UK Royal Mail rescue delayed by doubts over employee share plan

The pounds 3bn government bailout of Royal Mail has been delayed until at least the autumn because ministers cannot decide whether to proceed with a sale of shares in the organisation to its 195,000 employees.

Allan Leighton, the chairman of Royal Mail, had hoped to gain approval before Parliament rises for the summer recess next week for a scheme to hand 20 per cent of the company to its workforce. This would result in an award of free shares worth GB pounds 5,000 for each employee.

Despite support in principle for the idea at ministerial level, the Government has put off a decision until towards the end of the year. Without approval for the employee share scheme, the other elements of the Royal Mail refinancing announced in May by the Trade and Industry Secretary Alistair Darling cannot proceed either.

The bailout is designed to reduce the Royal Mail’s pension deficit, help fund the loss-making rural post office network and modernise the letters business.

Under the proposals pounds 850m of Royal Mail reserves would be used to help cut the pounds 5.6bn pension deficit, pounds 1.3bn of government support would go into the post office branch network and a pounds 900m credit facility would be made available to fund investment in sorting offices.

Giving evidence this week to the Trade and Industry Select Committee, the Postal Services minister Jim Fitzpatrick appeared to give his support to the employee share handout. He said the proposal was being given close examination and rejected union claims that it would amount to the back-door privatisation of Royal Mail.

But the DTI confirmed yesterday no decision would be taken until Parliament returns after the summer break. “Everyone agrees that an appropriate employee incentive scheme is required but it is a question of what form that takes,” a spokeswoman said.

A spokeswoman for Royal Mail said: “Absolutely nothing has changed in the last 48 hours. We continue to talk to our shareholders about the investment case – which has been agreed in principle – and an integral part of that case is an employee share scheme.”

One of the potential complications is that primary legislation would be required before the share scheme could be introduced. Delaying a decision until the autumn will give the Government time to decide whether there will be sufficient room in the legislative programme for the necessary Bill.

Royal Mail currently operates aprofit share scheme for its workforce. Last year staff received pounds 418 each at a total cost of pounds 100m. But an employee share scheme would go much further, enabling employees to receive dividends and trade their shares internally. The shares would be held in a trust so that no outside investor could buy them.

Tim Yeo, a former Conservative minister, has proposed a more radical alternative whereby the Government gives away the whole of Royal Mail. A quarter would go to the workforce, a quarter to the pension fund and a quarter to support the rural network. The remaining quarter would be sold to the public to raise money for investment in the organisation.

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