number5,and to the many other dog in the manger types who feel that because their private pensions are fast disappearing,no-one else should be saved,and on behalf of my wife,an NHS staff nurse,and the many others like her,I take exception to his complaint about"bloated secure pensions of those in the public service".The huge bulk of base level nurses,police,teachers etc, work very hard,for the public good,after intense training,for a comparatively low wage,but in the knowledge that on retirement,they will receive a decent pension(to which they have had to contribute a good amount of their monthly salary).While I am obviously sympathetic to the plight of those ensnared in the pension crisis,I feel it is very petty to try to drag down everyone else to their level.Not everyone "in the public service"is in it for all they can get;some are really still in it "for public service".Incidentally,if someone has a contract with a company that includes a final pension plan,how can the company then break that contract?I understand that new employees will not be offered the same deal,but if already under contract how can it be changed?

  • Comment number 12.

    Message 11 julesbates

    I agree wholeheartedly that pension contributions made by state employees should be honoured, however I feel you are missing the point.

    Private pensions have been ravaged by this government and many people who, like me, have seen their prospective standard of living in old age destroyed as a matter of misplaced government policy feel vindictive.

    To me this anger is not the answer as two wrongs do not make a right, but there is an very clear issue of taxpayer public liability for state sector pensions. This is believed now to be in the region of GBP 1 trillion; not my figure. This liability can only be met by massive increases in taxation. This will further decimate the value of the private pension for which many have worked for well over thirty years.

    Now I do feel that there is a middle road by which these matters can be addressed that protects both the public sector pensionee as well as the taxpayer. Either this is addressed as a matter of some urgency or there will be a quite vicious polarisation in society. There is no evidence to suggest that this government is even interested in grasping this ugly nettle.

    I can understand public sector employees wanting to stand up for what they will view as their rights. I think their circumstances will be better served by seeing what can be saved of their pensions from the rubble of our economy. The fact that the government might have its head in the sand does not justify public sector employees joining them in the splendid isolation of the Sahara.

  • Comment number 13.

    I bet Gordon now wishes he had let the 'Super Casinos' go ahead!

  • Comment number 14.

    I still don't understand why Mr Mandelson banging his head to the wall to sell a part of the Royal Mail? Is it because Royal Mail not making enough money? Selling a part of business is not the way to tackle this issue even a local shop keeper knows that. If you have a gout attack you wouldn't chop your feet off, you would cure it.

    It must be something to do with the EU postal directive.

  • Comment number 15.

    If it means that my first class mail will arrive at it's destination on time, by all means sell the RM off. One week after posting it has not even arrived and I have been informed by a post office manageress that it has to be missing for 3 weeks before they will initiate a search for it.

  • Comment number 16.

    Brussels will have done a deal with President Meddlesome of Hartlepool (Unelected ) (By Brown, who has imported FOUR UNELECTED Lords at the same time he spins the yarn about an elected house)

    Election please and Meddlesome OUT

  • Comment number 17.

    desperate measures for desperate times, get rid of any non essential expenses, maybe employ Putin to go round the supermarkets and car dealers who seem to be putting up their prices just now, and visit all the spivs and have a word in their ear , Putin visited a Russian supermarket chain and asked why one product had over 100% markup, the next day the items were reduced

  • Comment number 18.

    Beware of Labour's intervention in the postal system....

  • Comment number 19.

    In response to #8:
    Last night on Question Time, the consensus was that the Government could not allow National Express to "walk away" from one loss-making railway franchise and then still hold onto two other profitable franchises.
    If this Government tries to "walk away" from Royal Mail (and it's pensions black hole), then does it deserve to hold onto other profit making "franchises" like the Tote?
    And if it is *not* profit-making, then how did anyone manage to drive it into losses, bearing in mind that it cannot ever be called an essential service (in the way that railways would), with the payout ratio entirely in the hands of the operator?
    Seriously, other than raising money (a tax on gamblers), is there any reason for any Government to operate (let alone own) a business that could clearly be run privately? A private owner/opeartor of a tote-business would pay taxes and create employment, presumably without the same level of overheads as a "public service" oranisation with its even higher pensions and other entitlements such as virtual job-for-life.
    Is there any part of the Tote business that needs monopoly protection like Royal Mail's Universal Service Obligation (USO)? I'll bet there isn't!

  • Comment number 20.

