Wednesday, 9 October 2013

How to get a bike for free ... (in the UK, at least)

The UK Government has recently decided to sell off the national postal service, Royal Mail.
It is the view of the (opposition) Labour Party that the shares about to be floated have been priced too cheaply, to the tune of about 1 billion pounds overall (that's about 1.2 billion Euros, or about 1.6 billion dollars).

My personal view is that a Government, whose popularity has always been a bit weak, has decided to sell off the Royal Mail at a discount, in order to guarantee their decision is a success, to raise a few pounds to help to cover up the gap between the soundbites and the reality of their economic policies, and to effectively buy a few votes for the next election (less than two years away) - if a Government gives a citizen money for nothing, then the citizen will usually think favourably about that Government at the next election.

One can argue whether the Royal Mail would be better off in private or "State" ownership.
My view is that it is the quality of management that counts, and for every badly-run, state organisation in the UK, one can also think of a badly-run, private organisation (just think of the endless compensation that banks have to pay out for mis-selling products - first it was mortgage annuity plans, now it is loan insurance, next it will be something else).

Certainly moving certain business from State control to private ownership has had a patchy record:
one might think of Railtrack, for example, who, when freed from State control, made huge profits, and claimed they were due to efficiency savings.
Later it turned out that they were not doing the job that they were charging the Government (through a subsidy) and their customers (the train companies, who paid a usage fee to Railtrack for running trains on "Railtrack's" railway lines, of which they had a virtual monopoly).
Railtrack, as it later transpired, simply were not maintaining the track properly.
Paying for less engineering time costs less, so they made a profit - the claimed efficiency savings were made by simply not doing the engineering work often enough. It would be a bit like never changing the oil on your car (automobile), and claiming it was an "efficiency saving".
Of course, the inevitable happened, and there were a couple of serious train crashes.
Railtrack were sued out of existence in insurance and compensation claims, and had to be rescued by the State in order to keep a train service going (remember, almost every bit of track in the country was owned by Railtrack!)

Railtrack is certainly not the only example.
Look at the supply of water in the UK.
Not where I live.
There is the water company, and you pay for the water.
That's it.
The choice is ... pay up, or don't get water.
No competition, no choice, no "freedom".
Prices are set centrally by a State-appointed "water regulator", who allows a water supply company to make a profit in a defined range.
Hmm. Private ownership with State-controlled price control with no price competition at the point of sale, and no option to change to another supplier. And that's supposed to be better than State ownership?
Somehow a "private" monopoly is better that a "State" monopoly?

But surely private ownership saves the State having to pay out subsidies to businesses.
Well, let's look at rail again.
Back in the days of State ownership, a large subsidy was paid to British Rail for operating the nation's trains.
Then their monopoly was broken up.
One company got all the track (Railtrack - and I outlined why that "private" company was a total failure a little above), and lots of other companies compete to run trains on that track.
Got to be good.
Surely the subsidy has disappeared?
Only one railway route in the country actually runs without subsidy - the line from London to Cambridge.
Every other route gets a direct or indirect (the track prices are set at an artificially low rate by "State" regulator to encourage competition amongst the train companies) subsidy.
And all those direct and indirect subsidies add up to more than the old State-owned British Rail got, even allowing for inflation.
So freeing companies from State ownership doesn't always mean lower subsidies either.
As for the cost of using the trains, or the quality of the service provided, just speak to any long-term rail user.
Those who are old enough to remember the old British Rail aren't exactly convinced by the modern, private, system, and those younger think the trains have always been poor quality and expensive!

There are many, many, other examples, of course.
But there is a certain irony in the thought that a "private" Royal Mail" will probably get a subsidy sooner or later, because the case for charging a low price to deliver to outlying parts of the nation is a political one, not an economic one - if Royal Mail had any real freedom, Scottish islands (where the cost of delivering a 60 pence first-class letter is apparently about five pounds each) would get deliveries only once a week, or so, rather than daily.
When Royal Mail had a monopoly on letters, the "easy money" from city-to-city mail, and especially London-to-London mail, used to cross-subsidize the uneconomic parts of the service - like delivering to off-shore islands and outlying farms.
But now, there is competition for "business" mail (technically B2B and B2C mail), that "easy money" is becoming less available, and so if the Government wants to keep the "same price, everywhere, every day" service, sooner or later it is going to have to pay for it with a subsidy.

Moving on from the decision about whether to sell Royal Mail to the decision about when to sell Royal Mail, one can also argue that now is not the best time to sell the Royal Mail, as in a few years time its increasing profits and the business desire for the land it owns would mean it would sell for a LOT more - but of course that wouldn't help the current Government win any elections.
Certainly, Royal Mail has an attractive "land bank" with many depots in town centres, and the "jewel in the crown" of those is the Mount Pleasant site in Central London, which is expected to sell for up to 1 billion pounds alone in a few years, despite the official flotation prospectus claim that the current value of all Royal Mail's land assets are only 787 million pounds.
Royal Mail is also moving to what they see as a more modern way of working - postman outside rural areas mostly delivering in pairs from a small van, with oversized, lockable, mail trolleys for dense urban areas, particularly those with parking issues (!) About 50% of delivery areas are currently using the "new" system, with about 50% still to change over. Each delivery postman's work has to be recalculated, so it is not a quick process, but as each office changes, efficiency saving result. That plan has nothing to do with whether Royal Mail is a "State" or "private" company. In a few years time, Royal Mail would have been more efficient and "modern" anyway, and generating a bigger profit (and for almost all of its 350+ years, Royal Mail HAS generated a profit!).
So privatisation in a few years time would net the Government quite a bit more money - up to 80% more, according to some accounts.
But privatising in 2016 is not going to help the current Government win an election in 2015.
So the timing has been set by political, rather than economic, concerns.

Anyway, what has all this to do with bikes?

I have "put my money where my mouth is" and bid for 1000 pounds (1200 Euros, 1600 Dollars) worth of Royal Mail shares in their flotation.
Current market estimates, as reported in the Financial Times and elsewhere, are that the shares will increase by 20 to 40% on the first day of trading.
If that happens, I will sell up, and net an instant, no-work, gain of between 200 and 400 pounds (240 - 480 Euros, 320 - 640 Dollars).

Enough to buy a basic new bike!

Almost enough (at the top end!) for a nice Gazelle 3-speed with hub brakes and hub dynamo!

Viva unpopular governments and their vote buying schemes!
I'm still going to vote against them, though :-)

So how did it go?
Did I do the right thing?
It went well.
I sold about 2 weeks after the flotation, and my net profit (after broker's charges, etc.) was a touch of 50% - in other words I made £500 profit.
In the end, I bought a BTwin Hoprider 300 from Decathlon, and very nice it is too!

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