Government rules out Royal Mail privatisation ahead of report

by Daniel Farey-Jones, Brand Republic 15-Dec-08, 10:40

LONDON - The Government has ruled out privatisation of Royal Mail ahead of the publication of an independent report saying the company needs heavy investment in automation, but is hampered by its ballooning pensions deficit.

The report on the future of the universal service by Richard Hooper was delivered to the business secretary Lord Mandelson at the weekend and will be published later this week.

According to press coverage, the report says that to maintain the universal service Royal Mail must be modernised and the regulation of postal services overhauled.

A government source indicated that it did not favour privatisation as a means to secure investment for Royal Mail, saying: "Our concern is to save the Royal Mail and secure its future, not privatise it. We have a manifesto commitment to a publicly owned Royal Mail and we will not be setting that aside."

The report is expected to leave no doubt that radical action is needed to preserve the universal service. It says the company lacks the money to invest in automation because it needs to make large payments to top up its pension scheme deficit of £7bn, which has doubled over three years.

In addition, its operating profits have fallen over the past two years due to changes in its business environment.

While competition with private postal operators has sapped £100m in that period, this is dwarfed by the £500m impact of customers using digital instead of postal communications, according to a Financial Times' article on the report.

The FT also writes that the report proposes a government takeover of the pensions deficit as a possible solution.