Royal Mail Financing

Trade and Industry written statement – made on 8th February 2007.

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Photo of Alistair Darling Alistair Darling Secretary of State for Trade and Industry

The Government and Royal Mail have agreed to the financing framework following my statement of 18 May last year.

The financing framework will provide Royal Mail with the ability to manage its pension deficit and invest in modernisation to improve its performance and efficiency. In addition to the loan facilities of £900 million and the transfer of £850 million of reserves into an escrow account to support the pension fund announced last year, we have also agreed to make an additional shareholder loan of £300 million available to the business to provide the company with adequate financial headroom. As with the proposed framework already announced, all financing for the Royal Mail will be on commercial terms. We plan to agree the final legal documentation and have these measures in place by 25 March 2007.

We have also agreed with Royal Mail management a reward scheme that allows the employees to share in the value they help to create in the business as it improves its performance.

Under this reward scheme the Government have agreed to the company providing employees with partnership units of a notional value equivalent to a 20 per cent. economic interest in the projected equity value of the group in the ordinary course of business and based on the management's plan. This will allow employees to share fully in the value they help to create. In addition we have agreed to the replacement of the current and highly effective Share in Success programme with a new scheme. To provide adequate certainty for the public finances, while properly rewarding the efforts of Royal Mail employees, the partnership unit scheme will run for the duration of the Royal Mail Letters' transformation plan, up until March 2012. Employees can receive a maximum of £5,300 over the period.

The scheme aligns employee, management and shareholder interests in making all parties committed to the successful performance of the business—this is the right approach in a fully competitive market.

We fully support the business in delivering the programme of reform that it needs to undertake. We recognise that there a number of difficult changes that need to be made to the way the company operates, including limiting the pension liability going forward, and fully supports the business in making them. It is for the management and staff to make the changes necessary to give the company a sound platform on which to build for long-term success in a competitive market.