Consignia: death by a thousand cuts


The Post Office, lately known as Consignia plc, but apparently now changing its name back to Royal Mail, has been for the last four years under attack from the vultures of privatisation. It owns three businesses: the Post Office, the UK mail delivery service and a parcels delivery service. Capitalist profiteers are salivating at the prospect of the private profits that are to be made from taking over these services, almost the last left to privatise. After all, the Post Office was contributing on average £250 million a year to the Exchequer – better by far, they think, that this money should line the pockets of the filthy rich.

The present Labour government, which is as loyal and faithful servitor to the whims and fancies of finance capital as was its Tory predecessor, is falling over itself to deliver up these services to the privateers, notwithstanding the loss of revenue to the Exchequer. Reportedly ‘our’ government when it was first elected in 1997 would have liked to have privatised the entire concern then and there, according to Dan Roberts writing in the Financial Times of 31 January 2002 (‘Political dithering led to the decline of the universal service’):

“Officials claim there was unanimous agreement between Mr Blair, Gordon Brown, chancellor, and Peter Mandelson, the trade secretary, to privatise all the post office as long ago as 1998 …

“Unfortunately [sic], personal rivalries prevented the plan from receiving the backing it needed to overcome powerful union lobbying”. The Financial Times goes on to explain it was the personal rivalries between Brown and Mandelson that effectively would have prevented the government from uniting all ranks behind the plan.

Yet despite this setback, both the British bourgeoisie and its government remained determined that the Post Office’s profitable services should be transferred into the private sector. Besides the prospect of ‘liberating’ so much juicy profit, the other motivator of the bourgeoisie was to smash working-class organisation. Although the postal workers are to some extent kept under control by their union leadership, nevertheless they do from time to time resort very effectively to “wildcat” strikes when unreasonable demands are made of them. These strikes are effective for two reasons: (1) the united force of the Post Office’s more than 200,000 employees is awesome, and (2) the state-owned Post Office has a monopoly on the provision of certain services essential to the smooth running of capitalism – when the postal workers do take action they are in a position to hurt capitalism badly. Hence for the British bourgeoisie, privatisation of the Post Office is a cause to be approached with the same crusading spirit as Thatcher brought to the destruction of the coal mining industry, and above all to mining workers and their militancy.

There are many ways to skin a cat. It is necessary to emphasise this because it seems unlikely that the government will now take the obvious route to privatisation, which is to sell all or part of its 100% shareholding in Consignia plc to private concerns. Since it will not be doing that, there are simple Simons around who will fondly believe the government has no plans to privatise the Post Office. It is clear from the facts, however, that the opposite is the case.

If any of the businesses traditionally run by the Post Office – or any part of any of those businesses – is transferred to a private provider, this is privatisation. What matters is not who owns the entity called the Post Office, the Royal Mail or Consignia plc, but who is actually delivering letters. If Consignia remained completely government owned but was no longer providing any of its traditional services because they have all been transferred to private profiteers, clearly there would be full privatisation. And it is this that the government is engaged in doing – gradually, almost but not quite imperceptibly, transferring PO services into the private sector.

Having abandoned its idea of privatisation in one fell swoop, the government instead proceeded with a more stealthy approach. Its first step was to create distance between itself and the PO, to wash its hands of the PO, so to speak. This was done by “launching” the PO to the accompaniment of congratulatory fanfares as a public limited company, renaming it ‘Consignia’, allegedly conferring on it “greater commercial freedom”, while at the same time “an independent regulator [Postcomm] was established to ensure that tough decisions on how to reduce Consignia’s monopoly were separated from the interests of its single government shareholder …”

Let us be clear that “reducing Consignia’s monopoly” means nothing more or less than taking away part of its business and handing it to private concerns. The role of Postcomm is to be apparently “independent” in facilitating this privatisation, while the government hides behind it evading blame for what we shall see is its deliberate campaign to kill off Consignia altogether.

What must be realised is that there will at all times continue to be a monopoly over postal services, but this monopoly belongs to the government, not to Consignia. For the time being Consignia is being allowed by the government to take advantage of its monopoly in relation to certain categories of cheaper letter post, but the government can withdraw that permission at any time, and sell licences to private companies to deliver the mail instead. It is only because the government HAS this monopoly that it can sell licences. We will revert to the implications of this for Consignia’s “commercial freedom” later on.

