Year: 2005

Adam Crozier, chief executive of Royal Mail, last nightscotched reports that the Government had agreed to hand over pounds 2 billion to plug a pounds 4 billion pension black hole. “Absolutely not,” Mr Crozier said. “There is some confusion out there. It is not for the Government to finance the business but for the regulator Postcomm to ensure that the business can fund its activities and that is quite a difficult task.” A spokesman for the Department of Trade and Industry said that no decision had yet been taken about whether to give any money to plug the pension deficit.

The British government has agreed to inject 2 bln stg into Royal Mail, securing the future of the monopoly operator of the country’s household postal delivery service, the Financial Mail on Sunday reported. The paper, citing an unnamed company source, said finance minister Gordon Brown had approved a deal to subscribe for new shares in Royal Mail. The funds will be used partly to plug a 4.5 bln stg pension fund deficit. Stamp prices will also be raised in order to help pay for an extra 2 bln stg of investment in new equipment.

A minister has moved to allay Labour MPs’ fears that the government might stage a back-door privatisation of Royal Mail, telling them it will not renege on a manifesto pledge to keep the postal operator in public hands. Opposition to any change in ownership has grown. Nick Brown, a former cabinet minister and an ex-party whip, added his name to a Commons motion on the issue yesterday, taking the number of Labour signatories to 185, more than half the parliamentary party.
In a briefing note to backbenchers Alan Johnson, trade and industry secretary, moved to ease their concerns, saying the government, the sole shareholder, had an open mind on a proposal to set up a share trust for Royal Mail workers “as long as it would be compatible with our manifesto commitments”. Mr Johnson’s note argued that an employee share scheme, an idea that is opposed by the Communication Workers Union, was “one option . . which could help give workers a stake in the company that they worked for”. He added: “We are not committed to this scheme, and there are other alternative ways to increase employee involvement.”

Royal Mail chairman Allan Leighton warned yesterday that the company could face bankruptcy without a solution to the mounting problems at its pension fund, one of the largest in the UK. The fund is already pounds 4.25bn in deficit but that could rise to about pounds 6bn under new calculations to cover the costs of people living longer, the company said yesterday. It could face an even bigger drain on its cash resources under proposals which would give companies less time to get their schemes back into the black. This year Royal Mail expects to pay about pounds 450m into its pension fund but it calculates that on a worst-case basis it could subsequently need to pump in almost pounds 1bn a year – which it says is well above the amount of cash it could be expected to generate. “We are dealing with a legacy from the past. If we could wipe that clear we could get on with running a profitable company. We are generating pounds 500m cash a year and may have to put twice that into the pension fund,” Mr Leighton said. Asked if the problem could push Royal Mail into bankruptcy he said “Of course it could; if you run out of cash you’re dead.”