TNT Post reported to be challenging Royal Mail privatisation

Media reports over the weekend have suggested that TNT Post UK– the UK subsidiary of the Netherlands mail office, Post NL – is considering taking legal action against Royal Mail over what it perceives to be a discriminatory tax status.

The CEO of TNT Post UK, Nick Wells is quoted in the British newspaper, the Sunday Telegraph as saying that “the Government hasn’t expressed, or HMRC (Her Majesties Revenue and Customs) has not expressed, any desire or interest to change their position, which has left us with no option but to challenge this through the courts…. having a privatised Royal Mail with a 20% VAT (Value Added Tax) advantage is simply not fair”.

Essentially, TNT Post is objecting to the exemption from VAT that the Royal Mail receives for its services. The logic to the exemption is due to the traditional requirement for Royal Mail to provide a ‘universal service obligation’ (USO) to deliver mail across the whole of Britain at a standardised price. However, TNT Post is demanding that this is restricted to the remaining USO operations and withdrawn from the other aspects of the mail business once Royal Mail is privatised.

With UK VAT levied at 20%, its removal would have substantial effects on the profitability of any new Royal Mail Group. Both the government and the Royal Mail’s management reject the need to remove the VAT exemption, something which would also require negotiations with the European Union.

TNT Post’s threatened legal action highlights the sort of issues that will continue to arise as national mail monopolies struggle to adapt to the changing market. These, usually very large, organisations often have privileged access to markets and resources giving them a potential advantage over private sector competitors. The UK market has a history of being open, with the government encouraging competition, so if there are problems with the transfer of the national mail monopoly in the UK things might get very difficult in other economies.