A correspondent writing to Scotland’s Herald newspaper of 6 April 2002 correctly described the “privatisation by stealth” of the Post Office as “industrial rape”. When one looks at the facts, one cannot but conclude that the government is out to wreck the Post Office completely, and that in its efforts it is being aided and abetted by our mendacious media. There is not a single bourgeois newspaper that in support of its owner’s lust for privatisation of all public services everywhere isn’t hysterically denouncing the Post Office for its supposed “inefficiency” – an “inefficiency” that of course can only be cured by further privatisation!

The main evidence of this “inefficiency” is the fact that Consignia is running at a loss of £1.5 million a day (whereas before it was launched as a plc, the Post Office had been highly profitable). This catastrophe is supposed to be because state owned industries are incapable of adapting to the changing market, etc.

A close look will show that Consignia’s losses have nothing to do with a changing market and everything to do with government sabotage.

The first act of official sabotage centres around a PFI project known as ‘Horizon’. Commenced under the Tories, Horizon was an arrangement between the government owned Post Office on the one hand and ICL, the computer multinational, on the other hand for ICL to design and supply a computer system, to be installed in the Post Office’s 18,500 post offices and sub post offices, to manage social security transactions by reference to a national database. The Tories had envisaged that claimants would be issued with ‘smart cards’, and the computer system would help to reduce the incidence of fraud. The cost of this system was £1 billion. As soon as the Post Office was committed to this expenditure, on the one hand ICL sidled out of the financing of the PFI, and the newly-elected Labour government decided to take away altogether the Post Office’s role in the distribution of benefits – which from 2003 will be paid directly into claimants’ bank accounts (it has not yet been announced what will happen to the 2 millon people who don’t have bank accounts).

Thus Consignia was dealt a double blow: not only did the government whip away one of Consignia’s main sources of income (about a third of Consignia’s profits come from benefits distribution), but in addition it did so only after saddling it with a huge debt for technology that was no longer needed. Rather than scrap the whole £1 billion’s worth, the Post Office decided the computer system had better be installed and adapted for other uses, particularly in the light of its ‘need’ to reduce staffing levels – but this involved more expenditure still. “Will Cappelli, research fellow in networking at Giga Information Group, pointed out that more and more applications only run on ATM [the system built for the PO by ICL] over IP, which requires an extra [and expensive!] layer over the basic network structure” (Leisbeth Evers, 3 April 2002). Quite apart from these extra costs, the maintenance costs of the network amount to £100 million a year.

Because the new computer system is no longer going to be used for the purpose for which it was intended, Consignia had to write off £571 million against its 1999-2000 profits. The result of this was that in 2000 the Post Office had a loss of £264 million after tax compared to a £496 million profit in 1999 – and this in spite of axing 2,500 jobs during the relevant period and closing down 547 post offices!

Besides losing its benefits distribution work, the Post Office is now also going to lose its TV licence fee collection work worth £500 million.

Having landed the Post Office with a white elephant of a computer system and taken away from it some of its most lucrative business, Consignia, which had supposedly on its creation been given new levels of “commercial freedom”, was refused permission to put up the price of stamps. Not only was it not allowed to recoup any of its write-off losses, it wasn’t’ even allowed to raise the price of stamps by 1p to cover the actual cost of delivery! Its desire to do so in order to cover its costs provided the media harpies with another opportunity to clamour for the more rapid dismantling of the Post Office. Gregor McGregor, the Chief Executive of the so-called consumer body, Postwatch, was eagerly quoted as he declared with frank insincerity:

“Consignia is in a mess of its own making. It has lost control of its costs. Customers should not be expected to bail out a failed management.”

In fact, the cost of posting a letter today is 8.5% lower in real terms than it was five years ago. The British stamp is one of the cheapest in Europe. In countries where ‘liberalisation’ of postal services is going ahead in a manner much admired by the British bourgeoisie and their media, the price of stamps went up as a result of deregulation. In Sweden it rose by 6p a letter, and in Germany it now costs 37p to post a first class letter. How efficient!

Faced with the outright loss of its benefits distribution work, as well as financial ‘losses’ foisted on it by the government, Consignia has little choice but to press ahead at ever greater speed with its programme of staff reduction and post office closures. Notwithstanding the widespread criticism that is made of Consignia’s management suggesting that it has dragged its feet on this front, in fact at all times it has eagerly implemented the PO wrecking agenda. 2,500 jobs went in 2000 and a further 2,500 in 2001. In March 2002 Consignia announced plans to effect at least 15,000 more redundancies over the next 3 years, with a view in the not too distant future to cutting its staff by between 30,000 to 40,000. Meanwhile post offices and other PO facilities are being closed down with gay abandon. Rural post offices are closing at the rate of 200 a year. 382 post offices closed in 1999 and 547 in 2000. For the future Consignia is planning to close down 3,000 urban post offices as well.

