Private Island: Why Britian Now Belongs to Someone Else (8 page)

Most of Royal Mail was privatised in October 2013. The government kept 38 per cent to sell later and split 10 per cent equally, for free, between the company's 150,000 employees. A few hundred idealists refused to take their allocation, sacrificing a likely future gain (they're not allowed to sell for three years) of thousands of pounds. The remainder of the shares, 52 per cent, were put up for sale at £3.30 each. Investors small and large stampeded to buy a stake; the allotment set aside for private buyers was oversubscribed by seven times, for big institutions, twentyfold. Only the very smallest investors, those with less than £750 to spend, got what they'd asked for, while a single hedge fund and the government of Singapore got large stakes. Those in between were left short. There'd been nothing like it since the speculative frenzy of the big Thatcher-era privatisations in the 1980s. The government made £1.7 billion from the sale; the share price roared upwards till, by December, it had nearly doubled. The government was accused, from both ends of the political spectrum, of naivety and incompetence, of selling a British folk treasure on the cheap. The
Daily Mail
described Goldman Sachs, the financiers handling the sale for the government, as a ‘giant Wall Street investment bank that is notorious internationally for its greed' and accused it of prioritising ‘its favoured clients in the big City institutions … it is now clear that the offer price was ludicrously undervalued.'

Politically, it's easy to see why the government sold Royal Mail cheap. Of the two risks to the sale – that eager investors would make a killing, and that the sale would flop because investors thought the price too high – ministers and civil servants knew, because it had happened before, that the first outcome would be a short, intense storm, soon to blow over, whereas the second would haunt the Cameron–Clegg regime forever with the stigma of incompetence. More than that: if you're a politician in favour of privatisation, a debate about the price of shares means you've already won, because the debate about privatisation itself is over. Alternatives to the simple opposition of state ownership versus
privatisation – the creation of a Royal Mail Trust, for instance, run on commercial lines but not for profit, or a John Lewis-style, employee-owned enterprise, both of which would have kept the company's debt separate from the government's – were never debated. And while the furore over the share price drew all the attention, in the background, something far more significant for Royal Mail's future was happening.

There was always something fantastical about the flotation. Right up to the moment of its disposal, the company had been portrayed by free marketeers and Tory commentators as a doomed behemoth, a pre-Internet, pre-Thatcher throwback, a state-milking army of overpaid, underworked, Luddite ne'er-do-wells jamming the cogs of the British economy. Suddenly, almost overnight, at the very moment it became too late to have second thoughts about the sale, the Royal Mail became a priceless national asset, its shares like gold, like Apple stock, with hard-nosed moguls from the world of big finance and nerdy stock pickers in suburban bungalows trampling over each other to get a piece. How to explain the dissonance? Was it that privatisation happened to coincide with an upturn in Royal Mail's fortunes, or was there something evidently transformative, in the Midas sense, about privatisation itself?

While I was wondering about it, at home one foggy day in London, a letter slipped through my door. It was from Royal Mail and seemed to offer their answer in support of the first proposition. ‘We love parcels,' it said on the outside. It was a circular promoting new sizes and prices for small packages sent by mail. The Internet has devastated the letters business, but you can't send objects down a wire, and the boom in Internet shopping has seen a corresponding boom in parcels, so much so that it looks to be starting to compensate for all those lost letters – so much so that Moya Greene, the head of Royal Mail, has spoken of offering deliveries not six, not five, but seven days a week.

But it is too soon to speak of a new golden age of mail, and the parcels business is subject to ferocious competition. In the
Netherlands, PostNL recently announced it would go down to five-day deliveries, scrapping its Monday service. The US Postal Service wants to stop Saturday deliveries. Most New Zealanders will soon be getting mail three days a week. Much more likely that there was something else that excited investors. Some have suggested the unneeded land and buildings owned by Royal Mail are more valuable than the government's sell-off advisers said they were, offering shareholders a future windfall. Then there was the government's generosity in putting Royal Mail in the private sector, but leaving its massive unfunded pension liabilities – £8 billion – with the Treasury; and the postal regulator Ofcom's largesse, allowing Royal Mail, just before privatisation, to raise first class stamp prices by 30 per cent. There was the recent outbreak of peace with the union, which had been expected to be more militant; and, of course, the prospect of commercial loans pouring in to fund new equipment.

