Royal Mail will now delay its response to the regulator over pricing proposals, which was due next Monday, until it has the Treasury’s decision on what would be a rights issue by the Government. The Government would effectively give extra shares to itself, boosting its holding and therefore the theoretical value of Royal Mail, which is expected to be about £5 billion.

The Government’s support for extra investment is crucial to whether Royal Mail accepts a pricing programme for the next three years. If it does not get the money it expects, it will, as it has said previously, ask the Competition Commission for adjudication. Royal Mail now wants to decide its next move at a board meeting scheduled for March 13.

Meanwhile, Royal Mail’s hopes of giving shares to staff, which have triggered fears of privatisation, took a fresh blow yesterday as the organisation was forced to agree a statement with its main union that the move is not a priority. A share ownership plan will form a key part of the financial restructuring, but it has met with strong political opposition. Some 214 MPs, mostly Labour, have signed an early-day motion against the plan because they believe it to be a precursor to privatisation.

The agreement between Royal Mail and the Communication Workers’ Union says: “Royal Mail and the CWU recognise that in both ‘Have Your Say’ and our recent consultative exercise, our employees have clearly prioritised increases in basic guaranteed pay over other employee benefits.”

Royal Mail has also been forced to back down on other issues in the agreement, which is designed to enable a round of cost-cutting and pay talks to take place. The organisation has abandoned plans to save £370 million before the end of the financial year in favour of no fixed targets but cost-cutting at a local level. It has also stated that there will now be no national plan to make full-time jobs part-time, although this aim was relayed to the union.

Royal Mail has also agreed that 40 per cent of cost savings made will go to improving pay. If those savings were the £370 million initially targeted, it would mean an extra £822 a year for each postal worker.

Dave Ward, deputy general secretary of the CWU, said: “This demonstrates that the interests of the company and the union can work together. We are intent on raising the value of postal workers’ jobs and pay.”

A spokesman for Royal Mail said that the agreement to make basic pay a priority was a separate issue from employee share ownership, to which the organisation was committed.

Talks between ministers and Royal Mail are expected to continue over the next few days as they reach a critical phase.

Royal Mail first said last summer that it needed government cash to compete with more mechanised rivals now that the market is fully competitive. Since then, there have been doubts over whether the Government can legally help to fund the £4.5 billion pension deficit or whether assistance must be purely for investment.

PRICE DELIVERY

July 2005: Postcomm issues initial pricing plans. Royal Mail rejects them as impossible to implement, citing investment needs and a £4.5 billion pension deficit

December: Postcomm issues final pricing plan. Royal Mail says it is better, but calls on the Government for £2 billion investment. The Government considers a rights issue although it is the sole shareholder. A parliamentary motion opposing Royal Mail employee share ownership gains 214 signatures, mostly from Labour MPs

January 2006: Royal Mail outlines efficiency drive, aims for £370 million of savings and plans to move jobs from permanent to part-time. Sources at the Department of Trade and Industry are surprised that Royal Mail has not produced a business plan for state investment

February: Royal Mail submits business proposal

March 1: Royal Mail agrees framework for efficiencies with Communication Workers Union. Talks continue with the Government about a cash injection

March 6: Response to Postcomm’s pricing proposal due. However, the issue is not expected to be resolved on the day

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