The only thing which has marginally curbed the wrecking activities of the government vis-à-vis the Post Office is the militancy of post office workers, who still have some leverage when it comes to taking action in defence of their jobs and working conditions, and who have been prepared to use it, notwithstanding the restraining influence of their union leadership. As pressure was put on PO workers to work longer shifts and at even more unsocial hours for less money (overtime being subsumed into greater ‘flexibility’ with regard to the work done for basic pay), ‘wildcat’ strikes – i.e., strikes without official union backing, have broken out that demonstrate not all has yet been lost of the ability of the British working class to organise. “Consignia,” says Geoff Gibb in the Guardian of 1 March 2002, “lost 5,000 working days to strikes each month during 2,000 and 2001″ (‘Consignia fails to deliver’).

As has been mentioned, the militancy of postal workers is a major reason behind the British bourgeoisie’s enthusiasm for smashing the PO. Stuart Lyons of the right-wing think tank, the Centre for Policy Studies, expresses perfectly the view of the British bourgeoisie when he writes:

“The Post Office workforce, protected by its status within a nationalised industry, has the worst record of any UK industry or company. Post Office managers, together with the trades union leadership, will, as has proved the case in other industries, deal with the matter more effectively once they can operate outside the public sector” (Can Consignia Deliver, CPS, 2001).

Given the nature of the union leadership, all the workers are likely to gain from their militancy is improved redundancy terms. The union leadership has worked hand-in-glove with the management to see to the implementation of ‘flexible’ working by staff and the ongoing programme of redundancies. In 2000 it negotiated a national agreement on working practices with Consignia, which was published under the title ‘The Way Forward’ and which has been implemented at almost all mail delivery offices. This agreement accepted the principle of ‘flexible working practices’ (which cut into workers’ overtime pay) in return for a modest rise in basic pay. Given that the average postie earns only £250 a week, they can ill afford the pay cut that has been foisted on them. So unpopular is ‘The Way Forward’ among ordinary postal workers that John Keggie, the union official mainly associated with negotiating it, is thought to have lost his bid for the presidency of the union as a result, losing out to perceived left-winger Billy Hayes. However, even if Billy Hayes wanted the union to be more militant, he is completely outnumbered on its Executive Committee by those who do not. The union has just finished that favourite activity of Labour-supporting trade-union leaders, namely, negotiating redundancy terms. The deal agreed with the employers, which is to be put to the vote this month, is that redundancy compensation will be 3 weeks pay for each year of the first 10 years of service, 4 weeks pay for each year thereafter and an additional 2 weeks for each year over the age of 40 subject to a maximum of 104 weeks. Staff over 50 will be able to take an early pension from the final salary pension scheme. It seems likely that, disgruntled and disillusioned by the sabotage of Consignia, eligible postal workers will take their money and run, even though the most they can get is two years’ pay.

The deal does also cover a pay rise for those who remain. It will be recalled that Consignia, after procrastinating for 6 months over agreeing a pay rise due to the postal workers, eventually made an offer of 2.2%, which was firmly rejected by the union. Consignia’s refusal to up this offer led to the declaration of a one-day strike, the union’s first national strike in 6 years, which was due to take place on 8 May. The employer did, however, up its offer by adding a further 2.3% rise with effect from October this year, in addition to the original 2.2% rise which is to be backdated to October last year. Furthermore, the pay rises are not overtly linked to implementation of “flexible working practices”, changes in delivery patterns and the like – as a result of which the deal is more likely to be accepted by the union membership.

If the deal goes ahead, however, the PO workers are left with very little basis for trying to resist privatisation. It is virtually then a done deal.

Suitably slimmed down, it now emerges that the plan is for Consignia to offload all its mail and parcel delivery services. In fact, for the last 8 months Consignia has been in negotiations with the fully-privatised Dutch postal giant, TPG (which controls among others TNT and the Australian company Ansett Air Freight) for Royal Mail and Parcel Force to ‘merge’ with TPG – in reality to be taken over by them. The deal has just fallen through. Douglas Alexander, the industry minister with responsibility for Consignia, explained that “there were a range of issues on which this deal foundered including regulatory issues and industrial relations issues”, and he added that “the issue of valuation of the two businesses had also been a consideration” (quoted in Michael Harrison, ‘Minister orders Consignia to scrap foreign expansion’, the Independent, 8 May 2002). In other words, TPG would not agree to the price that was being asked, was not prepared to have the price of stamps dictated to it, and was reluctant to get involved in implementing redundancies.

