UK Royal Mail sell-off wins DTI backing

A controversial plan to privatise Royal Mail has won crucial backing from new Trade & Industry Secretary Alan Johnson.

The plan, which echoes the partners concept of the John Lewis stores, was revealed by Financial Mail last December. It will start early next year when Royal Mail will raise Pounds 2.5 billion to give workers a 51 per cent stake in the business and to invest.

A source close to the talks between Royal Mail and the Department of Trade & Industry said: ‘Johnson is very keen on the privatisation idea.’

Senior sources at Royal Mail say private soundings suggest the plan has the support of 85 per cent of staff. This will be crucial when the Communication Workers Union, which opposes privatisation, tries to derail the process.

It is understood that Royal Mail intends to move from an employee-controlled business to full privatisation over three years.

Chairman Allan Leighton, who is masterminding the privatisation, is confident the business will increase profits to about Pounds 600 million in the current year. Forecast growth of up to ten per cent a year after that will be ploughed back to fund modernisation.

And as the business becomes more automated, natural wastage, which sees about 9,000 a year leave Royal Mail, will reduce overall numbers and make the business more competitive.

From next year, Royal Mail will face unfettered competition as the market is opened up. The fear is that huge privatised overseas postal services will try to grab chunks of its most lucrative operation business post.

A report by Royal Mail into its finances over the next five years is in the hands of the DTI. It is believed to have been accepted by civil servants who see no alternative to privatisation if the state-owned utility is to compete in an open market.

The DTI’s own report on the future of the Royal Mail is expected to give the go-ahead to Leighton’s plans.

To bolster the balance sheet before privatisation, Royal Mail hopes the Government will take over its Pounds 2.5 billion pension fund liability.

Leighton then hopes to gear up the business and has identified GLS, its European parcels business, as a candidate for a sell-off. That could raise up to Pounds 1.5 billion.

Leighton expects to be able to hand Gordon Brown a windfall of about Pounds 2.5 billion when his plans are complete.

Labour’s manifesto promise that there were ‘no plans to privatise’ Royal Mail is not expected to be a barrier to Leighton’s proposals.

These have been boosted by the positive response of workers to their recent Pounds 1,074-ahead bonus after Royal Mail’s Pounds 530 million profits.

Leighton received more than 1,500 emails from grateful employees. The option to offer even larger rewards to staff is key to his privatisation scheme.