The announcement by the UK Government that it will offer shares to investors and Royal Mail employees is an important step for us.
It is also important for our individual and business customers.
We have made significant strides to become a successful commercial company. Last year, we reported profits in our core UK business rather than losses and we generated cash rather than having to borrow. The transformation of Royal Mail is under way but it is by no means complete.
To understand why now is the right time for Royal Mail to move into private ownership, it is important to understand the way the postal market has changed. While letter volumes are in decline, Britain's online retailing boom is driving strong growth in the parcels market. Around half of Royal Mail's revenues come from our expanding UK and international parcels businesses. Many of our competitors are successful, privately-owned global players who have invested to modernise their operations and capture business in high-growth markets such as parcels.
The UK Government has acknowledged it has not been a good owner of large businesses. Private ownership will enable Royal Mail to become more flexible and fleet of foot in the fiercely competitive markets in which we operate and seize the opportunities available. Some of our competitors are privately owned and can invest when they need to. We need to access to long-term capital to time to invest in our business. The UK Government has made clear it does not have the money to allocate to Royal Mail ahead of schools and hospitals.
I have heard some people say the service we provide to rural communities will reduce. The six-day-a-week, one-price-goes-anywhere, affordable universal postal service will remain unchanged. I also want to reassure our small and large business customers. We make commerce happen by connecting companies, customers and communities. Our aim is to continue this through our universal service. It is also emshrined in law in the Postal Services Act 2011. Any change would have to be passed through an affirmative vote in both Houses of Parliament.
We believe we can combine the best of the public and private sectors. Our customer service will be a competitive advantage in the private sector. The Quality of Service regime that applies to Royal Mail under public ownership will continue under private ownership. Ofcom has specified the minimum standards under regulation.
Royal Mail offers good value for money. That will not change. UK stamp prices are among the best value in the EU. In five of the six prices by weight for first and second class mail, the cost of UK stamps is in the bottom half when compared with other European countries. Affordable prices are protected in legislation and regulation.
All terms and conditions that apply to Royal Mail employees would remain in place, on the same basis, were the company sold. We will create a legally-binding and enforceable contract with the Communication Workers Union. Pay and protections could not be changed for the period of the contract without CWU agreement.
The company will retain a predominantly full-time workforce on an overall national basis, in line with agreements with the CWU. Our enhanced voluntary redundancy terms have been extended for the life of our modernisation programme. Our commitment to managing change without recourse to compulsory redundancy will remain in place.
In addition, approximately 150,000 eligible UK employees, including employees working in Parcelforce Worldwide, will receive free shares, giving them a combined 10% stake in the business. This is the largest free stake of any major UK privatisation for nearly 30 years.
The Government intends to award the free shares under a tax-advantaged Share Incentive Plan. Eligible employees will automatically receive an equal number of shares, irrespective of their grade. There will be a pro-rata allocation for part-time employees.
Many previously Government-owned companies such as Rolls Royce and British Airways have flourished under private ownership. We believe privatisation will equip Royal Mail for similar success.
Gerry O'Rourke is Operations Director Scotland, Royal Mail.
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