Royal Mail Privatisation: The potential effect on Small Businesses

26 September 2013

Royal Mail Privatisation: The potential effect on Small Businesses

Last week the Government announced it is selling off a portion of The Royal Mail in the next few weeks. Surprisingly there appears to be little detail about which elements of The Royal Mail are actually being sold. The Government is being flexible about what parts they will sell. This announcement has caused a considerable amount of worry for Royal Mail employees and significant debate about the reasons for the sale and the potential impact on the business as a whole and on customers.

There are a whole series of questions about the sell off and why is happening and what the impact will be on Royal Mail, the services it offers and it’s employees and that’s a subject a for different blog.

Small Business Impact

We were interviewed on BBC Radio Cambridgeshire about the impact that the sell off of Royal Mail on a small businesses like ours? In an expansion of what we said on the radio we can consider two viewpoints, pessimistic and optimistic!

The Optimistic View

In a pragmatic and enthusiastic manner we would hope that this would be good for the small businesses that are customers of Royal Mail. Fresh investment could lead to new services being made available and particularly to small businesses that aren’t really being helped much by the banks despite the wishes of Government and business ministers.

Napoleon said England was a nation of shopkeepers and one could say that was never true, but perhaps it is, and now maybe more than ever. The advent of the recession caused many people to start up their own businesses. Small business is big business for the UK economy. As of 2012 small business make up 48.8% of private sector turnover and employ 14.1 million people. So we’d hope the new version of the Royal Mail would see an opportunity here in the UK to provide even more services to the SME market and help grow the economy.

The Internet has changed the way we do business in the UK and it’s particularly important for small businesses. We wanted to start Vida Moda 15 years but didn’t for various reasons – largely to do with property costs. The Internet changed that for us and gave us the opportunity to start up. We are not the only ones. Through local networking we know many other local small businesses and they ALL need to use the Internet to reach customers.

Lots of small businesses send items to customers this has been the secret of the Royal Mail’s recent profitability, their parcel delivery business is growing very quickly and that growth is coming from the trade generated by business and individuals.

That same change in peoples shopping habits and use of the internet which is adding to Royal Mail’s profitability is at the same time in combination with the recession decimating the high streets and if they can’t re-invent themselves many will never recover. So if the Royal Mail is benefiting from a proliferation of small business and their activities we hope the Royal Mail will see an opportunity to develop their business further by enhancing and adding to the services they offer.

Our business depends on Royal Mail. We use them because they provide a great service for our customers at a cost that works for us and they are pretty reliable. They offer services we can scale into as we grow. Most importantly we are in a rural area and it’s our local post office that services us. So the Royal Mail’s activities up and down the country – in all areas, both rural and urban are a vital part of local economies.

The Pessimistic View

The new owners will spend about £3bn buying the business and then seek to make efficiencies to speed up the return of their investment. Investing in something and buying something are two completely different things. In the case of the Royal Mail the new owner will need to BUY it and then INVEST further cash into the business. It will be interesting to see if this happens.

The Royal Mail has already been through a comprehensive restructuring and come out the other side profitable and still offering services across the country. So one could argue that it is in good shape to be sold as much of the difficult re-structuring work is already done. Some services are gone or reduced. Yes we no longer get two postal deliveries – did we really need two deliveries any longer? The letter business is declining and a lot of important papers that used to arrive by post now arrive electronically. Admittedly it would be nice to have deliveries at the start of the day but it’s not vital for us but probably is for other businesses.

The area that is vital is the parcel business and it is this area that is growing and where other services could be added. They may be worried about competition but we can’t help wonder how the competition can ever create the infrastructure and distribution network across the UK that Royal Mail has to allow it to service small businesses. The small business sector should be and could be a growth market for the Royal Mail.

The really important point

The national economy is built from local economies, smaller companies often exist to service bigger companies in their locality. The Post Office and Royal Mail are closely linked in this regard. They are totally separate business but need each other to operate efficiently. Most importantly, together they provide small businesses like ours with services that allow us to operate, and this will be case for many other small businesses.

So I do hope the new owners of the Royal Mail can look beyond their balance sheet and realise that creating a return on their investment has to come in part from an operational duty to service local economies. They may need to create new and additional opportunities as opposed to cutting services to drive profits. If they can do that the businesses they service will be happy and no doubt Royal Mail employees will be happy if their jobs aren’t threatened.

The Government has a responsibility that goes beyond recovering a small portion of the economic deficit by collecting £3bn from the sale of a part of Royal Mail. They have a duty to protect and encourage growth from the thousands of small business in the myriad local economies that make up the national economy. They shouldn’t overlook the fact that the Royal Mail plays an important role in local economies function.

The Government’s record in this area isn’t great, their efforts to be strict with banks and get them to support small business has not been a success. The Royal Mail and Post Office are two organisations that play a key role in the local economy ecosystem so they need to look beyond the £3bn receipt towards the deficit and consider very carefully the future shape of Royal Mail and the impact (positive or negative) it’s operation could have on small businesses and local economies.

Philip

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