Privatisation 'only hope' for Mail

ROYAL Mail has delivered a blueprint this weekend that presents its partial privatisation as the only alternative to huge Government subsidies.

Trade & Industry Secretary Patricia Hewitt has been told that the company will rack up losses of more than £1 billion a year by 2010, after private firms are allowed to compete for all mail, including letters in 2007.

Royal Mail predicts the heavy losses if its competitors-grab 10% of revenue in the next three years and a further 20% in the following five.

Royal Mail's 100 largest business customers account for 50% of revenues and are sitting targets for rivals to pick off. At present, the business sector helps subsidise the service. The survival plan, approved by Royal Mail's board, spells out four options for the Government. It can . . .

pay vast subsidies to cover the losses

leave Royal Mail to go bust

allow price increases on stamps for letters to remote parts of the UK

or back the partial privatisation plan that Royal Mail chairman Allan Leighton believes is the only way to save the organisation.

This scheme envisages employees ending up with 20% of the business, with another 31% to be floated in the open market. That would leave a large minority stake in Government hands. Leighton believes this would motivate employees by giving them a stake.

It is understood that the company believes 30,000 more jobs will have to go to make it competitive. But the sting of redundancies would be soothed by large privatisation windfalls for employees. The Government will have to respond to these options by March when Leighton's contract runs out. He has threatened to leave if he cannot see a way forward.

In the run-up to a General Election, however, the Government would find it politically impossible to agree to his terms. But it is understood DTI officials are looking at ways to meet the demands after the election.