What is interesting is that the result of the failure of this proposed sell-off is that “The government has ordered Consignia to abandon its attempts at further overseas expansion” (ibid.). This amounts to saying that Consignia has no “commercial freedom” to sell off its business under the guise of setting up a joint venture or a merger. It is a clear signal that Consignia’s business is to be strangled rather than sold – that the strategy is to be to encourage private competitors gradually to take over rather than to sell the mail delivery and parcels delivery business as going concerns.

Because it is the government and not Consignia that has the postal monopoly, the government actually has a choice in how it cashes in on the transfer of postal services to the private sector. It could have sold off Consignia as a going concern, as appears to have been the intention with the TPG ‘merger’, on the one hand, and/or it can sell licences. If Consignia is significantly weakened, this will stimulate demand for the licences and the government can expect to get a better price.

If Consignia were left uncrippled, Consignia’s market dominance would put off prospective licencees. The National Audit Office, in a report issued in January 2002, pointed out that from the point of view of attracting competitors to Consignia to purchase licences to operate postal services, it is a problem that “Consignia has substantial competitor advantages (size, brand and operational privileges) that would prevent competitors entering the market.” That being so, it would seem to be in the government’s calculations that perhaps it would be more profitable to dismantle Consignia altogether rather than sell it – or perhaps the government is less worried about what the Treasury gets out of the privatisation of the Post Office than about catering to the whims and fancies of the British bourgeoisie.

Further evidence of its intention to abandon the attempt to sell the delivery services is provided by the government prohibiting Consignia from making ANY future foreign investments. Until recently Consignia was, like its privatised and semi-privatised counterparts TPG and Deutsche Post, buying up parcel businesses around the world. Despite all its financial difficulties, it acquired German Parcel (£267 million), Williames of Ireland (£10 million), Pakke-trans of Denmark (£20 million), Nederlandse Pakket Dienst (£68 million) and Extand of France (£97 million). Between December 1998 and May 2000, Parcelforce spent £493 million on various acquisitions abroad.

From the point of view of acquiring control over an international monopoly (like TPG’s TNT or Deutsche Post’s DHL), these acquisitions are small potatoes. Stuart Lyon (op.cit.) points out that with all these acquisitions Parcelforce lacks ‘critical mass’. The purpose of them, therefore, one must conclude, can only have been to make Parcelforce a more appealing target for prospective purchasers seeking to establish or maintain their own ‘critical mass’. It would seem that with the failure of the negotiations with TPG, that approach is to be abandoned in favour of straightforward demolition of Consignia.

In fact Parcelforce is currently facing the brunt of the savage redundancy and closure programme. It is about to shed its standard parcel service altogether (too unprofitable), in favour of guaranteed one-day and two-day deliveries. Besides this it is likely to close several of its major depots, with staffing being cut by more than half.

Parcelforce, of course, is already operating in the ‘de-regulated’ sector. It has no monopoly over parcel delivery. There are plenty of competitors to take over the businesses that it closes down, all of whom will benefit from Consignia shedding its cheap 3-day + delivery service. And of course as it closes down more and more depots, Parcelforce will be able to offer less and less of a service, and in the fullness of time will probably simply disappear off the scene from lack of demand for its services. Privatisation of parcels delivery will then be complete.

The privatisation of letter delivery will take a similar route – provided sufficient private competitors can be attracted to apply for licences. The engine of privatisation here is Postcomm, the so-called ‘regulator’ (government smoke screen would be a better description). Postcomm on the one hand takes the decision to license categories of service to private providers, and on the other prevents Consignia marketing its services at a realistic price. It should also be borne in mind that Consignia has inherited a myriad of unprofitable services, particularly in rural areas, the cost of which has to be met from such profitable areas of business as the government allows Consignia to keep. While the government is strong on declarations of intent to maintain the essential services provided by the Post Office either at a loss or at too low a level of profit to interest the private sector, there seems to be nothing in the offing in the form of concrete plans for keeping such services available. If Consignia sink, these services sink too.

Yet Consignia is relentlessly being deprived of all sources or profit that might enable it to continue to provide such services. According to Michael Harrison writing in the Independent of 13 April 2002 (op. cit.): “Postcomm is proposing to scrap entirely the Royal Mail’s monopoly over letters costing less than £1 to deliver and instead license rival operators to compete, starting with bulk mail. Thirty per cent of the Royal Mail’s market would be thrown open immediately, a further 30 per cent in two years and then from 2006 there would be complete liberalisation.”

