Sell-off of Royal Mail 'doomed'

A plan by regulator Postcomm to partly privatise Royal Mail will fail because of the company’s huge and growing pension deficit, according to a leading independent consultant.

John Ralfe said Royal Mail was technically insolvent with a GBP 3bn pension hole. ‘No trade or equity investor would even consider taking a stake unless Royal Mail could be shorn of its pensions,’ he said in a research note for RBC Capital Markets.

Ralfe said that even if the Government, Royal Mail’s owner, could be persuaded to run the pension scheme, it would be illegal because it would be a clear breach of the EU Treaty that bans anti-competitive state aid.

Postcomm’s suggestion that Britain should follow the lead of the Danish and Swedish postal services in allowing partial privatisation was not valid because neither had to cope with such huge pension liabilities.

The Postcomm plan has run into further opposition, with the Communication Workers Union, the main postal workers’ union, suggesting that the proposals overstepped the regulator’s remit.

And the Government would face opposition from its own MPs with close links to the CWU. Royal Mail announced last week that it made a GBP 279m loss in the year to March. And the company has two new and emerging problems.

First, mail volumes are starting to decline. And second, Royal Mail has been forced to open up its business post services to competition.