UK govt should extend Royal Mail dividend exemption to help pension fund deficit

The government should extend Royal Mail’s exemption from dividend payments to help ease its pension deficit and allow it to invest in its network, a committee of MPs said.

In a report, the all-party Trade and Industry committee accepted that postage prices would have to rise to help bridge the 4 bln stg deficit in the fund.

Earlier this month Royal Mail was given the go-ahead by industry regulator Postcomm to raise the price of a first-class stamp to 36p to help fund the shortfall.

This will provide an extra 320 mln stg a year and help to pay off the difference over anything from eight to 17 years, depending on equity market performance.

However, the committee warned that the government should take its share of the blame for taking 2.3 bln stg in dividends from the business between 1984 and 1999, depriving it of investment capital.

‘We recommend that the government extends the current period of nil-dividend, not only to ease Royal Mail’s pensions deficit…but to enable Royal Mail also to invest in its network,’ the committee said.

The MPs were also critical of Postcomm’s ‘untimely’ decision to move to a fully liberalised market on Jan 1, 2006 given the pension and investment difficulties it faces.

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