Question time briefing: Business and enterprise

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Ministers have confirmed that the government would assume £6bn of Royal Mail's funding deficit if the Postal Services Bill is passed by Parliament.

During business and enterprise questions in the Commons, postal minister Patrick McFadden also revealed that the 2008 estimate of the deficit could subsequently have "worsened".

He told MPs that the government's intention, through part-privatisation of the Royal Mail and taking on the pensions deficit, was to "bring forward new investment".

He warned that if the government did not get that external investment and experience, the "harsh decline" in mail volumes would continue.

And he suggested that for every one per cent decline in mail volume, the Royal Mail loses £70m.

McFadden was answering questions from James Duddridge (Con, Rochford & Southend East) on ministers' estimates of the cost to the public purse of assuming liability for the Royal Mail pension scheme.

And the minister also warned of "very poor relations" on key issues with the Communication Workers Union, suggesting that a fresh start on industrial relations with the Royal Mail is needed.

And the CWU should see a potential new partner as "a fresh start", he added.

David Chaytor (Lab, Bury North) also inquired whether the Royal Mail's pension deficit had been swelled by contributions holidays.

But McFadden suggested that by bringing Royal Mail pensions under the government, they would have "far greater security" and would be dealt with in the same way as civil service pensions.

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Turning back to the postal service, Geraldine Smith (Lab, Morecambe & Lunesdale) suggested that the Hooper report had failed to identify the source of the pensions deficit.

McFadden said that the report covers all issues of pricing, pensions and regulations. He added that European liberalisation of postal services will shortly be implemented in 15 member states, allowing the Royal Mail to become a "major player" in the EU market.

The Postal Services Bill is "the future for the Royal Mail", he stated.