Ministers back Consignia restructuring plan

Allan Leighton, the interim chairman of Consignia, has received backing from ministers for the first stage of his radical restructuring plan as a condition of taking the job on a permanent basis.

Publicly, the Department of Trade and Industry has maintained that the financial crisis facing the Post Office group is a matter for its independent management team to resolve.

However, the redundancies due to be announced today – of up to 15,000 – will require an estimated Pounds 400m from Consignia’s Pounds 2bn reserves to pay for generous severance packages.

As the company’s sole shareholder, the government must give its explicit consent to release the money from the Treasury and is certain to have been consulted about the wider restructuring.

So far, the political costs are likely to be manageable. Union leaders appear satisfied with assurances that none of the Parcelforce job losses will involve compulsory redundancies.

Another part of today’s announcement is a transport review expected to hit the rail industry by switching more of the Royal Mail’s freight traffic to road. At a time when the rail freight industry is reeling from problems with the Channel tunnel and Railtrack, one arm of the government will appear to be adding to the crisis.

More political embarrassment could follow when Consignia reveals its plans for the rest of the Royal Mail group after Easter.

Today’s announcements on Parcelforce and the transport review go only part of the way toward management targets of cutting annual operating costs by Pounds 1.2bn.

Many fear the remaining cost savings will require even bigger job cuts within the Royal Mail, which accounts for the vast majority of Consignia’s 220,000 staff and Pounds 8.1bn operating costs.

Tellingly, Consignia has so far refused to withdraw its earlier suggestion that meeting the Pounds 1.2bn cost savings may require up to 30,000 job cuts.

Few independent observers believe cutbacks on this scale can be achieved without confrontation with the unions.

Nevertheless, it is important for management credibility that ministers appear to back this first stage of Consignia’s restructuring, especially after they were undermined by the surprisingly-tough approach adopted by PostComm, the independent regulator, over competition.

Patricia Hewitt, the minister with ultimate responsibility, has made no secret of her dissatisfaction with previous management teams at Consignia and Mr Leighton is understood to have driven a hard bargain when negotiating his terms of employment.