Royal Mail Privatisation, Why is Royal Mail Being Privatised?

The government has announced that the Royal Mail is to be privatised in a move that may have far reaching consequences for many businesses in the UK. Here is an overview of the information that is currently available to the public concerning this new development.

What will happen to Royal Mail?

Over the next year, very possibly in autumn 2013, Royal Mail will be privatised through a flotation on the London Stock Exchange. Ten per cent of the shares will be made available to Royal Mail employees and the remainder will be sold to the public as well as larger institutional investors, although employees will be given first refusal on these shares too.

While the privatisation has not been welcomed by all of the parties concerned, it was widely predicted following the enactment of initial legislation in 2011 designed to pave the way for just such a move. (The privatisation will not affect any of the UK’s post offices as Post Office is now a separate organisation from Royal Mail.)

This is the first time in twenty years that the government has taken the step of privatising a major national concern. In the eighties and early nineties gas, electricity and telecoms all went from being nationalised institutions to privatised companies. What is different this time is that although the public will be able to buy shares in Royal Mail, they will not be urged to do so in the same way as the massive advertising campaigns that encouraged thousands to buy shares in gas, electricity and telecoms when they were privatised under Margaret Thatcher and John Major. One reason for this is that Royal Mail does represent a certain amount of risk to investors, in part because the union CWU, which has over 100,000 members who work for Royal Mail, is against the privatisation and may attempt to disrupt it.

Why is Royal Mail being privatised?

The reason the government has given for this move is that the access to private capital will allow Royal Mail to grow and compete. Recent years have seen a boom in Internet shopping changing the nature of Royal Mail’s core services. Where once its main role was to deliver letters, there is  now an increasing emphasis on parcel deliveries.

This shift in focus, as well as the added competition from the likes of TNT and UK Mail that has come about since the market was opened in 2006, means that Royal Mail needs major investment in order to remain competitive. At a time when the government is not willing to add to public spending, and wants to be seen as avoiding any type of ‘big spending’, the decision was taken that the best way to raise the capital needed was to privatise Royal Mail by means of a stock market flotation.

Those who oppose the move, the CWU in particular, point out that in fact Royal Mail has recently become profitable under state ownership; it actually made a profit of £324 million before tax last year. There is the possibility that the CWU could stage industrial action in order to protest the move, and with 100,000 of Royal Mail’s 150,000 staff members represented by the union this could have a serious impact on services.

Keep checking in with FrankingMachine.co.uk for more developments on this major development in UK postal services.