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Sell-off 'to save postal service' Sell-off 'to save postal service'
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Controversial plans to sell off 30% of Royal Mail are the only way to secure the future of a universal postal service, Lord Mandelson has said. Controversial plans to sell off 30% of Royal Mail are the only way to ensure post continues to be delivered to every home in the UK, Lord Mandelson says.
The Royal Mail's huge pension deficit and the rise of e-mail communication mean it will never be profitable in its current form, he claims. The Royal Mail's huge pension deficit and the rise of e-mail mean the service will never be profitable in its current form, he claims.
The business secretary has published a bill proposing to modernise the service by opening it up to private investment. The business secretary has published a bill proposing to modernise it.
But the plans are opposed by postal unions and more than 130 Labour MPs. But the plan is opposed by unions and more than 130 Labour MPs who say it threatens universal deliveries.
They say it breaks a Labour manifesto pledge to keep Royal Mail in public hands and threatens the future of a universal service, with staff delivering letters and parcels to everyone in the country. The key government proposals include:
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  • Inviting private firms to form partnerships with Royal Mail, including taking up to a 30% stake in its parcels and letters business
  • Transferring responsibility for the pension fund, with its £6bn deficit, to taxpayers
  • Transferring regulation of the service from Postcomm to Ofcom
  • A new fund to protect the universal postal service, which may be at risk from private competition in the future
  • Excluding the post office network from the changes
In a document entitled The Future of the Universal Postal Service in the UK, Lord Mandelson argues that his modernisation plans are the only way to protect the universal postal service, which sees letters and parcels delivered to 99% of homes in the UK.
He writes: "The policy we are proposing will keep the Royal Mail in the public sector, while equipping it for modernisation."
The government is refusing to name the private firms who have expressed an interest in taking a share in the Royal Mail's letters business, although Dutch postal operator TNT has said it is in the running.
The government says it aims to sell off shares in the service by summer 2009 - but it will need EU clearance first and primary legislation will have to be passed in Parliament.
The cash received will be pumped into Royal Mail and Post Offices Ltd and may be used to partially offset the cost of taking over Royal Mail pension liabilities.
Pension deficitPension deficit
But the plan entitled The Future of the Universal Postal Service in the UK, Lord Mandelson said: "I am determined to protect the universal service by ensuring we have a world class Royal Mail." The Royal Mail's pension deficit, estimated to be as much as £8bn, is expected to grow "significantly," the plan says, and "swallow any profits that the company might make in the future".
He adds: "The policy we are proposing will keep the Royal Mail in the public sector, while equipping it for modernisation." The government plans to address this by taking control of all £23.5bn in pension assets - and £6bn in liabilities - incurred before December 2008, with all future pension liabilities remaining with the Royal Mail. It says this will protect payments to members of the pension scheme.
The Royal Mail's pension deficit, believed to be £8bn, is expected to grow "significantly," the plan says, and "swallow any profits that the company might make in the future". Electorally unpopular, politically unwise and damaging to the concept of universal service provision Union leaders' verdict on plans
But "tackling pensions on their own would not be a panacea for Royal Mail's difficulties". But the pension scheme bail-out will only happen if an agreement can be reached to part-privatise the service, the government stresses.
Increasing the price of stamps would not work as people would continue to switch to digital communication, which has already accounted for a big fall in the volume of mail being sent, the plan argues. And it warns "tackling pensions on their own would not be a panacea for Royal Mail's difficulties".
It proposes:
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  • Inviting private firms to form partnerships with Royal Mail, including taking a minority stake in its parcels and letters business
  • Tackling the pension fund deficit
  • Transferring regulation from Postcomm to Ofcom
Increasing the price of stamps would not work either as people would continue to switch to digital communication, which has already accounted for a big fall in the volume of mail being sent, the plan argues.
Industrial relations within Royal Mail must also improve, it adds, pointing out that in 2007 60% of days lost to strikes in the entire UK economy were down to postal workers.Industrial relations within Royal Mail must also improve, it adds, pointing out that in 2007 60% of days lost to strikes in the entire UK economy were down to postal workers.
The plan, which is based on recommendations by the 2007 Hooper review, do not include post offices, which would continue to remain in the public sector. The plan, which is based on recommendations by the 2007 Hooper review, also proposes a new charging regime for private firms wanting access to the Royal Mail network.
'Door is open' 'Job losses'
But opponents say it breaks a Labour manifesto pledge to keep Royal Mail in public hands and would actually threaten the future of a universal postal service.
Labour backbencher Geraldine Smith, who is to meet Lord Mandelson to push the case for a rethink, says his proposals "don't stack up" and he is "virtually going to give Royal Mail away" to the private sector.
The result would be higher prices, reduction in service and "thousands of job losses at a time when we should be trying to save jobs," she told the BBC News channel.
She said Royal Mail could be profitable if pricing controls were relaxed so it was not "delivering competitors mail at a loss" and she said that if the management was a problem then they should be sacked.
The leaders of Labour's eight largest affiliated unions have attacked Lord Mandelson's plan as "electorally unpopular, politically unwise and damaging to the concept of universal service provision".The leaders of Labour's eight largest affiliated unions have attacked Lord Mandelson's plan as "electorally unpopular, politically unwise and damaging to the concept of universal service provision".
'Door open'
In a letter to The Guardian, they accuse the ministers of breaking an agreement between the government and the trade union movement in the summer of 2008 to keep the service in public ownership.In a letter to The Guardian, they accuse the ministers of breaking an agreement between the government and the trade union movement in the summer of 2008 to keep the service in public ownership.
There was angry condemnation of the plans at a union rally on Tuesday
Lord Mandelson, writing in the Daily Mirror, admitted that he knew the issue was "politically different" but was determined to confront it head on.Lord Mandelson, writing in the Daily Mirror, admitted that he knew the issue was "politically different" but was determined to confront it head on.
"My door is open and I will listen to these concerns," he said."My door is open and I will listen to these concerns," he said.
"But we face a choice. We either let Royal Mail drift and do nothing. Or we take action to secure the universal postal service for the customer and secure the pensions of Royal Mail employees."
Ministers may make a statement in Parliament outlining government policy after the bill's publication.Ministers may make a statement in Parliament outlining government policy after the bill's publication.
'New provision'
More than 130 Labour MPs - including a reported 11 parliamentary private secretaries - have signed a Commons motion rejecting the plan, saying it threatens Royal Mail's future.More than 130 Labour MPs - including a reported 11 parliamentary private secretaries - have signed a Commons motion rejecting the plan, saying it threatens Royal Mail's future.
Downing Street has denied reports the rebellion has spread to the cabinet, saying there was no differences of opinion in the Cabinet about the substance of the bill.Downing Street has denied reports the rebellion has spread to the cabinet, saying there was no differences of opinion in the Cabinet about the substance of the bill.
Introducing the bill on Wednesday, Lord Mandelson told peers the bill would "make provision for the restructuring of the Royal Mail Group and of the Royal Mail pension plan".
It would also "make new provision about the regulation of postal services", he said.
But while doing so, he was heckled by Lord Clarke, deputy general secretary of the postal workers' union in the 1980s.
The bill's first reading was essentially a formality which allows it to be printed so peers and MPs can see the proposals in detail.
It will be debated in full at its second reading - expected on 10 March.