Royal Mail, the 500 year old postal service
It may have only gone public in 2013 but the company has been delivering letters since the reign on Henry VIII
Where would we be without the Post Office?
As the coronavirus rages its way through the UK, Royal Mail’s brave postmen and women are helping us alleviate the boredom of lockdown by making sure we still get our Amazon next day deliveries on time.
This isn’t the first time that Royal Mail has been there for the great British public in a time of crisis.
During the two world wars, the postal service played a vital role in maintaining communications between soldiers, families and commanders. Prior to the D-Day landings, for example, Royal Mail engineers set up 60,000 telephone circuits for use by allied forces.
And, perhaps because it has existed for about 500 years, we tend to see Royal Mail as a part of the UK’s cultural landscape. Gloomy Sundays, smoky towns and Royal Mail’s red pillar-boxes are, as George Orwell wrote in 1941, a part of what makes England distinctive and recognizable.
A brief history of Royal Mail
When he wasn’t chopping off his ex-wives’ heads and starting epoch-defining religious reformations, Henry VIII sometimes liked to read letters from his subjects. Just like us, he got mad when stuff he ordered on the medieval equivalent of eBay took ages to arrive. So he decided to shake things up.
In 1516, he appointed Sir Brian Tuke as Master of the Posts. His job was to build a postal network across Henry’s kingdom. Under the system that Tuke set up, each town had to have three horses ready to take packages or news to the royal court. Busier towns would keep one stable, known as a ‘post,’ purely for this purpose. With that, a new word for ‘mail’ was born.
This early version of the Post Office was used almost exclusively for governmental purposes. When smartphones haven’t been invented, you can’t just WhatsApp someone in Manchester to know if any witches or bouts of the plague have taken root in the city. Henry, and future rulers, had to use the service to figure out what was going on in the areas they controlled.
It wasn’t until 1635 that Charles I opened up the postal service for use by everyone, something that was formalised by the establishment of The General Post Office in 1657 under Oliver Cromwell.
The service would continue to be known as ‘Royal Mail’ because of its regal origins and, over the next couple of centuries, it began to develop some of the distinct features by which we recognise it today.
Workers were forced to wear red uniforms starting in 1784. This was done so they could be recognised if they were slacking off or trying to sell stolen parcels to pawnbrokers. Stamps were introduced in 1840, with the Penny Black being the first one available to the public. The first pillar box, which was green and not red, was set up on Guernsey in 1852.
Some services, like pillar-boxes and stamps, remain. Others, like gun-wielding carriage drivers and underground mail trains, have gone the way of the past.
Corporate breakdown
Although they are often seen as being the same, today the Post Office and Royal Mail are two different companies. The Post Office is still owned by the government but Royal Mail, as you can see from your Freetrade app, is publicly traded.
This split only took place in the last decade but reforms to the mail service had been taking place since 1969. In that year, the General Post Office, as it had been known since 1660, was renamed the Post Office — very imaginative, we know.
More importantly, the service started to be run as a government-owned corporation. Previously, the General Post Office was a government ministry, with a Postmaster General at its head.
Making the organisation into a corporation meant the Post Office would be run more like a company, with a chief executive officer and chairman at the top of the food chain.
Incidentally, the last Postmaster General, a man named John Stonehouse, was a serial fraudster who faked his own death on a Miami beach and also acted as a spy for communist Czechoslovakia. But that’s definitely a story for another Weekend Read.
To privatise or not to privatise
Changes to the structure of the Post Office continued after 1969. Many of these were designed to make it act more like an independent company than a government body. As this happened, calls for privatisation began in the early 1990s.
The Labour government that ruled between 1997–2010 got the ball rolling on this front by making several reforms that set the organisation on the path to private ownership.
In 2006, regulations were changed that allowed other mail delivery companies to operate in some parts of the mail delivery business. Though it was still the only company doing the delivering part of the mailing process, this ended a centuries-old monopoly on the postal business in the UK for Royal Mail.
Two years later, Labour commissioned a report that suggested selling off part of Royal Mail to investors but keeping some of it in government hands.
In 2010, the new Conservative government updated this report and made the decision to privatise Royal Mail.
Selling the stocks
The government eventually passed the Postal Services Act in 2011. This separated Royal Mail and the Post Office and led to the former being traded on the London Stock Exchange.
If you are wondering what the distinction between the two is, Royal Mail is responsible for sorting and delivering post. The Post Office simply acts as a collection point for it.
The government’s decision to privatise Royal Mail remains controversial today. This is largely due to the way in which the sale of shares in the company was handled.
In October 2013, Royal Mail started trading at £3.30 per share but this rose, on the first day of trading, to a high of £4.60. In the months that followed, the shares rose by 83 per cent against their initial trading price.
For more conspiratorially-minded people, this was due to the Conservative government drastically undervaluing the company so that its friends in the investment world could buy the shares for a bargain and sell them for a massive profit.
It’s not clear how fair a criticism this is. Royal Mail’s shares have been trading at less than their initial price since November of 2018, so any long-term investors may have even lost money in the postal service.
It also wasn’t just big companies that invested in Royal Mail. Approximately 700,000 people applied to get shares at the initial price — and anyone that asked to buy more than £10,000-worth didn’t get any.
On the other hand, hedge funds and other investors that trade on a short-term basis could indeed have made a lot of money from any holdings in Royal Mail. The postal company has also paid out large sums of cash in the form of dividend payments since going public in 2013.
What now?
Like almost every business in the world, Royal Mail is not going to remain immune from the impact of Covid-19.
The company has benefited slightly from the virus because people are buying more stuff online.
But its other businesses have suffered. The number of parcels and letters that companies receive and send has declined substantially as offices have closed and people have been forced to stay at home.
Royal Mail also delivers advertisements for companies and deals with international mail. The amount of cash now flowing in from these two lines of business has dropped off dramatically because of coronavirus.
At the end of March, Royal Mail even said that it would be pushing forward a plan that would have seen it make significant changes to its business operations by 2024.
Still, the virus isn’t likely to mean the company comes to an end. After all, people are still using the service — unlike some companies which are completely out of action.
So it’s unlikely we’ll see red pillar-boxes disappearing from our streets soon. After all, how would we live without them?
This post was originally one of Freetrade’s Weekend Reads. Sign up here and you’ll get a fresh one delivered to your inbox every Saturday morning. They go well with coffee and OJ. ☕
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