In a new video for We Own It, John McDonnell explains Labour's promise to bring rail, water, energy and the Royal Mail back into public ownership.
Public ownership, not privatisation, for Royal Mail
RIP, Royal Mail. For 499 years the Royal Mail was a publicly owned and run institution delivering anything and everything to anywhere and everyone. But in 2015, the final shares were sold and the sale of Royal Mail was completed, bringing to an end nearly half a millennium of effective public ownership.
What you need to know
There aren’t any good answers to why the Royal Mail was privatised; it was making a profit, and had a unique universal service obligation that meant that every address in the UK and every bit of post was treated equally. But this was not enough to stop the sell off. The only real answer to the question is that the government were, and are, completely ideologically committed to privatisation. They could also have looked at other options – but they were intent on putting Royal Mail into private hands.
- The Royal Mail has existed for 500 years - and 499 of those were under public ownership.
- Our polling showed that 67% of the public were opposed to the privatisation of Royal Mail.
- Our research shows that we'll all lose out on the Royal Mail sale by 2025, because of the profits lost to the public purse
Of course, the government talks about paying off the debt, creating a shareholding democracy, or unleashing competition, but there are problems with all of these arguments. Moreover, there are strong arguments that public ownership is the best, perhaps only, way to maintain a universal service that we can all use.
What's wrong with privatisation?
The public lost out
The sale of Royal Mail was often justified by reference to ‘getting a good deal’. However, it’s widely agreed that the privatisation was a bad deal for the public because shares were sold off cheaply. For instance, when the first portion of shares were sold by the coalition government in 2013, share prices jumped by 38% immediately, and peaked 87% higher than the initial offer price. This meant that the taxpayer lost out to the tune of hundreds of millions of pounds. JP Morgan estimated that the Royal Mail was worth £10 billion but shares were sold for only £3.3 billion. And the National Audit Office said that we lost at least £750m in a single day because of this undervaluation. But while the public lost out, some (including George Osborne's best man) did quite well out of the sale. Later, even a report for the Department for Business Innovation and Skills (BIS) said that “the taxpayer has missed out on significant value”.
It doesn't pay down the debt
But doesn’t it pay down the debt? This was used a justification for the sale. But the logic has been questioned by the Institute for Fiscal Studies, amongst others, who suggest that asset sales don’t really pay down the debt at all.
We also lose out in the long term because the Royal Mail was highly profitable when it was sold - and those profits now go to private shareholders, not to our service.
Share sales bypassed the public
But surely if all of these profits are going straight to shareholders, across the country, then that’s OK? While the theory sounds good, especially for those who remember being sold the dream of a shareholding democracy made famous in the ‘Tell Sid’ adverts of the 80's, the truth is a little different. Firstly, many of the shares were sold straight to investors and pension funds, bypassing the public altogether, despite being oversubscribed from ‘ordinary’ members of the public at the time of the initial sale.
And even without shares being funnelled directly to investors, they end up there anyway. Direct ownership of shares by individuals has decreased from 54% in 1969 to just 10.7% in 2012. Meanwhile, ownership of shares by foreign investors and pension funds has skyrocketed. The same tendencies are at work in the Royal Mail shares, with many hoovered up by big hedge funds almost immediately.
Ultimately, the Royal Mail privatisation is an almost textbook example of a bad deal for the public in the short term and the long term. The public are right to wonder if we got value for money, if it really does pay down the debt, and we are right to imagine what could have been in 10 or 20 years if these profits were returned to the public purse each year.
The impact on services
There are real fears that privatisation of public services like the Royal Mail can lead to lower quality and/or more expensive services, and less equal service provision. We see this with stamp prices going up. But in the worst case scenario, using the post could become an option that’s only open to those people that can afford it, or only existing in areas where there is high demand. The Royal Mail is safeguarded by a commitment to a ‘universal service obligation’ which means it has to provide services to everyone and every address in the UK. But there is a risk of this being abandoned in the long term under pressure from investors. And if it is, rural areas will suffer the most as deliveries won’t be economically viable.
The bigger picture
The last sale of shares in 2015 was part of the £31 billion of privatisations – a record year for asset sales, eclipsing even Thatcher.
Fri 09 Jun 2017.
Fri 22 Jul 2016. Source: www.walesonline.co.uk
Tue 24 May 2016. Source: www.theguardian.com
Fri 19 Feb 2016. Source: www.theguardian.com
Tue 19 Jan 2016. Source: www.mirror.co.uk