Royal Mail Privatisation

In the 1980s, the cost of keeping a miner in work for one year would have been enough to pay off his mortgage in its entirety and buy him a new Rolls Royce; Privatisation was the answer to Britains economic woes then, but it is not now.

The Royal Mail privatisation is, In my opinion , fraught with inherent flaws. For starters, it is undervalued hugely. Experts have placed the market capitalisation of Royal Mail at around £4.5 billion, yet the value estimate given by the government is £2.6 billion, a decrease of around 40%. The £2.6 billion valuation is of course hugely flawed, as it appears not to accommodate or account for the $1 billion in property assets and $2.8 billion in tax credits , meaning that it won’t have to pay tax for the foreseeable future. Furthermore, the government has retained the huge liability of its pensions, giving an even sweeter deal to investors.

It is, however in these investors that we see the biggest flaw of it’s privatisation : The government anticipates 70 % of the shares to be purchased by “large institutions “, or in other words, large banks and investment firms. The shares are forecasted to rise, leaving big banks in the red and many individual investors in the black. If the sale is to benefit the public, why is it the big banks that have helped no end in creating the financial crisis and subsequent recession which apparently necessitates its sale ?

Proponents of the Royal Mail privatisation cite it as being a convenient and effective way to reduce the budget deficit, which I find ridiculous.$2.6 billion is a drop in the ocean that is British national debt, which is forecasted to hit £1.5 trillion in 2015. Furthermore, the company recorded a £400 million profit last year, and , in the words of the government, is “on the road to sustained profitability”, and by extension, is on the road to contributing nicely to corporate tax receipts.

Now, however, it is on the road to large investors who will profit from the government’s incompetent valuation skills, and private investors who will end up buying into something which they already own, and end up not really owning it.