I’m aware that what I’m about to write will not be popular with many readers, but I think it is true. The only future for Royal Mail is in privatisation – the government knows this, but is too weak to do anything about it. As a result, Royal Mail is in danger of collapse.

The facts have been well trailed. Royal Mail is effectively bankrupt – its liabilities, of which the largest is its £10bn pension deficit, greatly outweigh its assets. Unlike its continental rivals, it has been starved of investment, so posties have to handsort mail before delivery in ways familiar to their 19th century predecessors. Other European mail services in places like Germany, the Netherlands and Scandinavia have been partly or wholly privatised, and benefited from private sector capital and expertise to become much more efficient.

Opponents of privatisation – in parliament and outside – say the government has a responsibility to bail out the pension deficit and invest in the business which it owns. We could argue about that, but personally if the government has cash to spare it should be used to provide better health and education.

However, the argument would be a waste of time: under European law to promote competition, the government can only give state aid to Royal Mail as part of a fundamental and final restructuring plan. Apart from the advantages of bringing in the private sector to postal services, part privatisation will allow the government to take over the pension deficit. But if it did not part privatise it, the European Commission would only allow the government to bail out the pension fund if it agreed to measures such as selling off Parcel Force and contracting out parts of its operations to private firms.  This would effectively destroy Royal Mail.

Royal Mail matters, because it is the only postal operator that can provide the universal service in the UK – delivery to every home six days a week for a flat rate. But it can only be preserved by privatisation in whole or part, which the government knows but is too weak to implement. In the next few months, Royal Mail will be required by the pension regulator to step up its contributions to the pension scheme to reduce the deficit – wiping out its tiny operating profit.  Leaving privatisation until after the election could simply be too late.

John Willman is an award winning journalist. An economic commentator, author and former Associate Editor of the Financial Times. For more information or to contact John Willman, click here.

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