8th May 2009
By Tash Shifrin
The government will be forced to change its position on the privatisation of Royal Mail, the author of a report at the centre of a Labour Party row has predicted.
The controversial part-privatisation plans are outlined in the Postal Services Bill, now making its way through the House of Lords. The legislation is expected to reveal deep divisions in the Labour Party when it goes to the Commons next month, as more than 40% of Labour MPs have stated publicly their opposition to the sell-off.
Postal affairs minister Pat McFadden on May 5 rejected suggestions from the think-tank Compass that the Royal Mail should be re-established as a not-for-profit company, similar to Network Rail – which was set up after the collapse of privatised rail firm Railtrack.
McFadden said the Compass report did ‘not seem to be driven by evidence, but by an ideological imperative to identify any solution that avoids a partner taking a stake of even 1% in Royal Mail’. The government would continue to seek private sector partners to buy a stake in the Royal Mail, he added.
But report author and Compass chair Neal Lawson told Public Finance: ‘Governments always do U-turns at the last minute when they absolutely have to… with opposition still north of 100 Labour MPs, they are going to have to drop it, do a deal with the Conservatives or come up with an alternative.’
Lawson said he had had ‘quite constructive, open and positive meetings with people in both Downing Street and the department [for Business, Enterprise and Regulatory Reform], people on the Bill team’.
Government chief whip Nick Brown had ‘certainly been encouraging people to come up with alternative proposals’, Lawson said, as he was ‘at the sharp end’ of backbench discontent.
Lawson added that the privatisation plan – which would involve the sale of up to 49% of Royal Mail – did not make financial sense in the current economic crisis. ‘The maths of the sell-off now are very poor,’ he told PF.
His report, Modernisation by consent, said: ‘Because this is the bottom of the market, the Treasury would get around £1bn, little more than half the sale revenue that it would have made if it had sold just a year ago.’
If the company was retained in the public sector and relieved of its multibillion-pound pension deficit, which is set to be picked up by the government under the privatisation plans, it could make ‘over £600m every year’, it added.
