Tories fear strike impact on Royal Mail sell-off price

[stephen500]

http://www.ft.com/cms/s/0/fd278116-bd0f ... ab49a.html
By Jean Eaglesham, Chief Political Correspondent

Published: October 20 2009 03:00 | Last updated: October 20 2009 03:00

"The threatened Royal Mail strike this week could have a "very serious impact" on the value of the company, damaging the amount a Conservative government could raise for taxpayers by privatising the postal operator, the opposition party warned yesterday.

Jonathan Djanogly, the shadow business minister, told the Financial Times the strikes were "a potential disaster for the company, in so far as it could lose revenues". The industrial action in 2007 had lost Royal Mail a reported £300m of business and the company "can't afford to lose that sort of revenue again".

"We have huge concerns that the dispute . . . is going to have a very serious impact on the value of the company," he said.

Talks between Royal Mail's management and the Communication Workers Union to avert the national 24-hour strikes planned for Thursday and Friday were continuing last night, with neither side appearing optimistic of a resolution.

The union accused Royal Mail of engaging in the "industrial relations of fear" by planning to take on an extra 30,000 temporary staff. The company insisted it was "not trying to break the union" but simply to clear a backlog of mail. Royal Mail said it would cede to CWU calls for the dispute to go to independent arbitration only if the union agreed to call off the strike action.

The Tories said the government had cost the taxpayer huge amounts of money because of its failure to sell off Royal Mail. "Of course the valuation of the company today compared with what the government could have raised six years ago is hugely less," Mr Djanogly said.

The Tories backed plans by the government to sell a stake in Royal Mail, which Lord Mandelson abandoned in July, blaming market conditions, in the face of a threatened rebellion by almost 150 Labour MPs.

The government retreat meant it also shelved separate proposals to transfer Royal Mail's crippling pension deficit to the taxpayer and to axe Postcomm by next April, switching regulatory responsibility for the mail market to Ofcom. The postal services bill will die if there is no carry-over motion in next month's Queen's Speech.

Government insiders told the FT yesterday there were no plans to revive these pension and regulatory elements of the proposed legislation. "There's only so many battles you fight and some of them you don't want to re-engage with instantly," an insider said.

This leaves the Tories with a problem if they win the election expected in May. Ken Clarke, shadow business secretary, is understood to be seeking to persuade David Cameron that legislation on Royal Mail should be a priority for the first year of a Conservative government. The Tories agree with Lord Mandelson that the postal operator needs private sector capital and expertise to secure its future.

But the FT understands an incoming Conservative government would test the market appetite for a potential sale or other deal before pressing ahead with legislation. If a part or full privatisation appeared unlikely to raise much money, the Tories could decide to seek instead a private sector partner to lend money to the company - a solution ironically favoured by many of the Labour rebels.

Time-bomb for pension deficit

A Royal Mail pension time- bomb is primed to explode within days of a May 6 general election. Pension fund trustees have until June 30 2010 to agree a revaluation of the fund with Royal Mail - and the higher payments the employer will be forced to make.

Revaluation is expected to increase the size of the deficit from the £5.9bn quoted in the Hooper review to £10bn or more. The government's decision to shelve its proposed bill, which would have transferred this deficit to the taxpayer, means the burden of funding the increased deficit is set to rest with the company.

Jane Newell, the trustees' chairman, warned in a letter to Lord Mandelson in February that the postal operator was "already balance sheet insolvent" and the revised deficit was "highly unlikely to be affordable by Royal Mail"."

[britwrit]

Two scenarios come to mind. First, with all the unpopular hacking and slashing of public services, you might think they'd put off a sale for a year or two. Why pile on the bad news?

On the flip side, with Cameron in honeymoon, his backbenchers still in love with him and not prone to revolt so soon, they might go for it. Get a good enough price and they can sell it to the public.