Redundancy letters in the post fail to boost Royal Mail

The government is struggling with its new interventionist industrial strategy.

So far it has failed to come up with terms to help Jaguar Land Rover. This has triggered a blast from Tata, their Indian owner, at their failure to support manufacturing. Apparently the government wants too much say and influence, when the company thinks it just needs a loan. The government was wrong to offer them false hope. They need more customers for their cars. Buying every Minister a Jag in this climate would not be a smart political move.

A major steel plant teeters on the brink of closure, as the government promises to do whatever it takes to try to keep it open. Their promise falls short of taking delivery of the steel itself, when someone buying the steel is the only thing that will save it. Let’s hope the government can help the company’s lawyers and salesmen secure the customers and enforce the sales contracts, although it is difficult to see what the government can bring to that task.

Meanwhile we learn today that when the government is on the other end of the potential deal as seller or seeker of assistance, it finds the demands of buyers for influence and control too great! Apparently TNT want real influence and seats on the board of Royal Mail in return for their money to buy a 30% stake. I thought that was one of the attractions to the government of selling such a shareholding. We also are told that maybe TNT is not offering anything like enough money. They have clearly read the books and are not persuaded that a 30% stake in a business with such large employee responsibilities and costs is worth the £3 billion which the government has pencilled in.

The potential sale of a 30% stake was always a bad idea. Of course any company buying such a stake wants effective management control – and in a way the government wants them to have that, telling us Royal Mail needs new management and new directions. Yet a minority stake is always worth less, proportionately, than a controlling stake, so taxpayers are bound to be short changed for our asset.

Selling 30% means trouble with trying to sell the remaining 70% to anyone other than the new minority shareholder. At a stroke it greatly reduces the value of the remaining 70% and puts a future government in a weak bargaining position to sell the shares. Taking on the full pension liabilities for the taxpayer is bad news. The fiddle of bringing £24 billion of pension assets into the national accounts will not wash, as the liabilities are £9 billion more than the assets.

I would like to see the sale of the entire Royal Mail shareholding, as part of the sales we will need to start cutting the public deficit. I would offer some free shares to every postal employee, and give management and employees the chance to buy more if they wish. I would find more bidders prepared to pay more per share by offering the sale of the whole, than under the government’s half baked scheme. I would also take action to sort out the pension scheme.

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11 Comments

  1. Ian Jones
    Posted May 10, 2009 at 6:24 am | Permalink

    Tata is a massive company that has plenty of resources. It is currently expanding very quickly into outsourcing including taking on a lot of back office work currently carried out in the UK. This new idea is called Process Outsourcing or Knowledge Process Outsourcing. Essentially stripping jobs from the UK and moving them to India/China.

    All the big service firms are pushing this as the next big thing and the multi nationals are implementing it.

    Asking the Govt to bail them out is just something else!!!

  2. alan jutson
    Posted May 10, 2009 at 7:17 am | Permalink

    The simple fact John is that the cost of postage needs to rise to pay for all of this, even if it is sold off.

    It comes down to choice.
    Keep it State run, pay up for postage with no guarantee that it will get any better. Accept the risks and liabilities.
    Sell it off in some way, accept that postage costs will increase and dump the liabilities.
    I really cannot see splitting this between the private and public sector working at all.
    Surely it will just lead to chaos and arguments with any regulator, and is a half baked solution.

  3. Stuart Fairney
    Posted May 10, 2009 at 8:09 am | Permalink

    Is it a surprise that people who have never run so much as a fish-and-chip shop are out of their depth when it comes to commercial negotiations?

    I would add, that I have a horrible feeling that the taxpayer will end up lumbered with the pension liabilities. Ironic when you consider the destruction of pension schemes is in no small part down to the first lord of the treasury himself !

  4. Adam Collyer
    Posted May 10, 2009 at 8:43 am | Permalink

    In fact Jaguar Land Rover just want the government to guarantee a loan that has already been agreed with the European Investment Bank. Lord Mandelson has already been trying to take the credit for that.

    The government apparently wanted to select the Chief Executive and get seats on the board – for guaranteeing a loan, not for providing any money themselves. In other words, they wanted control of the company without the expense of nationalising it. Well done Tata for telling them to get lost.

    The problem actually is not so much lack of customers. The problem is that credit is very hard to come by at the moment, even for sound businesses. After all, the government is gobbling up available credit, and interest rates are so low that nobody has any incentive to put money in the bank.

