Pity the Post Office, which finds itself marooned in the worst of all worlds

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Surveying the current predicament of the Post Office, it is hard to avoid the conclusion that something is very wrong with the Government's policy towards this enterprise. Losses of around £1.5m per day and now the threat of perhaps 40,000 job losses, including 30,000 redundancies, do not suggest that the Post Office's business is in anything like good shape. And all this despite it still retaining its statutory monopoly on delivering letters costing less than £1. No wonder the forthcoming Postcomm review of the postal market and the possibility of complete deregulation by 2006 has delivered a sense of urgency to debate about the Post Office's future. It certainly cannot go on as it has recently, living in the worst of all worlds; having to meet public service obligations at the same time as it has to deal with tough private competition.

In fairness, Labour was not the first party to duck the tough choices. The Royal Mail was, famously, the one nationalised industry that Margaret Thatcher was not prepared to privatise, reputedly because she thought the voters wouldn't accept not having the Queen's likeness on the postage stamps. Whatever the truth of that legend, other nations, notably Germany and the Netherlands, have been enthusiastic privatisers of their state businesses and have some commercial success to show for the strategy.

In 1998 Peter Mandelson as Secretary of State for Trade and Industry shied away from full privatisation, but stuck at allowing the Post Office greater commercial freedom, notably over raising external finance. The fundamental problem, however, has always been the same; how best to balance the need to put the Post Office on the best possible footing to compete with private firms while maintaining its valuable social and public service obligations, such as the universal rate, the network of sub-post offices and two deliveries per household per day.

The answer would appear to be obvious; to pay the Post Office an appropriate subsidy from general taxation for the services which it finds uncommercial but which we demand. At the moment, the Post Office finds itself in the worst of all worlds, where its most lucrative business is being attacked by new private operators, yet it cannot invest and fight back because of the heavy and unsustainable burden of running activities such as rural post offices that its competitors do not have to worry about. Hence the appalling financial losses the Post Office has found itself with over the past few years.

The Post Office is not alone in finding itself with the wrong balance between social and commercial objectives. Confusion about the best way to deal with these conflicting goals was at the bottom of a number failures of policy – most spectacularly Railtrack of course, but also, in varying degrees, the privatisation of of air traffic control and the proposed public private partnership on the London Underground. Even in the case of the Naval Dockyards we find privatisation being presented principally as a means of reducing the workforce, and not to place that business on a more secure footing.

However, it is not privatisation that is the problem; no one could sensibly want to take British Airways or Rolls-Royce or MG Rover back into public ownership. The problem is that this Government has spent too much of its time trying to make public entities like the Post Office behave like private companies and private companies such as Railtrack behave like the old nationalised industries. Such contortions suggest at the very least that, for all their unhealthy closeness to businessmen and wealthy entrepreneurs, New Labour does not really understand business and enterprise. The worst of all worlds, in other words.