    Michael Moore's {broadcaster and author} book "Downsize This" contains a chapter "Show Trials I Would Like To See". As Moore writes ' The one thing I always liked about their (Chinese )show trials. They grabbed a guy who they thought did something offensive against the state and then put him on trial in a big arena so everyone could show up and denounce him. Even though there were "defenders" and "prosecutors" and "judges" it was all just a show. The guy was going to hang anyway" . Moore refers to disgruntled patronised postal workers, over worked shop workers and people whose small savings have been wiped out by the banks could be prosecutors in a British and American context.
    So as John Lennon said "Let's do the show right here folks "

    My suspect would be a Mr Richard Hooper who had the insolence to suggest that the Royal Mail should be put into the capitalist ( the "c" word never used on Mr. Peston's reports), with Mr Robert Peston and Mr Huw Edwards as aiding abetting in this crime.
    Jury would consist of postal workers,
    Prosecutors Rory Bremner, Mark Steel; Jo Brand; Mark Thomas; Juliet Stephenson; Frankie Boyle
    Defence er..none.(Mandleson ?)

    1 As a banker, why should we take any notice of you: questions of legitimacy and conmpetence here.
    2 on what basis where you selected to write this report; what was the process of selection ?
    3 What was the size of your "wedge", (scouse for payment) payment by the taxpayer for this report ?
    4 Why did you suggest the idea of 'privatisation' when it had been ruled out in a meeting with government representatives and CWU officials at Warwick University.
    5 Why do you think that Mr Peston never asks you these questions?
    6 Why do you think Mr Peston on BBC 10'Clock news Wednesday 01/07 referred to "dragging the Royal Mail from the working practices...of the last century...." without CWU members being the access to the BBC opportunity to answer these "allegations", which where given as facts.
    7 Why do refuse to address the present political situation as if politics and your report are seperate; or does Mr.Peston's deference to you thinks your view is legitmate because you are a banker and that somehow gives you some sort of priveleged position as an "expert" - shurely not
    8 Why was the CWU interviewed only on Radio 4 where Mr Peston seemed to back down bt saying 'you take or leave the issue of about working practices- oh yeah? no mention by Mr Peston of ' no strike deal offered by CWU' (although a daft idea to me- strikes can be good things).
    At Lindsey our collegues got a result because of their courage and commitment and solidarity in striking do you think TOTAL would have back
    tracked; such spirit that got us through World War Two.

    9 What is your annual income compared to a postal worker ? Again not asked by Mr Peston.
    10 How much will your pension be when you retire ?
    11 What do you think of the working practices of your rich friends in the city ?
    12 What do you think of the obscene levels of money paid to your rich friends in the City ?
    11 What is your opinion about the Government raiding public pension funds ?
    12 Should Mr Peston be reported to Ross Jubin Complaints manager for giving you an easy ride because you are banker and of course you must know what you are talking about ? (really !!!)
    13 Why do you think Huw Edwards referred to the Government 'caving in to their back benches' when it is democracy in action-has not this been the problem- back banchers being too docile ? Isn't it right that back benchers should exert themselves over the executive ? Why the disparaging term 'cave in ? )Cliched sloppy terminology ?
    14 Do you think that there should be civil suits against your rich friends in the City- as Mr. Will Hutton and Mr. Andrew Niel suggest ?
    15 What do you think of Tony Gordon's motives in Corrie - seems like a banker to me ?

    sacked from you job by text;
    savings transferred to postal worker's pension;
    recieve Woolies pay- off;
    go on dole on;
    lose your house;
    be subject to 'conditionaliy'
    be subject to Social Secrity snoopers;
    live in a cardboard box etc.
    pay the price of the mess caused by your rich friends in the City.

    One of conditionalies of receiving dole you must watch Alan Bleasedales "Boys from the Blackstuff". You must also give answers to the Galbraithian Paradox "Why do the rich need more money to be motivated and the poor less ? At what level of income does the paradox come into effect?

    Suggestion to the BBC and Mr. Peston: the series "Boys From The Blackstuff" should re-broadcast as well J.K. Galbraith's "Age of Uncertainty" it's all there.

    " I like thieves.Some of my best friends are thieves. Why I just last week we had the president of the banka for dinner" (W.C.Fields)

  • Comment number 21.

    I think people forget that the postal service we have in the UK is, while the service is at times lacking, good value. The track record of privatisation leaves little to the imagination as to what would happen if Royal Mail was sold off. The service would not improve, but the cost of postage would.

  • Comment number 22.

    Rustigjongens repeats the hoary old Tory moan about Brown taxing his pension. Well Brown taxes my pension: I get tax relief on my contributions at 40% and when I retire I will get taxed at base rate after my personal allowance is taken into account. That is a pretty reasonable deal. In the interim, the Treasury has removed tax exemption on the profits made by the pension funds, which has had little impact on my personal pensions and is offset by the pension benefit of being a 40% taxpayer.
    The true pensions scandal is what has killed off the final salary schemes in industry: that the Tories allowed companies to stop their contributions in the good times, pension holidays, ignoring that there would be future bad times. What has happened to the Post Office,and all others with a pension black hole, is a Tory legacy. Labour may have been in power for 12 years but, like many of these things - the cost of maintenance was manageable, the cost of repair prohibitive so the normal outcome is closure - as is happening to so many people on private final salary schemes.

