UK

Destroying Royal Mail: the politics and economics of privatisation

A socialist analysis of the roots of the current CWU dispute

Royal Mail’s attack on its workforce and the CWU postal union flows directly from its privatisation five years ago, and not just the changing postal market as postal bosses and politicians claim. 

While letter traffic is certainly in decline,[1] increasingly replaced by the internet, the same trends are driving huge growth in the parcel delivery market from online sales, from 2.8% of all sales in 2006 to 21.5% in 2018 and still increasing, and with Britain by far the biggest online retail market in Europe.[2]  

The Universal Service Obligation (USO) legally protects the postal service, mandating Royal Mail to six days of delivery and a one-price-goes-anywhere for stamped mail, from Harrow to the Hebrides. While this gives Royal Mail a de facto monopoly in letter delivery, postal bosses want to downsize its commitments, slash staff costs and cash in on the parcels market.  

The Tory-appointed regulator Ofcom has brought forwards its review of the USO, originally scheduled for 2022, to oblige on the first count. To take care of the rest, new boss Rico Back launched ‘Journey 2024’, a five-year plan to radically restructure the company.  This will turn Royal Mail inside out, from the UK public postal service into “a parcels-led, international business that delivers letters in the UK”, ie a multinational giant with a side in letter delivery here.

Journey into darkness

For postal workers, Rico’s ‘Journey’ is a one-way trip downhill to precarious jobs or unemployment, workload hikes and ever more management bullying. The 2017 dispute saw many of the same issues, but facing massive support for strike action, Royal Mail reluctantly signed up to the 2018 Four Pillars agreement and the issues seemed resolved. The ‘four pillars’ – pension, shorter working week, legal protections and “pipeline” (operations) changes – were set in place. 

Sharing its profits in the form of two pay rises is the usual price Royal Mail pays for industrial peace after a dispute, swapping pay for flexibility and cuts. The first hour off the working week in October last year was paid for at least in part by hiking efficiency. But in the context of a privatised business, the agreement couldn’t last.

First off, Royal Mail’s USO monopoly provides a core to its UK profits, but a declining one. Besides the decline in letters, after fifteen years of continuous efficiency savings, there are limits to how much they can speed up the workforce – there just isn’t any fat to cut. Hence the wave of walkouts in the last year against managers trying to squeeze out more by breaking agreements and bullying.  

The profits from asset stripping in the early years after privatisation, with hundreds of millions made from closing offices and selling off the land, have dried up. Meanwhile the fruits of digitalisation of deliveries using PDA handheld scanners, and new services such as next day deliveries have not yet materialised as Royal Mail lags behind rivals.

The parcels sector is rapidly expanding, with Royal Mail handling 52% of parcels in the UK, but in the vice of increasing competition from the giant online retailer Amazon, which set up its own delivery service for its goods in 2014. Sixteen major national firms are in fierce competition for what’s left, slashing costs to the bone by super-exploiting their casualised workforces.[3]

Royal Mail shareholders want profits now, and to refloat the share price which no doubt will provide further opportunities for speculative profits. But the 4P agreements get in the way, committing them to taking three more hours off the work week, costing £100 million per hour according to Royal Mail.  Legal protections block zero hours contracts and radical restructuring, while wage costs and benefits are worth billions, up to 70% of costs in the UK business.[4]

But these costs need to be put into context. Royal Mail Group’s 2018-2019 profits amounted to £474 million (before “transformation” costs, after which £341 million). They could achieve the 35 hour week now and certainly by 2022 – the year it is scheduled to be achieved – if even part of the savings from technology were used. But Rico Back is only willing to invest in machinery and IT to hike future profits, not to create the conditions for a doable jobs and a living wage for workers in Britain or GLS operations abroad. Workers should insist that the 35 hour week is paid for out of profits and future productivity savings from machinery, rather than these just being pocketed by the shareholders. 

The only way Royal Mail bosses can smash through these limits is to bin the 4P agreement and downsize these staff costs. The only way to do that is to impose restructuring on postal workers and their union. It will also require downsizing the USO, something more and more pundits, economists and investors are pushing for.  Ultimately postal workers’ terms and conditions, and a quality, comprehensive public delivery service, are incompatible with the shareholders’ drive for profit.

Enter Rico

As the quick profits dried up and efficiency gains became limited by the 2018 Four Pillars agreement, Royal Mail profits and the share price fell last year. Enter new CEO Rico Back, promoted from head of Royal Mail Group’s non-unionised, casualised European arm, General Logistics Systems (GLS), to lead the strategic shift. 

