Jeremy Warner: Way forward for the Royal Mail

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The Independent Online

Outlook If nationalisation is meant to be good for the banks, why is privatisation thought good for Royal Mail? This is not my line, but comes from the postal union, which for a change makes a not half bad point in challenging Lord Mandelson's plans for part-privatisation of Royal Mail. Everything else seems with frightening speed to be slipping into the hands of state control, yet the Gov-ernment now proposes to distance itself from the one business it has up until now felt unable to privatise.

Nor is this the only irony of yesterday's statement. As he prepares to bow out, Allan Leighton, the chairman, is finally getting what he thought he was signing up to when he first joined seven years ago. Sometimes it has felt to him like beating his head against the wall. Now it will be his successor who reaps the benefits.

Privatisation has always been the Post Office's best hope of a viable future, yet Labour, though not Mandelson, has always been vehemently opposed to it, believing it would undermine what remains of the rural and urban network of Post Offices and destroy the universal delivery service. There is still something to be said for these arguments, for it is hard to see how in the long term the universal service obligation can be maintained in an age of electronic communication and intense competition for the most profitable postal business without massive state subsidy.

However, it is equally certain that without action Royal Mail would have become an unsustainable burden on the taxpayer culminating, as Richard Hooper, a former chairman of the communications watchdog, Ofcom, says in his review, in abject disaster for the company.

There are three key elements to yesterday's plan of action, all of which are long overdue. One is to bring in a strategic partner, likely to be either TNT or DHL, both now part of larger European postal services. This will bring in much-needed capital for modernisation without further recourse to the taxpayer.

The second is to free the company from its legacy pension liabilities, which have been eating up the company from within. These instead will be assumed by the state, where they belong, freeing up some £800m a year of cash for further modernisation and investment in services. Then finally, Postcom, which has been an extraordinarily destructive force in the affairs of Royal Mail, is to be disbanded and responsibility for postal regulation placed in the hands of Ofcom, where a more enlightened approach may hold sway.

Britain put the cart before the horse by deregulating postal services before it had privatised the Post Office. In the rest of Europe, policymakers did it the other way around, allowing their legacy postal services the time needed to modernise and develop into strong all-round delivery and logistics firms before unleashing full-scale competition on the market.

Starved of capital, weighed down by legacy pension liabilities, and buffeted by the demands of the politicians, Royal Mail has been slowly dying on its feet as lower cost, more fleet-of-foot private competitors stole its most profitable lines of business. Royal Mail has been left with the costs of maintaining a universal service but increasingly few of its benefits.

The banking crisis has given post offices a new lease of life, with deposits flowing into trusted postal savings in record quantities. Part-privatisation will further underpin the company's future. Posties might think it a sellout, and promise to defeat Lord Mandelson's ambitions for a second time, but in fact it is the best news the company has had in years.