The European Commission today approved UK plans to provide the Royal Mail Group (RMG) with₤1.089 billion (€1.31 billion) in restructuring aid and to relieve RMG from “excessive” pension
costs relating to its legacy monopoly position, concluding that the initiatives complied with EUstate-aid rules.The approval from Brussels follows a nine-month investigation and clears the final potentialbarrier to the privatisation of the UK state-owned postal operator, following the passage of thenecessary legislation by the UK parliament last year. A UK government spokesman told CEP-Researchthat the approval from the European Commission did not include any requirement for RMG to sell offany of its assets, such as its European parcel business GLS, something that had been the subject ofsome speculation.
Today’s decision means the UK government can go ahead with its plans to transfer RMG’s pensionsliabilities and assets to the state. The Royal Mail Pension Plan currently has a deficit of £8.4billion, and the transfer of the company’s assets will give the UK Treasury a short-term boost of£28 billion, although the lifetime costs are expected to be far higher than the value of theassets, according to UK postal union CWU.
The Commission said RMG’s revised restructuring plan would “ensure a sustainable future for thegroup in its twofold function of providing universal postal services and of granting access to itsdelivery network to other providers in the UK”. It said the plan negotiated with the Commissionincluded appropriate measures to minimise distortions of competition induced by the aid.
Commission vice president in charge of competition policy, Joaquín Almunia, said: “In order toachieve a level playing field in postal markets, it is crucial that incumbent operators neitherenjoy undue advantages, nor suffer from structural disadvantages in comparison with competitors.The relief of excessive pension costs and the restructuring aid approved today will help ensurethis balance for Royal Mail and its competitors.”
The Commission’s investigation found that RMG was liable for higher pension costs than itsprivate competitors, as a consequence of legacy costs originating in the pre-liberalisation period,when RMG held a legal monopoly. The Commission therefore authorised the pension measure, under thecondition that it only relieves RMG of costs that are in excess of the level of pension paymentsmade by comparable companies in the UK.
This decision would ensure that the pension relief does not place RMG in a better position thancompetitors, the European competition watchdog added, and was in line with the Commission’sconclusions in previous postal cases – for example La Poste in 2007, and BPost and Deutsche Postthis year.
The Commission also concluded that RMG’s plans to grant RMG a debt reduction amounting to ₤1.089billion were in line with the 2004 EU Rescue and Restructuring Guidelines, in the context of abroad restructuring plan aimed at ensuring the sustained viability of RMG. The revisedrestructuring plan, taking into account the Commission’s concerns, will be implemented over thenext three years, building on the significant restructuring that Royal Mail has already undertakensince 2002 to modernise its business and drive costs down.
The plan includes operational modernisation, the offset of the remaining pension deficit of theRMG pension plan that falls outside the legacy costs relief, and a structural reduction of mailcentres. RMG is financing 50% of the restructuring costs through several measures, such as assetdivestments.
Responding to today’s decision, UK Postal Affairs Minister Norman Lamb said: “We warmly welcomethe European Commission’s approval of state aid in favour of Royal Mail. It safeguards theuniversal postal service by allowing the government to relieve, in full, the historic pensiondeficit of the Royal Mail Pension Plan and restructure the debt on the company’s balance sheet asrequired at the time of sale.
“We will now put into action – through secondary legislation – our pension solution, takingon the historic liabilities and the bulk of the assets of the Royal Mail Pension Plan andestablishing the new Royal Mail Statutory Pension Scheme.”
Lamb said today’s decision does not mean that a sale of Royal Mail will happenimmediately.
“We have always been clear that further modernisation by the company and a period of stabilityunder a new regulatory framework, along with state aid approval, are needed before we can moveforward with a sale,” he added. “However, this decision is a fundamental step towards achievingthat goal.”
The decision was also welcomed by the main UK postal union, CWU, which has long campaigned forthe UK government to take on Royal Mail’s pension deficit.
Dave Ward, CWU deputy general secretary, commented: “Today’s announcement is good news forpostal workers. Without these changes the Royal Mail Pension Plan would be under major threat ofclosure and continue to destabilise the company’s finances. The changes will help transform thefinances of the company and protect jobs.
“CWU remains fundamentally opposed to privatisation, but we have always supported and campaignedfor the need for a pension solution and changes to regulation.
“Without a pension solution, the consequences for our members and the company would be verysevere, including the strong possibility of the pension scheme being completely wound up. Thiswould still remove a barrier to privatisation, but without securing our members’ pensions. Withoutthis change it would be a lose-lose situation.”
