Royal Mail is to be privatised, government confirms

The government is to go ahead with a sale of Royal Mail, says Vince Cable.

The business secretary acted after an independent report said the postal service's outlook had worsened. A new independent firm will be formed to run sorting and delivery operations.

Outside investors will hold the most shares, and the rest will be offered to Royal Mail staff. Pension liabilities will be taken on by the government.

But the CWU trade union said the plan would devastate the postal service.

'Potentially lethal challenges'

There has not yet been a final decision on exactly how the majority of Royal Mail will be privatised.

It could be sold to a private company or companies, or involve a public share offering.

Officials want to keep options open so their hands are not tied if market conditions change after the bill goes through Parliament.

"These are matters we need to resolve further down the line," Mr Cable said.

"But we need to get on with the legislation, which is urgently needed, because the financial position is deteriorating.

"Royal Mail is facing a combination of potentially lethal challenges - falling mail volumes, low investment, not enough efficiency and a dire pension position."

The government also confirmed that the separate Post Office network would remain in state ownership.

'Failed politics'

The review of Royal Mail by Richard Hooper says that the universal postal service can be maintained only by an injection of private sector money and expertise.

Royal Mail welcomed the report.

"Royal Mail needs a way of getting access to capital, a resolution of the legacy pension deficit and a strikingly different regulatory approach which allows us to compete fairly in an increasingly tough and shrinking market," said a spokesman.

But the CWU's general secretary, Billy Hayes, said privatisation would lead to higher prices for customers and job losses for staff.

"It's the failed politics of history which brought disruption to Britain's utilities and railways and astronomical prices for consumers," he said.

"Dangerously in this case, we fear the government may also be plotting to seize the pension assets."

Pension problem

Mr Hooper's report says industrial relations have improved at the Royal Mail in the past two years and some modernisation of sorting and delivery services has taken place.

But he argues that only the private sector can provide the money necessary to continue the modernisation process, at a time when the government is strapped for cash and the Royal Mail cannot generate enough extra cash itself.

And he envisages that this will involve closing half of the current 64 big "mail centres" that distribute letters and packets to local sorting offices.

A key feature of the latest recommendations, like those first published in December 2008, is that the Royal Mail's pension scheme, which currently has a deficit of £8bn, should be taken over by the government to relieve the company of making huge extra contributions.

The pension problem is mentioned more than 40 times in Mr Hooper's latest 50-page report.

"The introduction of private sector capital is by itself far from sufficient to secure the future of the universal postal service," Mr Hooper said.

"Its future depends just as much on resolving the closely connected issues of the pension deficit and the need to transform postal regulation."

Worsening outlook

Last year, the Labour government abandoned its plans, inspired by Mr Hooper's first report, to find a private sector partner for the Royal Mail via a partial sale.

Mr Hooper, a former deputy chairman of the communications regulator Ofcom, said that in 20 months since that report, the Royal Mail's position had become worse.

The decline in the number of letters being sent has accelerated and will not be offset by more parcels being sent, for instance, to internet shoppers, he argued.

"Without serious action, Royal Mail will not survive in its current form," he said.

He demanded urgent changes to preserve the universal service under which letters are delivered for the same charge regardless of their destination in the UK, six days a week.

Staff shares

A new feature of his proposals, supported by the coalition government, is that staff should be given a stake in the company if it is sold or privatised.

"It is important that any future employee ownership scheme should be taken forward with the aim of achieving the culture change that is needed within Royal Mail," he said.

"Employee shares could be a powerful force in supporting the company's modernisation and future success."

Postal workers have been sharing their views on the sale of Royal Mail.

I am a delivery postal worker, and am very worried about this announcement. Privatisation only leads to worse service to the public and worse working conditions. It will only be shareholders who benefit in the long run, just like with the railways and utility companies. Rob, Bristol

We are being pushed more and more to deliver a vast amount of items (I see no sign of the mail volumes falling) each and every day. Daily I have to deliver part of another round before I even start to do my own delivery because of staff shortages. We are inundated with door-to-door leaflets up to six a week (on an average delivery that's 3,600 items extra per week) and get no extra time - as promised - to do it. Management is dire, we need someone to come in and sort out this mess. Postman, Market Harborough

I do work for the Royal Mail and it does a good job. The regulator is stopping the business from competing with the likes of TNT and UKMail. If, and when, they take the handcuffs off, we may just then be able to compete. David, Darlington

I've been a delivery postman of 10 years. To say the levels of mail are declining is simply untrue. I am carrying and delivering more items of mail now than at any point I can ever recall since working for Royal Mail. Wayne, Leeds

As a member of the CWU, and an employee of Royal Mail, I find the fact the company is being put up for sale very worrying. There are already extensive cuts being put in place to reduce costs across the whole business, mainly by reducing headcount. A fear many colleagues share is that the sale to a private owner would accelerate and increase these cuts, leaving thousands out of work. The Royal Mail employs over 180,000 people, can the government really afford to be playing a game of chance by selling the company to the private sector? Chris, Chesterfield

I think most of us who work for Royal Mail would just be happy to know the business is going to continue, we have jobs and that our pensions are going to be safe. If this can only be achieved by privatisation then so be it. With myself, partner and son all working for RM obviously any detrimental decisions will have a devastating affect to our household so whatever happens in the future we can only hope it's for the best. Christine, Romford