Post Office Ltd cleared for £1.2bn subsidy package
The European Commission has given the green light to the UK’s Post Office Ltd to use £1.155bn ($1.84bn USD) in State Aid to modernise its postal retail network. The EU’s executive branch said that in its opinion, the grant from the UK government did not breach European state aid rules since it was not giving Post Office Ltd any more than the costs of running its public service mission.
The grant is being provided to the network to subsidise loss-making operations from next month until the end of March 2015.
The Commission also allowed the continuing £1.15bn line of government credit currently enjoyed by Post Office Ltd in supporting its public service obligations, under “stricter conditions”.
Having reviewed the borrowing because of a change of its terms and conditions, the Commission said it was being provided on “market terms”, so did not classify as state aid.
Joaquín Almunia, the Commission’s vice president for competition policy, said today: “The network subsidy will enable the UK post office network to continue performing its fundamental social and economic role by delivering essential public services to UK citizens in remote and rural areas without unduly distorting competition.”
Modernisation
Post Office Ltd is currently part of the Royal Mail Group, but is being split from the Group as Royal Mail prepares for privatisation. The network of around 11,500 post offices, is expected to become some kind of mutualised or employee-owned organisation once it becomes independent under current government plans.
The Commission said the arrangements for state support for Post Office Ltd did appear to incentivise the network to provide efficient public services, in line with the company’s 2012-15 modernisation plan.
It said part of the network, particularly rural post offices, would not be “commercially viable” without being maintained as a public service.
The Commission gave the green light last week for the UK government to provide state aid to Royal Mail in the form of taking over its legacy pension liabilities.