  • Comment number 23.

    Taxpayers will have to deal with the black hole whether we like it or not. The part privatisation deal was that the pension liability would be added the other public sector pension liabilities. The only difference in the current Post Office pension setup (as distinct from teachers' pensions, say) is that there is a pretence that the postal workers and the Post Office themselves are funding the pensions.

  • Comment number 24.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 25.

    We are in a hole, looks deep, not sure how deep, pretty sure who got us here but somehow it doesn't seem like a hole... yet.
    A shock or two is probably in order, just so we can re acclimatize ourselves. We can then redraw our horizons and start to be grateful...... for the little things. That card arriving on our birthday - for example.

    So, the Royal Mail needs to fail, why, because when the fantasy economics ends and the IMF is hovering we will need to acclimatize to the G Brown stuff we are all in. Royal Mail would have been the first lesson. OK, move it back to after the election

    Current pensions are unaffordable (yes the Royal Mail Pension must fold, the first of many public sector pensions), productivity and investment is king (tens of thousands of jobs will be lost and reallocated into making things), the unions must strike - and then lose (the remaining workforce need to be educated in the new realities, "low wages for all because we don't make anything"

    The lessons learned under Thatcher (why oh why did she allow so much manufacturing to go) need to be repeated. Is Cameron up to the job, the Eton Oxford boy - come on surprise me. We need someone who knows about the human condition, someone with balls of steel, and hopefully someone who having sorted it still allows us to keep some of our democracy

    Cant see how anyone tough enough to deal with our current problems will have any time for the fools who voted us into this mess in the first place.

    Just had an idea vote for Labour so they can clear this mess up on the basis that "you made the mess now clear it up".

    Still cant see how Brown will escape having his head placed on Traitors Gate.

  • Comment number 26.

    i wouldnt put it past neu labour to have a buyer already lined up in the wings to buy tote.
    nothing this government does is in the best interest of the people.
    i think if this government could privatize the british military they would.
    never in the field of the british people have a government done so little wasted so much and taxed so heavily, and we have to put up with it.

  • Comment number 27.

    I think some of the contributors have seemed to forgot that Royal Mail has over 18 years of government subsidy-free profits which both the Tories and Labour took without a second glance to pay for tax cuts or that joke called "welfare-to-work" scheme.
    In that time RM could not invest without going cap-in-hand to ask to spend our own money.
    So when next you're driving on the M25, riding the West Coast Mainline or visiting a NHS hosptial just stop to think, Royal Mail profits paid for this!
    So if you help to pay our pensions, it's justified as we've helped to pay for the UK's infrastructure!!

  • Comment number 28.

    Ps. I recognise that some of the writers are of a certain age but here's a quick lesson on the structure of the Royal Mail Group (RMG) Ltd.
    Royal Mail = letters business
    Post Office = retail branch network
    Parcelforce = parcel business
    The whole thing is called RMG, not the Post Office or GPO (as we no longer have the telephone bit... I wonder what happened to that part???)

  • Comment number 29.

    Some very simple options come to mind when trying to resolve 'some' of the problems for Royal Mail. Why does the Royal Mail deliver letters for the other postal companies? If there is a real competetive industry with the mail delivery service, surely each company should have its own postal delivery service. If the other companies do not want to go to this expense they should pay above average premiums for the service.

  • Comment number 30.

    If ever there was a company that has been messed up by politics it is Royal Mail. Proposed sales - remember Michael Heselitine - create a limbo in which managers can't see point in managing.But, and this is the key point, the winners all the time are the very highly paid senior executives who earn at four times+ the ajusted rate of their predessors pre Alan Leyton. Each year all they need to do is "respond" to government, but as they can claim they have no freedom, deliver little. The top team will shortly be in their new expensive HQ, just for top team, no doubt so they can plan another year of sucessful bonus stategy manipulation.

    Meanwhile, the unions power remains undeminished and the strikes will keep on happening as the union leaders play a game to keep their power.

    Still, it will one day be sorted, and we will know when ..that will be when our stamps cost the EU average (double our current) and the "slimmed down " Royal Mail will be delivering 50% less post.

  • Comment number 31.

    At 09:37am on 03 Jul 2009, Tyto alba wrote:
    Rustigjongens repeats the hoary old Tory moan about Brown taxing his pension.


    Actually, Rustigjongens is making a factual statement which has been expressed by MP's of Mr Browns own party, Tyto alba repeats the old LAbour mantra of blame everyone but ourselves...pathetic.


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