Corporate cherry-picking isn't delivering the goods

As New Labour heads for humiliation in the Crewe byelection today, those who want to find a way out of the wreckage need to face up to the lessons of its ideological bankruptcy fast. For more than a decade, Tony Blair and, puffing slightly to keep up, Gordon Brown have always insisted that the only test for their policies is "what works". That has been the theme tune of their ever more enthusiastic embrace of public service privatisation and commercialisation. Not for them the pickled nostrums of the past: if the corporate world could deliver the goods, it had to be given the freest of reins.

The farce of their claims couldn't have been more clearly demonstrated than in the liberalisation and creeping privatisation of Britain's postal service. Far from "working" or delivering the goods, the corporate-skewed opening up of the market is progressively destroying a publicly owned network at the heart of Britain's social and business life. When New Labour came to power, the Post Office was an effective public monopoly handing over more than £100m profit a year to the public purse. Public and political support saw off successive attempts by the Tories and, more tentatively, Tony Blair to privatise what had become Royal Mail.

But eight years after New Labour began exposing the network to private competition and two years after Royal Mail's 350-year-old monopoly was finally abandoned, the postal service is in crisis and the universal service which guarantees delivery of mail anywhere in the country at a single price is in peril. A devastating independent review for the government this month found that liberalisation had only benefited big business, brought "no significant benefits" to consumers or small businesses, and created a "substantial threat" both to the future of Royal Mail and the universal service.

Of course, few people needed to be told that the service was deteriorating, when the last five years have seen an end to Sunday collections and fewer and later daily deliveries. But the response of the postal regulator Postcomm, whose ideological passion for markets and unchained competition has been central to this sorry saga, was to demand an intensification of the private treatment: far from stepping back, it last week insisted that part-privatisation of Royal Mail was the only way to prevent a further decline in the service, including an end to Saturday deliveries.

Naturally, Royal Mail's executives like the idea, from which they would stand to benefit richly. But it's hard to see how it would help protect the unprofitable parts of the universal service or the threatened network of post offices on which it depends. What has really tipped Royal Mail over the edge are Postcomm's rigged rules for access to Royal Mail deliveries, which have levered corporate operators into the most profitable parts of the business - they now handle 40% of the profitable bulk mail which previously underwrote remote deliveries - and turned an operating profit of £233m in 2006-7 into a £279m loss this year.

Of course, the growth of the internet and years of under-investment in mechanisation have also had an impact - though online transactions also generate mail. But it is this deliberately engineered leaching off the public sector which has been the decisive factor in delivering a worse service to most users and lower pay and conditions to those employed by the corporate cherry-pickers. Meanwhile the government's continued drive to close thousands of unprofitable post offices, shutting off social lifelines for some of the country's most vulnerable people, has directly fuelled the public rejection of New Labour which now appears to have passed the point of no return.

When one Labour rebel recently challenged Brown about the impact of postal liberalisation, the prime minister blamed the European Union. It's true that EU directives require the opening up of postal and other public services to competition - and those neoliberal catechisms are now locked into the Lisbon treaty, due to face its first popular test in the Irish referendum next month. But Britain, ever more royal than the king, has gone much further, much faster than required to do by Brussels, and has failed to use the protective measures available to keep its "dominant provider" afloat.

Not that there's much hope of either of the other two main parties taking a more sensible approach. David Cameron's Tories may have opposed post office closures, but they have carefully avoided committing themselves even to the current level of government financial support and can be safely relied on to head off further down the privatisation and liberalisation path, while the Liberal Democrats now want to part-privatise Royal Mail to raise cash.

What's needed instead is the debunking of the privatising dogma that has created this crisis, a halt to preferential pricing for private predators, a universal service charge for market entrants, and a broadening of Postcomm's remit. At the same time there is a huge untapped potential to turn local post offices into far more viable hubs by, for example, making them centres of access to public services and reintroducing public banking facilities.

But then the gutting of the postal service isn't the only part of the government's corporate-driven market agenda that isn't working. As Allan Asher, chief executive of Energywatch, told parliament this week, competition in the privatised energy market is a myth, and British gas and electricity consumers are being fleeced by the "tacit collusion" of a "comfortable oligopoly".

There is clearly going to have to be a more far-reaching change of course. Tuesday's compromise agreement between the government, CBI and TUC to give exploited contract and agency workers the same basic rights as permanent staff after 12 weeks is certainly a significant move in the right direction and was greeted with squeals of rage by business lobbyists. But there was also disappointment among Labour MPs and trade unionists: once again, Britain has signed up to less worker protection than most EU states wanted and is now likely to be able to continue opting out of long hours regulation as a result of the deal. It may be too late to avoid defeat, but if Labour is to reverse its haemorrhage of support and lay the ground for a better future, it will have to take more than these faltering steps.

s.milne@guardian.co.uk