EU close to decision on Royal Mail state aid probe
The European Commission is reported to be close to a decision on whether to investigate the competition implications of the UK government taking over Royal Mail’s pension liabilities. According to weekend reports, Brussels does want to examine in more detail the plan for the state to take on the £8.4bn pension deficit and relieve Royal Mail of a £1bn loan ahead of an expected privatisation.
But although the Commission has said it will make a decision shortly, it has not confirmed whether a full investigation will be launched.
If the Commission does come to the conclusion that the UK government’s state aid for Royal Mail gives the group an unfair advantage over rivals, it could demand the sale of certain Royal Mail assets to compensate.
Banks bailed out by the UK government, including Lloyds and the Royal Bank of Scotland, were similarly required to sell operations to comply with EU competition laws. However, the long-term decline of the postal industry may work in Royal Mail’s favour in persuading the Commission that its situation is different.
Following this summer’s passage of the Postal Services Act, the UK government filed its application for European Commission approval for the pension takeover last month. The application made an express plea for Royal Mail to keep its profitable Dutch-based European parcel service, General Logistics Systems (GLS), in the event that assets need to be sold.
The Sunday Times stated at the weekend that Commission officials believe an investigation of Royal Mail could be completed by March 2012, when the UK government plans to begin preparations to privatise Royal Mail.
Royal Mail has declined to comment on the state aid issue.
Currently, the pension deficit costs Royal Mail around $300m a year to service.
The UK government wants to take over the historic pensions of Royal Mail members. New pensions would continue to be the responsibility of Royal Mail or its future owners.
In a statement, the UK government explained: “The Government is seeking State Aid approval from the European Commission for its plans to take on the historic pension liabilities. Subject to this process, the Government intends to implement these proposals with effect from March 2012.”
