Royal Mail sale to land taxpayer with £7bn pensions bill

Taxpayers look set to be handed a £7 billion bill for the Royal Mail's future pensions, adding to the rising cost of public sector retirements.

A plan to restructure the postal service could see its pension fund moved to the public purse, making future generations responsible for unfunded liabilities.

Rumours of the proposal, expected to be outlined by Lord Mandelson this week, came as business leaders called for action to limit the increasing burden of public sector pensions.

The Confederation of British Industry said the gap between pension promises made to public sector workers and the amount put aside to pay for them had grown to £1 trillion.

Deputy director-general John Cridland said: "The debt that is being racked up is truly eye-watering and is set to get much worse. Taxpayers who are struggling to build their own personal pension will be lumbered for decades by the cost of covering public sector workers who retire years earlier on risk-free pensions."

The expected deal with the Royal Mail would cover a pension fund that has assets worth £22 billion but still cannot meet the pensions due to its employees. Three years ago the shortfall was estimated to be £3.4 billion and a report warns that it will be more than £7 billion when the next estimate is made during 2009.

One attraction to ministers is that by taking over the fund, the Government could reduce the paper value of the national debt by the full £22 billion.

But Tory shadow business secretary Alan Duncan
claimed the move would burden future generations.

"They are softening us up for a massive and wicked accounting trick," he said.

"It is attractive to the Government because it helps fill a black hole in the public finances but it means taking out the equivalent of a giant mortgage. It will pile debt upon debt for our children and grandchildren."

At present, the Royal Mail has to pump £800 million a year into its pensions, reducing profits.

A report handed to Business Secretary Lord Mandelson by Richard Hooper, the former telecoms regulator, is understood to propose a sweeping reorganisation in which a share of the state-owned firm would be privatised, generating funds to invest in better efficiency.

The postal business has suffered huge drops in profit because of increased competition from emails and rival firms, seeing its volumes sink by up to seven per cent a year.

Ministers want to safeguard a universal delivery service and are also bound by a pledge to keep the Royal Mail publicly owned. Just under half may be sold off.

Lord Mandelson's department would not comment on the Hooper report.

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