Page last updated at 14:40 GMT, Thursday, 26 February 2009

Sell-off 'to save postal service'

Royal Mail sign
Ministers say Royal Mail needs urgent modernisation

Controversial plans to sell off 30% of Royal Mail are the only way to ensure post continues to be delivered to every home in the UK, Lord Mandelson says.

The Royal Mail's huge pension deficit and the rise of e-mail mean the service will never be profitable in its current form, the business secretary claims.

He said his reform bill included a commitment to keep it publicly owned.

But that olive branch is thought unlikely to calm a backbench Labour rebellion against the plans.

They say the plans will undermine the universal delivery service and threaten thousands of jobs.

More than 130 Labour MPs are expected to vote against the plans when they are debated in the Commons in June, meaning the government may have to rely on the Conservatives and Lib Dems, both of whom back part-privatisation, to get them through.

The key government proposals, published earlier, include:

  • Inviting private firms to form partnerships with Royal Mail, including taking up to a 30% stake in its parcels and letters business
  • Transferring responsibility for the pension fund, with its 6bn deficit, to taxpayers
  • Transferring regulation of the service from Postcomm to Ofcom
  • A new fund to protect the universal postal service, which may be at risk from private competition in the future
  • Excluding the post office network from the changes

In a document entitled The Future of the Universal Postal Service in the UK, Lord Mandelson argues that his modernisation plans are the only way to ensure letters and parcels continue to be delivered to 99% of homes in the UK in the future.

He writes: "The policy we are proposing will keep the Royal Mail in the public sector, while equipping it for modernisation."

Royal Mail needs to be kept for the people of this country.
LC, Dorset, UK

The government is refusing to name the private firms who have expressed an interest in taking a share in the Royal Mail's letters business, although Dutch postal operator TNT has said it is in the running.

The government says it aims to sell off shares in the service by summer 2009 - but it will need EU clearance first and primary legislation will have to be passed in Parliament.

The cash received will be pumped into Royal Mail and Post Offices Ltd and may be used to partially offset the cost of taking over Royal Mail pension liabilities.

Pension deficit

The Royal Mail's pension deficit, estimated to be as much as 8bn, is expected to grow "significantly," the plan says, and "swallow any profits that the company might make in the future".

The government plans to address this by taking control of all 23.5bn in pension assets - and 6bn in deficits - incurred before December 2008, with all future pension liabilities remaining with the Royal Mail. It says this will protect payments to members of the pension scheme.

Electorally unpopular, politically unwise and damaging to the concept of universal service provision
Union leaders' verdict on plans

But the pension scheme bail-out will only happen if an agreement can be reached to part-privatise the service, the government stresses.

And it warns "tackling pensions on their own would not be a panacea for Royal Mail's difficulties".

Increasing the price of stamps would not work either as people would continue to switch to digital communication, which has already accounted for a big fall in the volume of mail being sent, the plan argues.

Industrial relations within Royal Mail must also improve, it adds, pointing out that in 2007 60% of days lost to strikes in the entire UK economy were down to postal workers.

The plan, which is based on recommendations by the 2007 Hooper review, also proposes a new charging regime for private firms wanting access to the Royal Mail network.

'Job losses'

But opponents say it breaks a Labour manifesto pledge to keep Royal Mail in public hands and would actually threaten the future of a universal postal service.

Postage costs across Europe

Labour backbencher Geraldine Smith, who is to meet Lord Mandelson to push the case for a rethink, says his proposals "don't stack up" and he is "virtually going to give Royal Mail away" to the private sector.

The result would be higher prices, reduction in service and "thousands of job losses at a time when we should be trying to save jobs," she told the BBC News channel.

She said Royal Mail could be profitable if pricing controls were relaxed so it was not "delivering competitors mail at a loss" and she said that if the management was a problem then they should be sacked.

The leaders of Labour's eight largest affiliated unions have attacked Lord Mandelson's plan as "electorally unpopular, politically unwise and damaging to the concept of universal service provision".

'Door open'

In a letter to The Guardian, they accuse the ministers of breaking an agreement between the government and the trade union movement in the summer of 2008 to keep the service in public ownership.

Lord Mandelson, writing in the Daily Mirror, admitted that he knew the issue was "politically different" but was determined to confront it head on.

"My door is open and I will listen to these concerns," he said.

Ministers may make a statement in Parliament outlining government policy after the bill's publication.

More than 130 Labour MPs - including a reported 11 parliamentary private secretaries - have signed a Commons motion rejecting the plan, saying it threatens Royal Mail's future.

Downing Street has denied reports the rebellion has spread to the cabinet, saying there was no differences of opinion among senior ministers about the substance of the bill.

Lib Dem business spokesman John Thurso said reform of Royal Mail "has been necessary for some time" and was proposed by his party three years ago, but he urged money raised through part-privatisation to be ploughed back into post offices.

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