Consignia’s management is prepared to co-operate with these demands in principle, but at a slower pace:

“Consignia said it wanted competition to be introduced more gradually in line with liberalisation moves taking place elsewhere in Europe. This would mean reducing its monopoly to letters weighting less than 100 grams – the equivalent of a 41p stamp – from next January and then reducing the threshold further to 50 grams from 2006″.

But with all profitable services ‘cherry-picked’ by private enterprise, how will Consignia be able to maintain the universal service (i.e., the service that delivers mail to any part of the country at exactly the same price for the same weight)? Even the government – at least for the time being – accepts that nothing can be allowed to threaten the maintenance of the universal service – yet this is not something that private enterprise is likely to be willing to take on (unless there is a massive hike in the price of stamps all round). Were it not for the need to maintain the universal service, the pace of privatisation would undoubtedly have been even faster. The need to maintain it will probably gain Consignia some respite from Postcomm’s preferred agenda.

Yet there are no concrete plans for financing the maintenance of that service. To keep it going, especially in view of the massive job losses that are being inflicted on Consignia, requires considerable expenditure of labour-saving machinery, as was pointed out by David Gow in the Guardian of 12 April 2001 (‘It’s do or die time’), where he quotes Consignia CEO John Roberts saying there had been chronic under-investment in new technology and equipment to the tune of £100 million a year for the previous 8 years. New automatic sorting offices are needed. Without being allowed to make enough money to pay for these (e.g., by putting up the price of stamps), it has to be admitted that the universal service seems very much at risk.

Consignia also needs money to keep open rural post offices. There is a very strong lobby of people opposed to the closure of rural post offices, to which the government responded by offering Consignia, when it was first set up, a ‘cash injection’. Unfortunately it turned out that this ‘cash injection’ was not actual cash, but an agreement to reduce the dividend Consignia was required to make to the government out of its profits from 80% to 40%). Since the government then went on to sabotage Consignia’s profitability, the ‘cash injection’ went up in smoke. Stephen Byers did try to put together a rescue package that involved the high street banks helping to finance rural post offices by participating in the creation of a universal bank, accessible only from post offices. The universal bank, he also hoped, would solve the problem of how the 2 million people who do not have bank accounts (and do not qualify for bank accounts) will receive their benefit payments next year. To cut a long story short, the high street banks did not find that there was enough profit for them in the universal bank proposal and they all backed out. As far as is known, nobody has any other ideas on how to keep the rural post office alive.

For the moment it would seem, then, that Consignia may still have a role to play even in government eyes in maintaining services which, from the point of view of the government’s future electability, the government cannot allow to fall by the wayside. Short term the easiest solution is to have Consignia continue to provide these services – but this implies it must be allowed to make sufficient profit to fund them. This dilemma is one that the government seems to have trouble coming to terms with.

As yet another privatised train jumps off its privatised track at Potters Bar this week, what more needs to be said about the privatised mail services? It will be worth keeping a note of the writings of today’s media harlots denouncing Consignia’s supposed inefficiency: “The quality of the service is declining”, wails David Gow (op. cit.), “89% of first-class letters arrive the day after posting, compared with an agreed target of 92%”. This was in a year when railways became paralysed in the aftermath of the Hatfield crash, thereby holding up mail deliveries, and when postal workers were forced into stoppages by the unreasonable demands made on them. Let us see whether, even without strikes and moribund railways, private companies will provide a universal service at a similar price and still achieve 89% next-day delivery!

More moans from Martin Stanley, Postcomm CEO, quoted by Chris Gray in the Independent of 24 May 2001, telling CWU members that “customers wanted a service that would not lose their letters and ‘whose staff would not steal giro books and passports'”. Roy Rogers of the Herald (19 May 2001) quotes the same Martin Stanley as saying “a queue of Royal Mail customers was already begging him to be allowed to switch to a different postal supplier. These included some big customers seeking a supplier ‘that will not go on strike, turn seedlings upside down, steal giro books and passports, or misdeliver one million items a week”. Well, in a few years we can revisit the privatised postal service and see whether the casual, ununionised, even lower paid and overworked employees in charge of the mail achieve a better service than today’s postal workers. As for the disgusting slanders spread by Martin Stanley, no doubt endeavouring to drive customers away from Consignia, their untruth is borne out by public attitudes. According to an NOP opinion poll carried out in April 2002, 89% of the population, who have learnt only too well from previous privatisations that fewer staff means less service, would support a 2p rise in the price of stamps in order to save jobs. They would hardly do that if their experience of the postal service is as Martin Stanley describes it. What the public wants is no sackings, no closures, no privatisation. What big business, to which ‘our’ Labour government is such a good friend, wants is just the opposite. The prospect is grim.