Royal Mail faces call to change

The review is likely to suggest radical change for the Royal Mail

A government-commissioned review of the Royal Mail is expected to say it must be radically reorganised to avoid financial disaster.

It is likely to suggest a partial privatisation, although the government is set to rule this out.

The review is also expected to show that the Royal Mail's pension fund deficit has ballooned to £7bn.

Meanwhile, up to 2,000 postal workers are to stage a 24-hour strike this week in a row over office closures.

The review by Richard Hooper, a former deputy chairman of the media watchdog Ofcom, is due to be published later this week.

It is expected to recommend modernisation for the service, with potential job losses as a result.

'Commercial pressures'

The government is thought likely to insist that whatever changes are decided upon, there will be a commitment to the "universal service".

The biggest financial headache for Royal Mail is a deficit in its pension fund which is expected to balloon to around £7bn next year Robert Peston, BBC economics editor

This would mean at least one collection from all postboxes and at least one delivery to all addresses in the country on six days a week.

There was also "substantial threat" to the financial stability of the Royal Mail and the universal postal service from issues such as industrial action and its multi-billion pound pension deficit, according to the report.

"We have come to the conclusion, based on evidence submitted so far, that the status quo is not tenable," said the report.

The Royal Mail has been hit by a series of strikes in recent years, as management have closed offices and changed working practices.

The BBC's business editor Robert Peston said the postal service was facing "potentially lethal commercial and financial pressures and it would be highly dangerous to delay a reconstruction of the business to alleviate these pressures".

"The Royal Mail is finding it difficult to cope because it is a great deal less efficient than many of its continental competitors, its profit margins are a fraction of theirs."

"But the biggest financial headache for Royal Mail is a deficit in its pension fund which is expected to balloon to around £7bn next year - the biggest hole in a UK company scheme," he said.

Strike action

Competition from e-mail and the digital delivery of information has wiped £500m from the business's operating profit over the past few years, while the volume of letters Royal Mail delivers was expected to decline at up to 7% a year - before any impact of the economic slowdown.

The unions are concerned that Mr Hooper's proposals, following the year-long review of Royal Mail, will lead to large-scale job losses.

Meanwhile the Communication Workers Union said its members in Liverpool, Coventry, Stockport, Oldham, Oxford, Crewe and Bolton would walk out on 19 December - the day before the last Christmas posting day for first-class letters.

The union warned of a "devastating" impact on local economies, because of planned closures of mail offices in those areas, and raised fears of job losses.

The union said it had "no alternative" to industrial action, claiming that managers were attempting to move work out of some of the offices listed for closure before Christmas.