    • Ian Jones
      Posted May 10, 2009 at 10:49 am | Permalink

      Not sure why you want the British taxpayer to guarantee loans for a foreign company who bought something at the top of the market? If Tata cannot afford to run it then they should sell up. The govt is right to protect taxpayers money by demanding seats. We arent talking a few hundred pounds!

      reply: if you see my previous post, I said not a penny from taxpayers for Jaguar. This piece is a critique of what the gopernment says it is doing, not what I want.

      • Adam Collyer
        Posted May 10, 2009 at 6:02 pm | Permalink

        I don’t want the British taxpayer to guarantee loans, to help Jaguar Land Rover, or to take any kind of control of the company. The issue is that credit is scarce right now thanks to government mismanagement, even for sound businesses like Jaguar Land Rover. JLR is not the problem. The problem is our dysfunctional banking system, which is not providing necessary capital even to sound businesses. The reasons for that are mainly the government’s fault, as we all know. Bear in mind that BMW and Toyota, which are normally seen as the most profitable companies in the motor industry, are BOTH currently making losses. And JLR made a profit last year. Jaguar Land Rover doesn’t need a bail out; it needs capital to invest, like any properly run business.

  5. Julian
    Posted May 10, 2009 at 10:12 am | Permalink

    I run an e-commerce company which relies on the Royal Mail/Post Office.
    Some facts:
    1. The current Post Office/Royal Mail service is not very good – they lose too many of our orders, deliver them late and break a few as well.
    2. If we put in claims for these things we never hear anything.
    3. The current private alternatives are much more expensive and are very picky about how they operate.

    and some opinions:
    1. No one seems to be accountable at middle or senior management level.
    2. I believe that privatisation will not improve the service because private companies only want to cherry pick the profitable services.
    3. Therefore I believe we need a postal service that is part of the infrastructure provided by the government. Spending more taxpayer money will benefit the economy. That money can come from the obvious savings that could be made elsewhere. Or I’d pay a bit more if they did it better!

  6. Brian Tomkinson
    Posted May 10, 2009 at 10:19 am | Permalink

    John, I presume therefore that you will vote against the government’s proposal for Royal Mail which is supported by Cameron and Clarke. Stand by what you think is right for Britain; you are one of a few in Parliament who could and should be running this country.

  7. Denis Cooper
    Posted May 10, 2009 at 12:00 pm | Permalink

    Just on Royal Mail.

    When it had a national monopoly on postal services, it had a monopoly on both the profitable and unprofitable parts, and the former were used to subsidise the latter. They were also used to subsidise post offices, then an integral part of the system.

    Once the process of removing that monopoly was initiated, private competitors started to “cherry-pick” the more lucrative parts of the business. So profits which were previously used to sustain the unprofitable parts of the public service were instead syphoned off into private pockets.

    If you want competition which is both free and fair, then you need at least two postal operators who have the same terms in their licences. In particular, if one is obliged to provide a universal service, then the other[s] should also be obliged to provide a universal service. Each should have its own premises, its own equipment and its own workforce.

    That’s unlikely to be viable, as this is a labour intensive business, and it would inevitably increase the cost of the service if there were two sets of post boxes, emptied by two sets of workers, sorted by two sets of workers and then finally delivered by two sets of workers.

    It’s not like the supply of gas, which can be moved around and into houses through pipes at very low cost.

    So if there is no longer to be a monopoly operator, the only realistic choice is between none of the operators being obliged to provide a universal service, or one of them being obliged to provide a universal service but receiving payments from the other operators to make that possible.

    The regulator, over-zealous in his endeavours to open up the market, has probably done the opposite by forcing Royal Mail to do the final sorting and delivery on behalf of competitors at a price which barely covers the notional cost, and may well be below the true cost.

    I don’t know if you know any postmen personally. I do, and they’ve had a hell of a time in recent years.

    Not least, sorting out the mess being made by the cheaper workers taken on, some of whom can’t even read English.

    The rounds are often so long now, and the weight to be carried would be so excessive, that postmen are taking several bags out in their own cars, at their own expense, because that’s the only way to get the job done.

    I know this is the case, because I’ve seen them doing it around here; I’ve asked several of them whether they got any mileage for the use of their own cars, and the answer is always that they’re paying for it themselves.

    They should get themselves elected as MPs, and then they could claim for everything, including snacks to keep their energy up.

  8. mikestallard
    Posted May 10, 2009 at 7:40 pm | Permalink

    A Jewish Proverb:
    “Teach thy tongue to say,
    “I do not know.””
    I know absolutely nothing about the Post Office.

    PS Our postman has the most awful hair – shaved up the sides and dyed red. that is why he always wears a cycling helmet, I suppose.

  9. MerrY
    Posted May 16, 2009 at 2:44 pm | Permalink

    I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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