Outgoing CEO Moya Greene was hired on the back of her role in privatising Canadian railways and to create a new face for the company, with a new PR message emphasising ‘diversity’ and ‘modernisation’ as cover for privatisation. Waving her off with a £2.6m golden goodbye (on top of £2m a year since 2010), Royal Mail Group brought Rico Back on board with a £6 million golden hello.[5]  As with Greene, the choice wasn’t coincidental; they paid top whack to tempt in the GLS boss with his anti-union approach and international parcel experience. Despite resistance from some shareholders over his remuneration, and some turbulence at the top, he has successfully fired those associated with the Four Pillars agreement, and hired new anti-union managers committed to his strategy. 

Royal Mail pleads profits are lower than expected, but the company has spent hundreds of millions of pounds buying up parcel companies in Canada and the US – to expand GLS, not the UK Royal Mail. The RMG board’s aim is to grow GLS, and a GLS-style operation in Britain, at the expense of the old UK postal network. International expansion has been used to offset stagnant profits in the UK ever since Royal Mail bought GLS in 2001, but now the aim is to remake Royal Mail in its image and use it as a bridgehead to build a multinational operator in the global parcels market, over the bones of the old public service.  

Back has broken the Four Pillars repeatedly this year, from immediate issues (refusing to implement the next hour off the work week) to structural moves (TUPEing off Parcelforce staff into a separate company this month), all topped by the unagreed Five Year plan itself. Unfortunately, opening up the legal protections for ‘discussion’ this year was allowed for in the 4P agreement. This is one of its major flaws, making it almost certain that the agreement would melt down this year, long before its end date in 2022, when the 35 hour week was supposed to be achieved.

The larger picture is clear even if the company’s intentions for Parcelforce are not. Journey 2024 requires a “relentless focus on efficiency” in the UK business, with the aim to hike profits threefold to match GLS levels.

The new Five Year Plan will strip out parcels that won’t go through the post box from the daily letter delivery, hiving these off into a separate, later in the day, parcel delivery operation. If Royal Mail is allowed to pull out of the legal protections, this would be the natural place to start zero hours contracts or the dodgy self-employed status found in GLS (or Royal Mail’s new, small eCourier division).  

Meanwhile the letter delivery operation and the current workforce wither on the vine, cut off from the growing parcels sector and trapped in a declining letter market. Further automation of parcels and letters will shrink indoor work in mail centres and delivery offices, lengthening posties’ outdoor delivery span to unsustainable lengths – thousands of workers will be driven out of the business from injuries and exhaustion. Absorbing this loss of indoor work to block longer outdoor duties was the crucial point of the 35 hour week. Ultimately, outdoor deliveries cannot be mechanised, making delivery staff particularly vulnerable to attacks on terms and conditions, and casualisation. 

In a jobs double-whammy, Royal Mail bosses refuse to commit to the six-day USO, now under Ofcom review, and there is a real possibility that deliveries will be cut to five days along with 20,000 jobs, and potentially further USO shrinkage in the future. Yet an integrated parcel-and-letters delivery service would make the USO sustainable.   

There is an extra, anti-union silver lining for postal bosses in this. As the old UK delivery network shrinks relative to GLS and the new parcel services, the power of the old unionised workforce potentially shrinks with it. It would be easier for Royal Mail to sit out strikes, relying on profits (and scabs) from other operations.

If the CWU does not win the strike, more radical attacks will no doubt come forward: using PDA data for performance, monitoring and conduct; possibly moving to franchise duties to individual “self-employed” workers, cuts to the pension, sick pay and other benefits that have been defended over the years. These terms and conditions, particularly of full-time staff, are worth billions.

Postal workers are at a crossroads: fight now and force Royal Mail back to the agreement, or face aggressive bosses with the whip hand driving the job downwards.

The privatisation con

Royal Mail is claiming that its investment of £1.8 billion to achieve the parcels turnaround shows its commitment. This is the same old song since privatisation was first mooted.

The 2013 privatisation was marketed by then Liberal Democrat Business Secretary Vince Cable and Tory Chancellor George Osborne as a way to get the funds needed to invest in modernising Royal Mail, with promises to get long term investors committed to the business. This was always a con – why couldn’t the company raise funds to digitalise by borrowing, like Network Rail does, retain profits for modernisation, or simply be funded by the government which is then paid back by the surpluses produced in the years after, instead of these being lost to shareholders as dividends?   

In a classic example of “socialising the losses, privatising the gains”, the Tory-Lib Dem coalition committed to taking on the company’s pension deficit and underwriting it temporarily to make Royal Mail attractive. Then they ‘discovered’ what the CWU had complained about for years – that the regulator had forced Royal Mail to undercharge other delivery companies that used it to post their mail, losing it tens of millions of pounds. Originally this was a tactic to force Royal Mail to become more efficient (ie attack its workers) and profitable for privatisation, something that New Labour tried twice until blocked by opposition from the union and public. Post-2010, the coalition decided to go for privatisation, and then “downstream access” was repriced to be profitable.

