Alistair Darling, the Trade and Industry Secretary, yesterday blocked Royal Mail’s controversial plans for an employee share ownership scheme because it would be too costly.

The move is a body blow to Allan Leighton, Royal Mail’s chairman, who has championed it as the linchpin of his plans for the business. Mr Leighton wanted to incentivise workers by giving them a 20 per cent share of the group, worth £5,000 each, which could then be sold in a trust.

Mr Darling also raised fears over the finances of the postal group as it loses key contracts, including those from government departments.

Mr Darling told the Trade and Industry Select Committee that cost had been the biggest worry over the scheme. He said that public expenditure would take a hit when shares were issued, expected to be about £1 billion, and there would be renewed financial uncertainty when employees traded the shares.

He also said that any move to change Royal Mail’s ownership would need the backing of parliament and that that could take 18 months. He said that would trap the organisation in financial uncertainty at a time when it “faces formidable competitive pressure”.

But Mr Darling said that the Government was still discussing an incentive plan with Royal Mail which would not involve any change of ownership.

Peter Luff, chairman of the Trade and Industry committee, said that it would back such a move if it were “profit-sharing with knobs on” because the committee had seen no information from Royal Mail to support the scheme.

Nearly 200 Labour MPs had signed a Commons motion opposing any change of ownership for Royal Mail. John Grogan, Labour MP for Selby, who tabled the motion, said: “It is a big blow for Allan Leighton and Adam Crozier [chief executive] and I hope they will now put their very considerable talents to running the business.”

Billy Hayes, general secretary of the Communication Workers Union, said: “The Government is keeping to its manifesto commitment on public ownership of Royal Mail. That’s great news for postal workers, the public and the Government.”

A spokesman for Royal Mail said that the organisation was very close to agreeing with the Government a “John Lewis Partnership type share scheme which will give our people 20 per cent of the economic value of the company”.

Allan Leighton

‘It is my intention to drive a bigger share of the business to the employees . . . that is fundamental to the plan working or not’

May 17, 2005

‘This is a commercial entity. Everyone thinks it is a public service but it is not . . . I think we can get all the benefits of privatisation without going the whole hog’

October 19, 2005

‘If you ask 100 of the FTSE 100 chairmen do they think it is a good idea, 100 per cent would say yes, absolutely. It’s what is best for the business’

November 13, 2006

Alistair Darling

‘We have decided not to go down the road of an employee share ownership scheme . . . The biggest thing on my mind is the cost. I have to have regard to public expenditure commitment’

‘Royal Mail has lost a number of contracts, that is of a great deal of concern to the Government’

‘Royal Mail faces formidable competitive pressures . . . Royal Mail has got to make some pretty fundamental changes to the way it works . . . it has got an awful lot of work to do’

January 24, 2007

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