Postal Services Bill agreed by Parliament

13th June 2011

Government legislation to safeguard the future of Royal Mail and keep the Post Office in public ownership has today been agreed by both Houses of Parliament.

Business Secretary Vince Cable said:"Today marks a significant milestone for Royal Mail. Legislation has now been agreed that will help tackle the huge challenges facing the company.

"Royal Mail and the Post Office are important and cherished parts of our society. It was vital we took swift action to put them both on a sustainable footing.

"Passing the legislation, reforming regulation, getting state aid approval, tackling the pension deficit - these are all vital steps that will provide momentum towards a sale of Royal Mail. They will also give the company the security and certainty it needs to press ahead with its essential modernisation programme."

During the final debate in the House of Commons today the Minister for Postal Affairs Edward Davey set out the next two crucial steps that need to be taken to secure the future of Royal Mail: obtaining state aid approval from the European Commission and changing the regulatory regime.

The Minister confirmed that the Government intends to take on Royal Mail's historic pension deficit with effect from March 2012 as part of the preparations for a sale of the company. It also intends to restructure the company's balance sheet in due course. Royal Mail currently has around £1.7billion of debt facilities with the Government. Ministers believe that for Royal Mail to be on a sustainable commercial footing going forward this will need to be restructured and Royal Mail's level of debt will need to be reduced substantially.

The Government needs approval from the European Commission to provide this financial support and informal discussions have now begun with the Commission. The Government will submit a formal state aid notification in the next few days. It hopes that the process will be completed by March 2012.

At the same time, work to establish a new regulatory framework for postal services is already underway. The Bill provides for the transfer of regulatory responsibility from Postcomm to Ofcom alongside significant reform of the existing regime, ensuring that regulation is proportionate to the needs of the market. Ofcom will launch a consultation in the autumn with a view to establishing the new regulatory framework in spring 2012.

Minister for Postal Affairs, Edward Davey, said:"Today is unquestionably a major step forward in protecting our universal postal service and our Post Office network.

"We have worked extremely hard to ensure the best possible outcomes for the taxpayer and the dedicated employees of Royal Mail and the Post Office up and down the country.

"At least 10 per cent of the shares in Royal Mail will go to its employees as part of the sale process. Royal Mail's staff will get secure pensions. And the proposed support will ensure that the company is on a sound commercial footing and can operate on a level playing field."

The Postal Services Bill is expected to receive formal Royal Assent shortly.


1. The Postal Services Bill stipulates that:

Royal Mail

* The current minimum requirements of the universal postal service - including collection and delivery of letters six days a week at uniform, affordable prices - are written into the Bill. The Government has no intention of downgrading them.
* Royal Mail will be able to benefit from an injection of private capital - ending the dependence on funding from the taxpayer and bringing new commercial disciplines into the business.
* Alongside private sector investment:
o At least 10 per cent of the shares in Royal Mail will go to its employees in the future as part of the sale process. This will be the largest employee share scheme of any major privatisation, larger than British Telecom, British Gas or British Airways.
o Royal Mail will be relieved of its historic pension deficit by the Government.
* As part of a general reform of the regulatory regime for mail, the existing regulator, Postcomm, will be replaced by Ofcom, the communications regulator, with the Bill providing for the transfer of Postcomm's regulatory responsibility to Ofcom.

Post Office

* The network of at least 11,500 Post Office branches is not for sale and there will be no programme of closures. Instead there is £1.34 billion of new funding, subject to state aid clearance, to modernise the network and safeguard its future, making it a stronger partner for Royal Mail.
* Government has confirmed that it will ensure that the longest legally permissible contract between RM and Post Office Ltd will be in place before separation of the two companies.
* Under the proposals contained in the Bill, the Post Office could be converted into a mutual structure as part of innovative new plans to hand over its ownership and running to employees, sub postmasters and local communities.
* Co-operatives UK recently published their report to government containing proposals for how a mutual POL might work. The report can be found here: http://www.uk.coop/postoffice
* The Government's strategy on the future of the post office network, published in November, can be found here http://www.bis.gov.uk/assets/biscore/business-sectors/docs/s/10-1260-securing-the-post-office-network.pdf