Why the crisis at Royal Mail risks leading to a hidden renationalization

Royal Mail is facing fierce resistance to delivery cuts. Photo: Stefan Rousseau/PA

Something's gotta give. Royal Mail lost ? with a record £5.6 million fine for late delivery of more than a quarter of first class mail.

With Royal Mail at an impasse with ministers, another option has been proposed.

Ofcom outlined alternative plans that would see the current USO remain but with a government subsidy set up to compensate the company for any «unfair financial burden».

They pointed to similar moves in France, Italy and Greece. France last year introduced a scheme that pays La Poste between 500 and 520 million euros a year, depending on its performance. Italy handed over 1.3 billion euros to its postal service over four years.

Public finances are already overstretched and the Government will find it difficult to come to terms with the prospect of using public coffers to support Royal Mail.

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“You are making an open-ended commitment and half the purpose of privatization was to get rid of current commitments,” says Hu.

There are signs that Sir Keir Starmer is more open to change. The Labor leader said he would «think about» Ofcom's proposals and take them on board.

But even under a Labor government the subsidy would be difficult to justify. By propping up a private company with public money, Starmer risks being accused of siphoning taxpayers' money to Royal Mail shareholders.

Alex Paterson, an analyst at Peel Hunt, says: “Public subsidy is unlikely under the current administration and I don't see a Labor government wanted to subsidize a private company that many of their members believed should be renationalized.»

There are other options. Ofcom also suggested that the subsidy could be achieved through a levy on other postal operators, similar to the system used in the telecoms industry to cover BT's potential unfair costs.

However, the USO and its cost are not the only stone around Royal Mail's neck. Ofcom said the company must modernize, become more efficient and improve service levels, regardless of the outcome of the USO review.

Under boss Seidenberg, Royal Mail is trying to boost productivity with a new policy to crack down on persistent messages. problems such as high rates of sickness absence and vacancies. The company is also focusing efforts on parcel delivery services amid growing demand driven by e-commerce.

But the company is under increasing pressure from rival parcel delivery operators, and high labor costs mean it will struggle to compete at a price.< /p>

Ultimately, it may take an even more severe crisis to force government intervention.

“Until you actually look it in the face, until you look it straight down the barrel, I don't think there will be a political imperative,” says Hu. «It will take the imminent collapse of the Postal Service for the government to wake up to the reality that the status quo is not sustainable.»