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Last Updated: Thursday, 20 July 2006, 12:09 GMT 13:09 UK
Government delays mail share plan
The plan would have seen 165,000 staff receive shares
The government has postponed a decision on whether Royal Mail should be able to give a stake of up to 20% in the firm to its employees, the BBC has learned.

It may be seen as partial victory for communication workers' union, the CWU.

The union has been campaigning against what it sees as a step towards the privatisation of the postal service.

"The DTI feels now would be a disastrous moment to approve the employee share scheme," BBC business editor Robert Peston said.

He said that was because the Royal Mail is at a delicate stage in negotiations with the CWU on a new pay deal.

"It is fearful that if it gave formal support to the share scheme it could precipitate a strike - and industrial action could do substantial damage to Royal Mail as it grapples with the onset of serious competition in its industry," said Mr Peston.

In March it was reported that the plan could see Royal Mail's 165,000 staff given an equal amount of shares, with an estimated value of 6,000 to 7,000.

Announcement later

Alistair Darling, the Trade and Industry Secretary, had originally indicated to the company that he would make a decision on the scheme before the summer recess.

Even this was later than Royal Mail had originally hoped, because Alan Johnson - Mr Darling's predecessor - last year made clear his backing for the plan to give staff a significant stake in the business.

The DTI has decided there will now be no announcement until late November or early December.

Ultimately, it will fall to the prime minister and chancellor to approve or reject the share scheme, because of the significant public finance implications of the proposed transfer of shares.

However, it is understood that Mr Darling is minded to back the desire of Royal Mail's management for each postal worker to participate in an employee share scheme that would give each of them an identical stake in the business.

This stake would be worth 5,000 per head by 2010 if Royal Mail hit its financial targets.

The government has denied that the plan to issue shares amounts to privatisation.

'Shadow' scheme

The delay in approval for the share scheme could have serious ramifications for the company, because it is part of an ambitious plan to refinance it..

Royal Mail has already received agreement in principle from the government for an injection of cash over the coming five years, worth between 2bn and 3bn depending on certain assumptions.

However, it cannot receive any of that until agreement is reached on the share scheme. And that means it cannot start making vital investments in modernising the postal network.

At a time when several competitors are capturing valuable mail business from Royal Mail, this delay in modernisation could be harmful.

Also, in the absence of finalisation of the refinancing of Royal Mail, the trustees of its pension scheme - which suffers from an enormous deficit - are left in the uncomfortable position of being unable to implement proposals to rehabilitate the fund.

Legislation would be required for the share scheme. This will not go through until the 2007/8 session at the earliest, so the shares could not be transferred to employees - or, more precisely, a trust for the benefit of employees - till the end of 2008.

That said, the company would like to operate a so-called "shadow" employee share scheme, prior to the formal transfer of shares.

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