And then there was something else. One of the analyses accusing the government of selling Royal Mail cheap came from a brokerage firm, Canaccord Genuity. If the company could just cut 3 per cent of its workforce and increase sales by 3 per cent, it said, it might be worth £10 billion by 2015, triple what the government sold it for. Tucked away in its investment note was an intriguing coda. ‘But the real interest is, what if the company could reduce people costs?' it said. In other words, what if Royal Mail could slash its wage bill, not merely by making much deeper cuts in staff than 3 per cent, but by actually cutting the pay of those who remained, and worsening their conditions? Then the shareholders would really clean up.

Just a few days before privatisation, PostNL's British subsidiary TNT Post announced that it was recruiting a thousand staff in and around Manchester to set up a new delivery service. Building on a similar operation it had already set up in west London, most of the new employees would be postmen and postwomen, delivering mail on orange bicycles. In future, TNT added, it wanted to expand its postal service to employ 20,000.
George Osborne took time to laud TNT. ‘Today's news is great for Manchester, and offers real opportunities for young people looking for work and the long term unemployed in this area,' he said. ‘It is a vote of confidence in Britain.' The
Manchester Evening News
was even more enthusiastic. ‘Postal firm delivers jobs joy,' its headline said.

The enthusiasm was misplaced – or fake, in Osborne's case. If the total amount of physical mail being despatched is falling, as almost everyone agrees it is, and automation requires fewer postal workers, as almost everyone agrees it does, there can be no question of TNT Post ‘creating jobs'. All the Dutch company can do is take jobs away from other postal workers. And to do that, it is doing something it is no longer able to do in its home country.

In 2011, when I visited the Netherlands, there was little sign of Royal Mail's competitors looking to recruit private postmen in Britain to challenge the state's de facto monopoly on ‘final mile' deliveries, which suggested that – although they wouldn't admit it – the private companies were getting a bargain from using the state postman's shoe leather. ‘The general public is not ready to have anybody else delivering to their door. Actually providing a service where Royal Mail ends up delivering it is perfect,' Royal Mail's rival Buswell purred. ‘I'm a real fan of Royal Mail and I don't believe anybody else should walk the streets and make deliveries.'

Nonetheless, it was always Royal Mail's fear that the burden of carrying out the USO, having to offer all but the very remotest communities the same level of postal service as the densely packed cities, would leave it vulnerable to ‘cherry-picking'. In this scenario a rival would undercut it by recruiting private postmen to do the relatively cheap, easy job of delivering urban mail, leaving Royal Mail withering away, forced to Postman Pat it at unsustainable expense around the glens and dales of rural Britain. Apart from the now long-lost advantage of being an incumbent monopoly, Royal Mail does have important protections against
this happening. One is that it is, for the time being, exempt from VAT, while its competitors aren't. Another is that it has some leeway to adjust the prices it charges competitors to use its services. Finally, Ofcom is obliged, by law, to step in if necessary to protect the universal service.

