I wrote at the weekend that Lord Mandelson may be able to use the threat of final salary pension closure as a stick to beat Royal Mail workers into accepting part-privatisation.  

John Ralfe, the pensions guru, believes that workers’ cast iron pensions could be doomed either way. “As soon as the government addresses the pensions issue - with or without privatisation - they have to effectively involve state aid,” he says.

Having read further into the Hooper report*, his argument seems to make sense.

Hooper argues that there are only two ways to reduce Royal Mail’s £8bn pensions deficit - which already soaks up £600m a year of taxpayers’ cash.

1] The sale of GLS, its successful European parcels delivery business. But Hooper points out that “since GLS generates cash, it may also weaken the ability of the company to fund the significant ongoing deficit payments that would still be required”.

or

2] A one-off injection of taxpayer funding into the scheme by government. But this would “require clearance under state aid rules”

Hooper recommends that the government should take on the responsibility for the historic liabilities of the Mail’s pension fund. This would prevent the deficit “calling into question the financial viability of the business.”

It looks increasingly like the Mail is in a Catch-22. 

Ralfe points out: “The Hooper logic seems to be that either the government continues to support , which requires EU approval, and pensions could be threatened. Or private sector is involved, which requires government to take the pension liabilities, which requires EU approval and (again) pensions could be threatened.

* Richard Hooper, former deputy chairman of Ofcom, was commissioned to examine ways to save the Royal Mail in a report which was published before Christmas last year. His recommendations have proved hugely controversial with Labour MPs and the unions.

February 3, 2009 12:30pm in Mandelson | Comment