The British government has postponed a decision on whether Royal Mail should be able to give astake of up to 20% in the firm to its employees. It may be seen as partial victory for
communication workers’ union, the CWU, which had been against what it sees as a step towards theprivatisation of the postal service.In March it was reported that the plan could see Royal Mail’s 165,000 staff given an equalamount of shares, with an estimated value of £6,000 to £7,000. Alistair Darling, Britain’s Tradeand Industry Secretary, had originally indicated to the company that he would make a decision onthe scheme before the summer recess. Even this was later than Royal Mail had originally hoped,because Alan Johnson – Mr Darling’s predecessor – last year made clear his backing for the plan togive staff a significant stake in the business.
The Department of Trade and Industry has decided there will now be no announcement until lateNovember or early December. Ultimately, it will fall to the prime minister and chancellor toapprove or reject the share scheme, because of the significant public finance implications of theproposed transfer of shares. However, it is understood that Mr Darling is minded to back the desireof Royal Mail’s management for each postal worker to participate in an employee share scheme thatwould give each of them an identical stake in the business. This stake would be worth £5,000 perhead by 2010 if Royal Mail hit its financial targets, the government has several times denied thatthe plan to issue shares amounts to privatisation.
The delay in approval for the share scheme could have serious ramifications for the company,because it is part of an ambitious plan to refinance it. Royal Mail has already received agreementin principle from the government for an injection of cash over the coming five years, worth between£2bn and £3bn depending on certain assumptions. However, it cannot receive any of that untilagreement is reached on the share scheme. And that means it cannot start making vital investmentsin modernising the postal network. At a time when several competitors are capturing valuable mailbusiness from Royal Mail, this delay in modernisation could be harmful.
Also, in the absence of finalisation of the refinancing of Royal Mail, the trustees of itspension scheme – which suffers from an enormous deficit – are left in the uncomfortable position ofbeing unable to implement proposals to rehabilitate the fund. Legislation would be required for theshare scheme. This will not go through until the 2007/8 session at the earliest, so the sharescould not be transferred to employees – or, more precisely, a trust for the benefit of employees –till the end of 2008. That said, the company would like to operate a so-called “shadow” employeeshare scheme, prior to the formal transfer of shares.
Royal Mail this week has made another announcement instead: a change to how post will bepriced, to be introduced on 21st August. The current system is based on the weight of items,whereas the new system will be based on both size and weight. It has been estimated that over 80%of mail will cost either the same or less, although some items will cost more to send. There willbe 3 main size formats: letter, large letter and packet.
