Yeo backs UK Royal Mail’s ownership plans

One of the Tory leadership contenders has backed the Royal Mail’s proposals to give its employees a stake in the group’s ownership.

The move by Tim Yeo, breaking ranks with official Conservative policy, comes days before a government-commissioned review into the state-owned postal operator’s future.

Gordon Brown, chancellor, and Alan Johnson, trade and industry secretary, are still finalising the terms of reference for the review, which will consider the Royal Mail’s future once the postal services market is opened fully to competition on January 1. The debate between the chancellor, Downing Street and the Department of Trade and Industry concerns the freedom that should be given to the senior business figure who will head the review to recommend ownership changes.

The government will not contemplate a conventional sale of shares to the stock market – Mr Johnson told the Financial Times in May he would “rule out privatisation, full stop” – but is still considering the Royal Mail’s proposals to give a stake of 20 per cent or more to its staff. The postal operator also hopes to persuade ministers to agree the state should take on its historic pension liabilities.

Labour is likely to need Tory support to secure the parliamentary approval it would require to change the Royal Mail’s ownership. More than 60 Labour MPs have signed a motion urging the government to ensure it continues to own all the Royal Mail’s shares, suggesting Labour’s 67 majority in the Commons could be squeezed if it tried to dilute that 100 per cent holding.

The Tories’ stance is equivocal. David Willetts, shadow trade and industry secretary, told the FT in May he was sceptical about giving a majority stake in the Royal Mail to its staff, saying it could leave the company in a governance “limbo”.

Mr Yeo has challenged this policy. In a letter to Mr Johnson, he advocates a plan to take the Royal Mail out of state ownership by giving one-third of its shares to staff, using one-third to provide a capital injection to the pension fund and and the remaining third to support vulnerable sub-post offices. The Conservatives came close to supporting this plan in 2003, when Mr Yeo was shadow trade and industry secretary, he said. It was abandoned when Iain Duncan Smith stepped down as leader and Mr Yeo moved to a different job.

He told the FT yesterday he hoped his colleagues could be persuaded to look again at the idea. “The Royal Mail is a business which is absolutely ripe for an experiment in popular capitalism,” Mr Yeo said.