Minister rules out aid to UK Royal Mail to clear Pounds 4bn pensions deficit

Any “bail-out” of Royal Mail’s Pounds 4bn pension fund deficit by taxpayers was yesterday ruled out by the government in the first clear statement of its plans for the state-owned postal operator in the run-up to full market competition next year.

But the minister responsible for Royal Mail held out the prospect there could be extra government money to help pay for new equipment.

MPs were told by Barry Gardiner, competitiveness minister, the government might breach European state aid laws if it agreed to the company’s request to put billions of pounds into the pension fund. “We should not be seen as the bailer-out, the funder of last resort,” he said. Asked if the government should be prepared to make at least some contribution to reducing the deficit, which has rendered Royal Mail technically insolvent, the minister said: “No. This should be done (dealing with the deficit) as it would be commercially.”

But Mr Gardiner softened the blow for Royal Mail by making it clear the government was prepared to open its cheque book if the price controls being finalised this month left the company strapped for cash. Royal Mail has argued postal prices need to be significantly increased to fund Pounds 2bn of modernisation, as well as the pensions deficit, under price controls for 2006-10 being set this month by Postcomm, its regulator.

Mr Gardiner did not commit to meeting this Pounds 2bn demand. But he told the trade and industry select committee: “I guarantee that once the price controls are in place, we will be in a position to look at what is provided for by that (pricing) regime and . . . we will then work with the company to look at what further commercial investment from government may be required.”

Any such investment would have to earn the government, as shareholder, a reasonable rate of return.

He warned it was “absolutely crucial” the new price control did not assume the government, as sole shareholder, was willing to continue its policy of taking no dividends from Royal Mail.

Despite Mr Gardiner’s suggestion of a potential government loan to Royal Mail if the price controls did not allow it sufficient profits to fund the work itself, the minister refused to intervene directly in the bitter dispute over those controls. “It is not the government’s role to second guess the regulator.”

The MPs questioned where this policy of handing matters over to the regulator left Sir George Bain, who is advising the government on Royal Mail’s future. “The Bain review is going on – what is it for?” asked Peter Luff, Tory committee chairman. Mr Gardiner said Sir George’s role was to “make sure the lines of communication are clear between all the parties”. There would be no Bain report as such, the minister said.