I have today proposed the basis of the financial framework for Royal Mail that the Government as shareholder have, in principle, agreed with the company. This will fulfil our commitment to see a publicly owned Royal Mail restored to good health and providing customers with an excellent service and its employees with rewarding employment. It will give Royal Mail the freedom it needs to use its financial resources as it sees fit so that it can invest to succeed in a fully competitive and tightly regulated market.

The Government intend to exercise their powers under section 72 of the Postal Services Act 2000 to release £850 million of reserves that Royal Mail has built up through past profitable performance so those funds can be transferred to a special account, the pension escrow account, upon which the pension fund trustees could draw, should Royal Mail fail as a business. When the pension fund deficit has been recovered and Royal Mail's balance sheet strengthened by successful operation, it is expected that the escrow fund will be released and surplus cash may be returned to the Government as shareholder. This arrangement provides confidence to pensioners and a sustainable financial framework for Royal Mail.

Government have agreed in principle to extend the existing debt package such that £900 million is available for use by the Royal Mail. This will allow the company to embark on an investment programme so that itcan transform its effectiveness, secure the efficiency improvements required under the regulatory settlement and successfully compete in a newly liberalised market.

As part of the overall financing arrangements for Royal Mail, Social Network Payments of £150 million per annum for the next two years and any further support for the Post Office network for the period from 2008 will be met from voted expenditure. The level of any support after 2008 will depend on decisions on the future of the Post Office network and we will be consulting about this.

I am confident that these proposals will enable Royal Mail to implement its ambitious transformation plans to secure a successful future in a competitive market under the regulatory regime.