Q&A: Royal Mail privatisation
- 7 October 2013
- From the section Business
What has the government announced?
The government intends to privatise Royal Mail through a flotation on the London Stock Exchange on the 15 October.
Some of the shares - 10% - will be given to Royal Mail employees, while the public will also be able to apply to buy shares online until 8 October, alongside bigger institutional investors.
In total, up to 62% of the business will be sold, with the rest remaining state-owned. However, if demand for the shares is very high, the government may also sell an additional 15% of its stake in what is called an "over-allotment" option.
The total amount of the business being sold will be decided after the 8 October deadline, once all applications to buy shares have been received.
Why is the government privatising Royal Mail?
The government and Royal Mail management say the company needs access to private capital in order to grow and compete.
They argue that the boom in internet shopping means parcel delivery is far more important to Royal Mail's business than the delivery of letters, which is shrinking, and they need investment to revamp the business accordingly.
The government is also reluctant to invest large sums of money itself at a time when it is trying to cut public spending and borrowing.
Privatisation has been planned for many years, with legislation enacted in 2011 to pave the way for the sale.
Royal Mail is also facing competition from private operators such as TNT and UK Mail, following the opening up of the market in 2006.
Why is it controversial?
Unions and some campaigners oppose the sale.
The Communication Workers Union (CWU), which represents the majority of Royal Mail workers, argues that privatisation will lead to a deterioration in services and could harm working conditions for its members.
CWU members have voted against the planned sale, and are currently being balloted on a potential strike over the planned privatisation, and other pay issues. The strike vote closes on 16 October, and the earliest a strike could be held is seven days after that.
The CWU agrees that the Royal Mail needs more investment, but says this can be achieved within the public sector.
It also points out that Royal Mail is now profitable, demonstrating that it can be a successful business without privatisation.
Campaigners are also concerned that service guarantees, such as deliveries on six days of the week, could be jeopardised, although the government says the universal service is guaranteed by law.
Who can buy shares?
The public, as well as big institutional investors, will be able to buy shares.
In all, 10% of shares are being kept aside for Royal Mail's more than 150,000 employees, who will get them for nothing. They will also have first refusal on the shares being made available to the public.
The minimum investment for the public will be £750, while for Royal Mail employees wishing to buy additional shares the minimum investment is £500.
What will happen to Post Offices?
The privatisation won't affect the Post Office, which is now a separate company from Royal Mail.
The government says it wants to invest more money in the Post Office network to prevent branch closures and eventually set it up as a mutual business.