Crucially, however, it is
not
obliged to step in to protect Royal Mail. If cherry-picking rival post companies – which, for the time being, means the Dutch – threaten Royal Mail, one way Ofcom has said it might respond is by taking chunks of countryside away from Royal Mail and giving them to TNT. After 2021, Ofcom has the option of putting the entire USO out to tender, in search of the cheapest bidder. And the cheapest bidder is what TNT is positioning itself to be. Royal Mail postmen and women are on an average base wage of £11.64 an hour in London. According to CWU figures and anecdotal reports, the starting base wage for TNT postmen in London is £7.10 an hour, 39 per cent less than Royal Mail, and 20 per cent below the living wage. In Manchester, TNT is believed to be paying £6.50 an hour, 37 per cent less than Royal Mail. TNT postal workers are on zero hours contracts – in other words, there's no guaranteed minimum number of hours per week – and in terms of pensions, holiday pay and sick pay, they're worse off (and cheaper to the company) than their Royal Mail counterparts. According to the deal Dutch postal operators hammered out in 2011, TNT wouldn't be able to pay postmen so little if it were at home. It may be to TNT's advantage – politically, as well as in business terms – that its competition with Royal Mail is paralleled by inter-union competition. Instead of the CWU, TNT has done a recognition deal with Community, the union of betting shop staff, steel workers, carpet weavers, footwear makers and football managers. ‘Having campaigned for years to have TNT essentially closed, the CWU have now woken up to the fact that it's not going to happen,' Paul Talbot of Community told me.

The Royal Mail may yet triumph, commercially, as a privatised company. It may be eroded and eventually displaced by TNT,
or another big private mail firm. TNT could one day buy Royal Mail, or vice versa, or the two could simply merge. Whatever happens, the most intense competitive pressure will be on Royal Mail to squeeze the wages of the postmen who remain, turning low-paid workers into exploited workers. Without a political and ethical breakthrough of the kind that was eventually forced on Holland's post companies – ‘we underpaid' – the story of the Royal Mail becomes a paradigm of how technological progress, privatisation and a willingness by the majority to accept minority poverty goes to recreate a past phenomenon, the pool of desperate, hungry labour, mobbing the depot gates, fighting each other for paid hours.

On a mild, wet February morning, a work gang of ten men moved around a stretch of railway line near the village of Goostrey, between Crewe and Manchester airport. Against the extreme green of fields and the whipped grey of rainclouds their synthetic orange work suits shone out violently, like figures in a psychedelic episode. It was hard work. Using thick, weathered, metal-capped staves, they cranked jacks that raised a stretch of rail, along with its concrete sleepers, up off the bed of stone chips it rested on. A bulldozer on rail wheels purred up on the other line and pawed at the stones. The men were to pack fresh ballast in under the rails with hand shovels.

The year was 2004, and the men were engaged in the single most expensive non-military task ever undertaken by Britain alone: the modernisation of the national rail network's west coast main line. A project that was supposed to cost roughly £1.5 billion had, by the time a version was finished two years late in 2008, consumed £9 billion, much of it from the taxpayer. This was £3 billion more than the White House thought NASA would need at the time to send men back to the moon. For this vast expenditure, Britain got a supposedly modernised railway that over its busiest section, the eighty miles between London and Rugby, had barely had its ancient infrastructure touched, and
had, in the words of the rail regulator in 2013, been ‘persistently disappointing' ever since. A project that was intended to rebuild a London-to-Scotland railway for the twenty-first century is now casually dismissed by government as ‘nine billion pounds worth of improvements north of Rugby', which requires a whole new railway, High Speed 2, to replace it.

The bizarre story of those multiplying billions, reconstructed here from dozens of interviews and documents, ran parallel to the bloodier history of fatal accidents on the railway since privatisation, and contributed, in equal or greater measure, to the ignominious end of the Railtrack era. It is a tale of incompetence, greed and delusion, driven by the conviction that profit and share value is the only true measure of success, and that the ability to chair a meeting or read a balance sheet is always worth more than the ability to understand how machines and materials will best serve human needs.

It is a story, too, with wider implications about the kind of country that Britain has become: a country that has lost faith in its ability to design, make and build useful things, a country where the few who do still have that ability are underpaid, unrecognised, and unadmired.

Watching over the Goostrey work gang, dressed in cleaner, newer versions of the same orange suits, were three of their bosses, all American, from the US construction firm Bechtel, brought in two years previously to rescue the project from the incompetence of the collapsed rail company Railtrack. No British company seemed to have the skills required; nor, after Railtrack's systematic efforts to gut itself of in-house specialists, did Railtrack's quangoid successor, Network Rail.