Royal Mail’s partial privatisation backed

Lord Mandelson has signalled his support in principle for the partial privatisation of Royal Mail, setting the stage for a confrontation between the arch-Blairite business secretary and Labour MPs.

The future of the state-owned postal operator could soon provoke fresh ructions within Labour ranks. Public ownership of Royal Mail is a totemic Labour manifesto commitment for unions and many backbenchers, but the operator’s dire financial position is producing increasing pressure for part-privatisation.

In an interview with the Financial Times, Lord ­Mandelson said his 1998 proposal to allow private sector stakes in the state-owned postal operator would have become law if he had kept his post as trade and industry ­secretary. “If I had not been forced to resign, it would have happened,” he stated.

Lord Mandelson has told colleagues he remains inclined towards a greater role for the private sector in Royal Mail, although he would await the recommendations of a review into the postal operator by Richard Hooper, a former communications regulator.

The former EU commissioner said he would take developments since 1998 “into consideration” before finalising the government’s policy. “Frankly, 10 years on, I was surprised this was still an unresolved issue,” he stated.

He stated that he “obviously” hoped a decade ago to implement his plan to allow Royal Mail “to be progressively private, even if initially part [of the company] stayed in the government’s hands”.

Although Lord Mandelson insists he would have carried out his bold plan if he had not been forced to resign in 1998 over an undeclared home loan, the part-privatisation of the postal service was vehemently opposed at the time by Gordon Brown, then chancellor.

A government-commissioned review of the postal services sector, due to report within weeks, could provide a springboard for Lord Mandelson to revive this progressive privatisation plan and a chance to find out whether Mr Brown has changed his mind in the intervening years.

The Hooper review is expected to highlight doubts about Royal Mail’s ability to continue offering a “universal” one-price-goes-anywhere postal service to every address in the UK, without further multi-billion pound injections of capital.

Royal Mail, which is struggling to service a £3.4bn ($5.9bn) pensions deficit, made a loss on the universal service for the first time in its history in the year to March 30. The company is also losing an increasing share of its ­profitable bulk mail services to private sector competitors.

The Hooper review is likely to present the government with a political dilemma. Ministers were adamant earlier this year that there was no scope for further taxpayer bail-outs of the operator. Postcomm, the regulator, warned in its submission to the Hooper review that Royal Mail’s business model was “unsustainable.”

But Postcomm’s call to allow part-privatisation of the operator provoked a furious backlash from within the Labour movement. The Communications Workers’ Union this summer threatened to cut off funding to Labour if Royal Mail did not remain in public ownership. It has previously lambasted proposals for minority stakes in the company to be moved out of state control as being akin to privatisation by the back door.

The union, a valued source of finance for the cash-strapped party, can count on significant support from Westminster.

About half the Parliamentary Labour party signed an early day motion in 2005 demanding the government continue to own all shares in the operator.

Labour’s 2005 manifesto declared “we have given the Royal Mail greater commercial freedom and have no plans to privatise it”.

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