Page last updated at 16:27 GMT, Friday, 24 April 2009 17:27 UK

Royal Mail warns of pay freezes

Royal Mail sign
Government ministers say Royal Mail needs urgent modernisation

All Royal Mail staff face a pay freeze this year as the postal service tries to cut costs to ensure its survival.

In a letter to trade unions, the company warned it was in a "very tight financial position" and might not be able to increase wages for any worker.

The government announced plans to sell off part of Royal Mail earlier this year, arguing this was the only way to safeguard the service.

One union leader has said that any pay freeze would be "outrageous".

Royal Mail is facing increasing competition from overseas private postal operators.

And Business Secretary Lord Mandelson has proposed selling 30% of Royal Mail, but the government has said any such scheme would not be a sell-off but a "partnership".

'Tough conditions'

The pay letter, sent by Jon Millidge, Royal Mail's human resources director, said: "The global economic turmoil has exacerbated the structural decline in postal markets in the UK and around the world, with the UK market now declining between 8-10% compared to last year.

"Given the tough economic conditions and with the retail price index currently being negative, you will undoubtedly be aware that many other companies find themselves in a similar position of having difficulty in affording increases in pay," his letter continued.

Postal workers are first class - they don't deserve this second-class treatment
Dave Ward, deputy general secretary, Communications Workers Union

As a direct result, "we do not envisage being able to increase pay rates for any colleagues (including all directors and managers) across the group," it concluded.

Mr Millidge did, however, stress the fact that any previous commitments on pay would be honoured.

Pension deficit

Dave Ward, deputy general secretary of the Communications Workers Union, described any pay freeze as "outrageous".

"Postal workers are first class - they don't deserve this second-class treatment," he said.

"The Royal Mail posted its best financial results for years in December and outperformed all of its financial targets," he added.

In the nine months to Christmas last year, all four Royal Mail businesses were profitable for the first time in almost 20 years.

Royal Mail Letters, the Post Office, Parcelforce Worldwide and the European parcels business GLS contributed to an operating profit of £255m.

But despite the improved performance, the Royal Mail remains short of cash, which is why the government is pressing ahead with plans to sell part of the service.

Prime Minister Gordon Brown has said that the service's £25bn pension deficit in particular makes outside investment imperative.

But the government has maintained that the company will remain publicly owned.

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