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Yesterday in Parliament

Posted by Richard Thursday, March 05, 2009 ,

Tucked away in prime ministers' questions yesterday (held by Harperson deputising) was a question from the redoubtable Ann Winterton. She asked for confirmation that:

… the real reason for part-privatising Royal Mail stems directly from European Union postal legislation, which forced Royal Mail to divest itself of its most profitable business, thereby handing it over lock, stock and barrel to European competitors.
According to Ann, there was a sudden hush in the House - an embarrassed silence – almost as if someone had done something unmentionable in church. Then Harperson, dutifully briefed by her gifted civil servants, delivered her "non-answer". The "real reason", she said, was "the analysis in the Hooper report, which we commissioned as long ago as December 2007."

Now, this is an interesting response, as the Hooper Report tells us that the real reason for part-privatising Royal Mail is ... er ... European Union postal legislation, and also EU state aid rules.

Basically, says Hooper, Royal Mail needs to modernise, which requires considerable investment. But "that transformation would have to be carried out under European rules on restructuring aid." That in turn would "impose considerable restraints" and thus take time. But, unless Royal Mail can modernise faster than EU rules would allow, "a forced restructuring under European rules is highly likely."

That, concludes Hooper, "would be a costly and poor outcome for the taxpayer, for consumers, for Royal Mail and its employees." By contrast, he adds, "private capital is generally more flexible and more tolerant of necessary risk. It can be raised more easily, faster and for a wider range of purposes and does not come at the cost of competing public priorities."

Thus does Hooper recommend that "there should be a strategic partnership between Royal Mail and one or more private sector partners." And, while the precise nature of such a partnership is a matter for the Government to negotiate, at its core, "will be Royal Mail's obligations under the universal service, as required under EU and UK law." The UK law, incidentally, largely transposes EU law.

Why Royal Mail cannot fund its modernisation programme from its own resources is explained by Booker in his column. Here, the problem is Britain's keenness to comply with three EU postal services directives, designed to end national postal monopolies by 2010 and to promote "cross-border" integration of the EU's postal services.

Because of these, Royal Mail had to surrender the most profitable part of its operations, when bulk business mailing was opened up to rival firms. It still has to deliver business mail, for a knock-down price of 14p an item, while the 19 companies that bid successfully for the business of collecting and sorting them cream off all the profits. This was a major factor turning Royal Mail's profits into a £179 million annual loss, which means it has no money for its modernisation programme.

As to why other European postal services have not been similarly affected, Hooper himself notes that "the UK has been amongst the first countries in Europe to open the postal sector to competition." In other words, this is exactly the situation described by Booker.

So why was there such a deathly hush in the House? Well … the Conservatives are supporting the Government, against the Labour back benches, to get the legislation passed.

The last thing the Tories want is for it to be known that the privatisation programme is entirely driven by the EU, thus putting the party in a position of supporting EU rules. This, with the euro-elections coming up, would not conform with their new-found (and temporary) image as a eurosceptic party.

Thus we had the hush of anticipation, bolstered by a frisson of fear, in case Harperson gave the game away. When she did not – and, of course, she was not going to – there was a collective sigh of relief. Business continued as usual – in Europe and ruled by Europe … but this must never be admitted.

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