Record profits for UK Royal Mail

ROYAL Mail will unveil record profits of nearly £600m – £1.6m a day – this week, triggering an incentive scheme that will give its 180,000 employees a minimum bonus of £400 each. At the same time, the Government is expected to give its support in principle to a radical restructuring plan that would give workers shares in the business and about £1.3bn to inject in the pension scheme.

Royal Mail is putting nearly £700m into the scheme, but with the deficit ballooning to more than £4.5 billion, urgent action is required to save the company. Royal Mail will continue to make large contributions to the pension fund.

A cash injection will cap the deficit and allow Royal Mail to invest about £700m in new automatic sorting machines.

The capital expenditure is vital if Royal Mail is to survive an onslaught of competition now that the industry is open to rivals.

Last year, Royal Mail’s profits were £537m. This year, helped by stamp price increases, profits are expected to go up by ten per cent and it will be able to report that all its businesses are now in profit.

Financial Mail understands that a deal on the restructuring had virtually been agreed between the Treasury and Alan Johnson when he was Trade and Industry Secretary. But the Cabinet reshuffle has meant that the DTI has a new boss, Alistair Darling, who will need time to look into the scheme.

So, instead of a bald announcement that there is now a deal on restructuring, the Government is expected to give its agreement in principle with a promise that details will be worked out over the next few weeks.

Even a decision in principle will give Darling a severe political headache. About 211 Labour MPs have signed an Early Day Motion opposing any change in ownership of Royal Mail. And any change in ownership would require new laws.

Inevitably, there are doubts that the Government, which is slumping in the polls, has the political courage to take on a large section of the party.

The main Royal Mail union, the Communication Workers Union, is opposed to management’s plans. Still smarting from an imposed 2.9% pay deal, it is considering halting its funding for Labour over the issue. It gives about £500,000 to the party. The Government and Royal Mail insist that the share scheme is not the first step in a privatisation process.

It is understood that about 20% of the value of the company will be placed into a trust for workers and they will be allowed to sell the shares to the trust after owning them for three or four years.