Royal Mail close to GBP 3bn funding deal

A multi-billion-pound funding package for the cash-strapped Royal Mail is likely to be paid out next month – eight months after it was agreed with ministers. The trigger for the payment of the GBP3bn deal has been the agreement in principle of a share plan for employees of Royal Mail. The new plan is a compromise between the Royal Mail’s plan for actual shares to be given to staff and a more straightforward profit-sharing scheme advocated by the Communication Workers’ Union (CWU).
Under the deal, Royal Mail workers are likely to be issued with “phantom shares” which will track the value of the business and allow staff to share in its value. The hope is that approximately 200,000 Royal Mail workers could be left with phantom shares worth GBP5,000 after five years.
The compromise emerged after months of negotiations between Allan Leighton, Royal Mail’s chairman, and Alastair Darling, the DTI Secretary. Sources close to the talks insisted that no deal was agreed. One said: “There is a lot still to do to agree, but it is a way forward.” Other sources said that Royal Mail would be happy with a deal which gives staff about GBP5,000 worth of shares in the company.
One said Royal Mail wanted some sort of equity structure to give staff a pride in their workplace, like at John Lewis, the high street retailer. With this apparently agreed, there is nothing to stop the Government funds being released to Royal Mail as soon as next month, sources said.
Royal Mail had wanted the Government to agree to give a fifth of its shares to its employees.
However, a straight share transfer was strongly opposed by the postal workers union, the CWU, and Left-wing Labour MPs who feared it might be a back-door privatisation of the business.
Whitehall sources said that the share scheme was a step too far for ministers because it would have broken a Labour manifesto commitment.
The scheme would also have needed Parliamentary approval which would have given Labour whips the challenging task of piloting the legislation on to the statute book against possible opposition from members of their own party.
Royal Mail said it was still speaking to its only shareholder – the Government – about the share scheme. A spokesman added: “No decision has been taken on the share purchase and funding.”
A DTI spokesman said: “We are still in discussions about the best way to incentivise staff.
“But we agree that employees of the Royal Mail need appropriate incentives to achieve the transformation that Royal Mail needs.”
The postal service, which has a deficit of GBP5.5bn in its pension scheme, will plough the money into its pension fund, as well as modernising sorting equipment.