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
For almost 500 years the Royal Mail was a publicly owned institution, delivering anything to anywhere. But in 2015, the final shares of Royal Mail were sold, and its privatisation was complete. 67% of us were opposed to this. What’s more, we were completely ripped off.
The last shares of Royal Mail were flogged in 2015, as part of George Osborne’s astonishing sell-off of public assets worth £31 billion. There weren’t any good reasons to privatise the organisation. It was making a profit and providing high quality service, in line with its obligation to treat every address in the UK and every bit of post equally. Of course, the government said they were raising money to reduce the deficit, and creating a ‘shareholder democracy’ – but privatisation did none of this.
Long term losses
The Institute for Fiscal Studies, among others, criticised the effectiveness of the sale in reducing the deficit. The sell-off was a way to raise quick cash, but it’s robbed us of a long-term source of revenue. Our research, in collaboration with the New Economics Foundation, shows that by just 2025 – only 10 years after the sale – we’ll be worse off than if Royal Mail had remained public.
Share sales bypassed the public
What about the ‘shareholder democracy’? That’s a dream we were sold by Thatcher, and while the theory sounds good, the truth is a little different. Many of the shares were sold straight to investors and pension funds, bypassing the public altogether. This is despite shares being oversubscribed from members of the public at the time of the initial sale.
But even shares that aren’t funnelled directly to investors end up with them, not with the general public. 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. Hardly the economic democracy we were promised.
We were ripped off
It’s widely agreed that the privatisation was a bad deal for the public because shares were sold off far too cheaply. When the first portion of shares were sold by the coalition government in 2013, their prices jumped by 38% immediately, and peaked at 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 Royal Mail was worth £10 billion – but shares were sold for only £3.3 billion. The National Audit Office said that we lost at least £750 million in a single day because of this undervaluation. Later, even a report for the Department for Business, Innovation and Skills said that “the taxpayer has missed out on significant value”. While the public lost out, some did quite well out of the sale – including, coincidentally, George Osborne’s best man.
The future of Royal Mail
Poorer service, higher costs
There are real fears that privatisation will lead to more expensive and lower quality services. We’ve already seen stamp prices going up. If prices continue to rise, there is a danger that using the post could become unaffordable for some.
The Royal Mail has a ‘universal service obligation’ to provide postal services to every address in the UK. But there is a risk of this being abandoned in the long term under pressure from investors, who will look unfavourably on running postal services in areas of low demand. Ending the universal service obligation would effectively deny postal services to people living in rural areas.
Hopes of de-privatisation
The public never wanted a private Royal Mail, and the arguments for public ownership are clear. The Labour Party’s 2017 manifesto contained a commitment to ‘reverse the privatisation of Royal Mail at the earliest opportunity’. With a weakened Conservative government, there is some hope of taking Royal Mail back into the public sphere, where it belongs.