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Royal Mail sale to land taxpayer with £7bn pensions bill
Joe Murphy, Political Editor15 Dec 2008
Taxpayers look set to be handed a £7 billion bill for the Royal Mail's future pensions, adding to the rising cost of public sector retirements.
A plan to restructure the postal service could see its pension fund moved to the public purse, making future generations responsible for unfunded liabilities.
Rumours of the proposal, expected to be outlined by Lord Mandelson this week, came as business leaders called for action to limit the increasing burden of public sector pensions.
The Confederation of British Industry said the gap between pension promises made to public sector workers and the amount put aside to pay for them had grown to £1 trillion.
Deputy director-general John Cridland said: “The debt that is being racked up is truly eye-watering and is set to get much worse. Taxpayers who are struggling to build their own personal pension will be lumbered for decades by the cost of covering public sector workers who retire years earlier on risk-free pensions.”
The expected deal with the Royal Mail would cover a pension fund that has assets worth £22 billion but still cannot meet the pensions due to its employees. Three years ago the shortfall was estimated to be £3.4 billion and a report warns that it will be more than £7 billion when the next estimate is made during 2009.
One attraction to ministers is that by taking over the fund, the Government could reduce the paper value of the national debt by the full £22 billion.
But Tory shadow business secretary Alan Duncan
claimed the move would burden future generations.
“They are softening us up for a massive and wicked accounting trick,” he said.
“It is attractive to the Government because it helps fill a black hole in the public finances but it means taking out the equivalent of a giant mortgage. It will pile debt upon debt for our children and grandchildren.”
At present, the Royal Mail has to pump £800 million a year into its pensions, reducing profits.
A report handed to Business Secretary Lord Mandelson by Richard Hooper, the former telecoms regulator, is understood to propose a sweeping reorganisation in which a share of the state-owned firm would be privatised, generating funds to invest in better efficiency.
The postal business has suffered huge drops in profit because of increased competition from emails and rival firms, seeing its volumes sink by up to seven per cent a year.
Ministers want to safeguard a universal delivery service and are also bound by a pledge to keep the Royal Mail publicly owned. Just under half may be sold off.
Lord Mandelson's department would not comment on the Hooper report.
Reader views (7)
If the Royal Mail owners had not been allowed to take a pension holiday for over 10 years some years ago, then the pension scheme and funds would not be in such a state and no one would need to bail them out.
Just give them the same level playing field to play on as they competitors and I bet within 2 years you will see a revived and profitable Royal Mail
- Graham Dexter, London, 19/12/2008 08:14
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I can't actually afford a pension fund for myself, do you mind awfully if I opt out of paying for the postman's?
- Deborah, London, 15/12/2008 14:46
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Surely a much better solution is to enable the post office to compete on a level playing field. Other mail providers are at present free to compete on price for the most attractive business-related volume post without having to offer a universal service, and having access to the Post Office's "last mile" delivery at very low cost. They are therefore able to cherry pick the profitable postal services whilst lumbering the Post Office - and us as its owners - with the least profitable and loss making. Yes they need to be more efficient, but we now have a high cost to remedy the pension fund deficit as profits from the PO itself will not be enough to top that up.
The solution is to enable the PO to be more profitable by forcing competing providers also to offer a universal service and/or paying higher access charges.
- John, london, 15/12/2008 14:12
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And yet again the country has to fund the pensions of the public sector.
The finacial timebomb keeps ticking away for the future.
- P I Staker, London, 15/12/2008 14:10
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Under Labour, the U.K. is moving back into a bankrupt welfare state. Unfortunately, it's hard to see a way out when the Conservatives take over. The E.U. Constitution (Lisbon Treaty) will be in place by that time, possibly also the euro as currency, tying the Conservatives' hands from making any meaningful financial changes within this province separate from the other provinces.
- Phil Jones, London UK, 15/12/2008 14:07
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Lord Mandelson is "planning to make a swift announcment" - isn't that an oxymoron?
I see as it's an sensitive subject and under his own remit, not someone else's, the quote comes not from His Mandyness himself, but from a source 'close to him' - so he can later disown it.
- Roz, Chamonix, France, 15/12/2008 12:47
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Surely Mandelson won't embarrass Labour by a wholesale privatisation. A partial one seems the best solution. The PO needs a radical shakeup and new modern working practices need to be adopted if it is to compete in the market. Whatever happens the 'Royal' should stay in the Mail.
- Dhanraj, Basildon Essex, 15/12/2008 10:50
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