It was then that the political con turned into an outright swindle. Vince Cable deliberately undervalued Royal Mail by up to £1.5 billion to ensure the privatisation was a “success”, and investors piled in to take advantage. Cable’s sixteen handpicked “priority” long-term investors – investment houses and banks – sold 43% of their shares in the first week to cash in on the skyrocketing share price, making a cool £100 million.[6]  Even Lazards, the bank that organised the flotation, made an £8.4 million instant profit through its investment arm, which sold all its shares! Cable lamely called this mere “post-privatisation froth”.  

The speculative gravy train has continued. As shares have fallen since, big Royal Mail shareholders like investment fund BlackRock have “shorted” the stock, betting on it falling and making millions as they go the other way! And now ex-chancellor Osborne is on the board of Blackrock, working one day a week for £650,000 a year and cashing in on the speculative bounty he helped create out of the public sector – completely legally.[7] Under capitalism, the capitalists make the laws, rich judges administer them, and politicians profit through the revolving door between business and government office.

Alongside speculation, £1 billion in dividends have gone to big shareholders since 2013 that could have paid for modernisation. Even investors noticed that the privatised Royal Mail has “starved the business of cash”, holding back investment to boost the dividend to shareholders.[8]  The £1.8 billion now earmarked for investment by the new management will ultimately be paid for primarily by downsizing the workforce and, if Parcelforce is any indication, breaking up the company.

The only lasting solution: renationalisation

The postal service and its workers are the victims of postal bosses’ global ambitions and shareholder greed. As the CWU has stated many times, the ultimate shield protecting the USO is the union and workers themselves, whose material interests and jobs rely on the public service.

The Four Pillars agreement is often held up by CWU leaders as an “historic” deal, the envy of other unions with its legal protections and 35 hour week. It is in many ways radical, but it is a consolation prize for not fighting privatisation, a fight which the current CWU leaders blocked. It also has many flaws built in that meant it would never reach 2022, along with a cut to the employer’s pension contributions, and clauses that force mediation and otherwise block national strike action. In the struggle to defeat this offensive, workers should organise strike committees and a rank and file movement to control the action and negotiations, demanding an improved deal without the get-out clauses and anti-strike conditions.

Postal workers are powerfully organised on the shop floor, with strong traditions of solidarity and unofficial action. They can use a national dispute to rally the labour movement and public around them and boost their power. Any attempts at union busting should be answered with demands for a general strike in solidarity from the TUC.

A strike will hit profits hard and Royal Mail can be beaten. But at its most basic, postal workers’ terms and conditions are incompatible with the rule of profit, in a privatised Royal Mail and the wider postal sector rife with non-unionised, casualised labour. They can be defeated for a time, but the downsizers will always be back, so a victory should be the first step in the fight for renationalisation.

All workers will have the chance to elect a Labour government in the coming months, and demand it immediately implements its policies including the renationalisation of Royal Mail, ending the privatisation that has led to this dispute. They should seize Royal Mail without a penny in compensation to the millionaire financiers who have squeezed the company for profit, and who made a mint buying its stock cheap and selling dear.

As part of the fight for a democratic economy, we should campaign for the whole sector to be nationalised and merged into a quality delivery infrastructure, transitioned to a zero-carbon operation, under workers’ and consumers’ control.


[1] Letter volumes fell by 8% last year and Royal Mail expects 5%-7% more this year. 

[2] https://apex-insight.com/product/global-parcel-delivery-market/; https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi

[3] https://www.ofcom.org.uk/__data/assets/pdf_file/0023/81581/royal_mail_parcels_appendix.pdf

[4] https://www.thetimes.co.uk/article/royal-mail-boss-rico-back-faces-threat-of-christmas-strike-chaos-d3mm0gf2j

[5] https://www.thisismoney.co.uk/money/markets/article-5849871/The-2-6m-golden-goodbye-Moya-Greene-stands-collect-quitting-Royal-Mail.html

[6] https://www.thebureauinvestigates.com/stories/2014-05-21/priority-investors-made-at-least-98m-selling-royal-mail-shares-in-its-first-six-days-of-trading

[7] https://www.theguardian.com/politics/2017/apr/06/why-worlds-largest-fund-manager-paying-george-osborne-650000-pounds

[8] https://www.fool.co.uk/investing/2019/08/26/is-the-royal-mail-share-price-a-bargain-after-crashing-30/