`No decision' on Royal Mail shares plan
The Government today maintained it had not made any decision on whether to back a Royal Mail plan to issue shares to its workers.
The idea, strongly supported by Royal Mail chairman Allan Leighton, has alarmed the Communication Workers Union, which believes it would be a first step to privatising the postal service.
New Trade and Industry Secretary Alistair Darling said today he would not be rushed into making any decision on whether to support the move.
He said: “I have taken no decision at all. I am only 10 days into this job and I will not be rushed into any decision.”
Mr Darling said he will be meeting Mr Leighton soon to discuss the shares issue.
He also insisted that his predecessor, Allan Johnson, had also not made any decision on whether the Government would back the proposal.
The Royal Mail is seeking money from the Government to invest in automation, help keep post offices open and deal with a huge deficit in its pension fund.
The union will be holding its annual conference next week amid warnings of industrial action over pay.
Royal Mail gets closer to Pounds 2bn red letter day POSTAL OPERATOR
Financial Times UK, London Ed1, Sec. NATIONAL NEWS, p 3 05-15-2006
By JOHN WILLMAN
It has been a long time coming, but Allan Leighton, the chairman of Royal Mail, is hoping for good news from the government when the group unveils its results on Thursday.
Ministers are expected to give the go-ahead in principle for public investment to put the former monopoly on a firmer financial foundation in the newly liberalised postal market.
Mr Leighton might have to wait for some time longer, however, for a response to his proposal to give Royal Mail staff 20 per cent of the shares in the group.
Alistair Darling, the trade secretary, said last week: "I've made no decision on whether or not employee shares are the right thing to do."
Mr Darling is pleased with what Mr Leighton and his team have achieved so far. Royal Mail had been "through a very difficult time" and "the government will help the company in whatever way is proper".
Mr Leighton's three-year renewal plan turned a pre-tax loss of Pounds 1.1bn in 2002 into a profit of Pounds 207m in 2004-05. Royal Mail has also made good progress in hitting its 15 service targets, which require it, for example, to deliver 93 per cent of first-class mail within a day.
Staff numbers have fallen by more than 30,000, but their pay has been raised almost 25 per cent, and further increases are promised from a new productivity deal agreed with the union. The success of the renewal plan triggered a bonus payment of Pounds 1,074 to staff last year, at a cost of Pounds 218m.
This progress has been helped by raising stamp prices and ending the second delivery. But the ending of Royal Mail's monopoly in January means the state-owned group cannot rest on its laurels, as competitors such as TNT Post and Business Post move into the letters market.
Top of its shopping list is an ambitious Pounds 2bn investment plan for further modernisation of the business. Manual sorting by the delivery staff is still the norm, for example, unlike in other European countries where privatised postal operators have much higher levels of automation.
More threatening financially is the group's pension fund deficit, which was more than Pounds 4.5bn on the FRS17 accounting standard at the last valuation in 2003. Rises in the value of the scheme's investments since then have reduced the shortfall, but it still leaves the group with negative net assets of more than Pounds 2bn.
This year's triennial revaluation is expected to raise the deficit again as longevity continues to increase. Royal Mail has been paying more than Pounds 400m a year into the schemes, including Pounds 138m in 2004-05 to reduce the shortfall. But a higher deficit and pressure from the pensions regulator to eliminate it in a reasonable time mean another Pounds 300m or so a year will have to be found.
Royal Mail wants the government to put Pounds 2bn into the business. Rivals say this would be state aid, and that rises in stamp prices agreed by Postcomm, the regulator, for the next five years provide more than enough.
Mr Leighton is likely to get the green light this week after investment bankers for both sides have pored over the business case. His plan to give 20 per cent of shares to staff through an employee trust, however, is unlikely to be approved.
The Royal Mail chairman regards giving employees a stake in the business as essential to win their co-operation for further restructuring, which could see reductions of up to 40,000 in the 165,000 postal workforce.
The move is opposed by the main postal union, which is holding a consultative ballot whose result will be announced next week at its annual conference in Bournemouth.
More than 200 Labour backbenchers have signed a Commons motion opposing what the union says is an attempt to privatise Royal Mail. Mr Leighton might need patience if he wants backing for his share scheme.
