Michael Fallon: Setting Royal Mail free to protect a first-class service

Waiting for the post to arrive has heralded important events in our lives like exam results, birthdays or an overdue cheque.

These deliveries are backed by the one price goes anywhere six-day-a-week universal postal service – of which Royal Mail is the sole provider.

But while Royal Mail has continued to provide this service, the market has changed. The number of letters we send is in decline. Royal Mail is not just competing with other postal operators but against email, the internet and smartphones.

This changing market presents Royal Mail with opportunities. The huge boom in online shopping means that the company’s business is shifting from letters to parcels. Royal Mail delivered one billion parcels last year – up by over six per cent. Half of Royal Mail’s revenues already come from parcels. This is growth that Royal Mail must exploit if it is to have a sustainable future.

That’s why the Government is to float Royal Mail shares on the London Stock Exchange through an Initial Public Offering to give the company access to private capital that it needs to invest in its future.

In the first half of 2013, Royal Mail was profitable but the challenge is to maintain this – we should not forget that its core UK letters and parcel business has lost money in five of the last 12 years. And although Royal Mail’s performance has improved, its profit margin lags well behind international competitors such as Deutsche Post, Austrian Post, and Belgian Post.

As part of the public sector Royal Mail has its hands tied in a way its competitors do not. It cannot be right for a £9bn-a-year business to come cap in hand to Ministers each time it wants to innovate or commit future investment. It cannot be fair for the Government to give it taxpayers’ money ahead of schools and hospitals, or to increase public borrowing.

So our final reform is selling shares in Royal Mail to give it commercial freedom and future access to capital. The sale is a practical, logical and commercial decision. Leading postal operators across Europe have already moved into the private sector and continue to provide high-quality services.

Any privatisation brings concerns, especially one that involves a company so intrinsic to British heritage. So it is important to address some of the concerns directly.

First, the six-day-a-week, one price goes anywhere service – to urban and rural areas alike and free services for the blind – is fully protected irrespective of ownership. Only Parliament can change this and it is unthinkable that any party would commit to uprooting a service that is vital to society and the UK economy in their manifesto.

The Postal Services Act 2011 also put in place a new regulator – Ofcom – to protect this service. Ofcom has made clear that it will intervene to stop cherry-picking by competitors should that threaten the universal service.

Second, stamp prices for the universal postal service will continue to be regulated by Ofcom, which has a duty to make sure they remain affordable. As part of this they have imposed a price cap on second class stamps.

Third, the Post Office is not for sale. Royal Mail and the Post Office are now separate companies but as natural partners they signed a 10-year commercial agreement in 2012. Nor will there be thousands of Post Office closures as under Labour. Far from it, we are investing £1.3bn to transform the post office network and committed to maintaining at least 11,500 branches.

Fourth, the heritage of Royal Mail is important and Parliament has also legislated to ensure the Queen’s head remains on stamps.

Privatisations in the 80s and 90s gave employees a stake in their companies. But this sale will be unique in guaranteeing at least 10 per cent of shares for employees.

We were determined that a sale recognises the valuable job that post men and women do. Around 150,000 eligible employees could benefit – the largest commitment by a government for almost 30 years – including 7,300 Royal Mail workers in North and West Yorkshire, who will have a real stake in its future success.

Our sale of Royal Mail will diversify its ownership to pension funds and other large institutional investors, Royal Mail workers, and the great British public. It will create a company accountable to a range of interests, including most importantly, those who work for it and use it every day.

Government will protect universal postal services at the same time as allowing Royal Mail finally to have the commercial freedom, like any other major company, to access the capital and investment it needs to secure its long-term future.

*Michael Fallon MP is the Minister for Business and Enterprise.