Royal Mail 'may be forced to sell'

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The Royal Mail may be forced to sell off some of its most profitable businesses in exchange for a government bailout

The Royal Mail may be forced by the European Commission to sell off some of its most profitable businesses in exchange for a government bailout of its pension scheme, it has been reported.

The Commission is understood to be considering whether the Government’s plan to take on the group’s pension liabilities constitutes state aid, and if this gives the business an unfair advantage over its competitors, according to the Sunday Times newspaper.

If it does decide the move constitutes state aid, it is thought Brussels may demand the sale of some of the Royal Mail’s most profitable divisions, including its European parcels operation General Logistics Systems.

The business, which is based in Holland, handles more than 1 million parcels a day and made a £51 million profit in the past six months. Lloyds Banking Group and Royal Bank of Scotland were both ordered to make disposals by the Commission after they received a bailout from taxpayers.

But having to sell off some of Royal Mail’s valuable businesses could hamper Government plans to sell the group.

The Government announced plans last year to sell off 90% of the Royal Mail to private companies, including overseas firms, with the remaining 10% going in shares to postal workers. To make the deal more attractive, it will take over Royal Mail’s £8.4 billion pension deficit. The Post Office arm of the business will be retained and is likely to be converted into a mutual structure in a similar manner to the John Lewis Partnership or the Co-operative Group.

Officials from the Department for Business have held informal talks with Brussels about their plans for the group, but have not yet notified the Commission formally.

But commentators point out that there are grounds for optimism, as unlike the banking industry, the postal industry is in decline, with delivery volumes falling from 84 million a day to 68 million a day during the past five years. In 2007 the Commission also gave approval for the French government to finance the pensions of La Poste workers.

A Department for Business spokesman said: “It is far too early to speculate on this matter. We have only had informal talks with the European Commission and clearly they will not be able to take a firm view until the UK has formally notified them of its intentions and they have gone through their procedures.”

A Royal Mail spokesman told the Sunday Times: “We believe we have a strong and compelling argument.”

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