The sell-off of Royal Mail makes business sense but is fraught with political risk

After more than two decades and several abortive attempts, the privatisation of Royal Mail is going ahead at last. Margaret Thatcher baulked at the prospect (famously remarking that she was “not prepared to have the Queen’s head privatised); Michael Heseltine and, after him, Peter Mandelson had their ambitions scuppered by the chariness of MPs. Yesterday, however, Vince Cable formally notified the Stock Exchange of the Government’s intentions to float the company within weeks.

While not without risks, the plan has much to recommend it. Lumbering, heavily unionised Royal Mail has suffered from both chronic under-investment and deep-rooted inflexibility as the world has radically changed around it. The result has been missed opportunities galore as rivals stole the march on more lucrative parcel-delivery markets even as email decimated the traditional letters business.

Thanks to Moya Greene, who took over in 2010, the group has clawed its way back into the black. The Government’s takeover of its £5bn pension deficit also helped. Now, with its finances back in order, the state will sell about 40 per cent of the organisation, with a further 10 per cent handed to its 150,000 employees. Barring unforeseen disasters, the first dividends, totalling £133m, will be paid in July.

Perhaps predictably, the scheme has some vociferous opponents. Indeed, the Communications Workers Union, whose members work for Royal Mail, is holding a strike ballot early next month to protest against potential changes in pay and conditions. It is too late. If the industrial action goes ahead, it may be the first time that a company has listed on the Stock Exchange while its workers were on strike. But even such drastic action will not be enough to turn the tide.

Nor should the benefits of privatisation be underplayed. A fleeter-footed business, no longer restricted by government investment rules and with access to private capital, is better placed to undertake the sweeping modernisation that the organisation still needs to go through if it is to compete successfully.

There are risks, though. The most immediate is that the shares are sold too cheaply, repeating the mistakes of previous sales and leaving taxpayers cheated (and resentful). Over the longer term, the challenge will be a regulatory one. Royal Mail will continue to be bound by the universal service obligation mandating six-day, nationwide postal delivery; but what is far from clear is how so costly a service will be funded. The hope is that booming business elsewhere – courtesy of online shopping, say – will enable cross-subsidy. But sceptics warn of unaffordable hikes in stamp prices or even state bailouts.

Mrs Thatcher’s unwillingness to sell off Royal Mail was not only a sentimental attachment to tradition. It also sprang from a hard-headed assessment of the political pitfalls of tampering with a venerable national institution. Such hazards remain. A sale is the right decision for the Treasury, and the right decision for the Royal Mail. But it is far from a sure-fire success.