Royal Mail needs cutbacks to fill £7bn pensions hole – report

Royal Mail is facing a pension deficit of £7bn and needs to implement sweeping efficiencies, a report to the business secretary, Lord Mandelson, and the Post Office minister, Pat MacFadden, will say.

A review of postal services conducted by Richard Hooper, former deputy chairman of the regulator Ofcom, will reveal a deficit so large that ministers are likely to argue outright privatisation is impossible.

The government is unlikely to want to take on the full cost of the liabilities, which reached £3.4bn in 2006, and are expected to have more than doubled by the time the next evaluation is made next year. As a result, Royal Mail is having to use more and more of its profits to plug the pension fund hole.

Lord Mandelson is expected to publish the report this week, although the government may be reluctant to reveal a review that is likely to lead to job losses when bad unemployment figures are expected on Wednesday.

Labour has a manifesto commitment to maintain Royal Mail in the public sector and to the universal postal service.

The review, commissioned last year, will focus on the loss-making regulated mail services and the threat posed by the digital revolution. Hooper has already warned: “Email, the internet and text messaging are all substitutes for the advertising, publications, social and transactional mail which have long been at the core of the postal business.”

The report is expected to forecast a fall in letter volumes of more than 3% a year and say doubt surrounds “the scale and shape of the Royal Mail’s national network of mail centres, distribution centres and delivery offices”.

Postcomm, the independent regulator, has advocated partnerships with the private sector, as seen in other European countries.

In a briefing to MPs last week, the Communication Workers Union general secretary, Billy Hayes, said the government had to take on responsibility for the pension fund deficit, giving Royal Mail about an extra £280m in capital a year.

He said it was not clear Royal Mail was in long-term structural decline: “We know that some categories of mail – parcels, packets, and business to customer mail generally – have a very healthy future. Certainly the internet is prompting new uses of these categories of mail.”

Yesterday, former Conservative prime minister Sir John Major predicted an avalanche of job losses in the first four months of next year, adding that Britain was in its most serious economic crisis since the second world war and Gordon Brown had presided over a “train wreck”.

Sir John, who took Britain through its last recession, also backed David Cameron’s opposition to a fiscal stimulus, dismissing the reduction in VAT: “You might as well have burnt the money and thrown it away, frankly. I don’t think it’ll do anything that is credible at all.”

Patrick Wintour
Monday 15 December 2008

Source: The Guardian

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