Royal Mail bosses threaten to declare insolvency as pay talks near collapse

Royal Mail bosses threaten to declare insolvency as pay talks near collapse

28 Mar    Finance News, News

Long-running talks between Royal Mail and the Communication Workers Union are on the brink of collapse, with the company’s board thought to have threatened to put the loss-making postal service – the regulated UK entity that delivers to every address in the country – into a form of administration if a deal cannot be agreed.

A politically explosive move to declare the postal service insolvent is regarded by Royal Mail’s board as a last resort but has been raised with the union already.

“We are aware of the speculation,” said a Royal Mail spokesperson. “If we have anything to add to our previous financial statements, we have an obligation to do so.”

Royal Mail is on course to make operating losses of £350m-£400m this year, its parent – the recently renamed International Distributions Systems (IDS) – has previously said.

After 18 strike days in 2022, talks reopened in the new year and the union paused industrial action, saying the company had made “significant moves” towards a potential settlement. Brendan Barber, a former general secretary of the TUC, was brought in as a facilitator for the talks.

But hopes of a deal have faded over the past week. Sticking points include not only pay but also changes to working practices, with the company arguing the two are interdependent.

“This dispute is truly at a crunch point,” the CWU’s official account tweeted last week. If talks do fail, the union’s national executive is due to meet in the next few days to consider more industrial action, for which a mandate was overwhelmingly secured in February.

It is thought the boards of Royal Mail and IDS still regard a negotiated settlement as the preferred way out of crisis, but a special administration under the Postal Act has been explored. This would mean declaring the business insolvent and unable to pay its dues, raising the possibility of more job losses among its 140,000 employees. Approval would be needed from the government.

It is thought that only the parts of Royal Mail that operate under the universal service obligation – the requirement to deliver to every address six days a week at a uniform price – would be involved. Some parts of the parcels operation, including Parcelforce, would not be affected.

Even a tentative threat of administration, however, could cause a political storm because Royal Mail, with the help of extra demand during the Covid pandemic, made operating profits of £416m as recently as the financial year that ended in March 2022.

It is unclear who the government could appoint as an administrator to run the postal service. The last major company put into special administration was Bulb, the failed energy supplier, which was sold to Octopus Energy at the end of last year.

Most City analysts ascribe a negative economic value to Royal Mail within the IDS’s stock market capitalisation of £2.2bn. The group also owns GLS, an Amsterdam-based international parcels business that is on course for adjusted operating profits of €370m to €410m this year.

The IDS chair, Keith Williams, raised the prospect of a breakup of the group last year and said in November: “The board reiterates that in the event of the lack of significant operational change in Royal Mail, it will look at all options to preserve value for the group including the possibility of separation of the two businesses.” Shares in IDS fell 4% on Monday.

A CWU spokesman said: “It is clear Royal Mail Group are in a serious financial situation. This is as a direct result of mismanagement and recklessness at the most senior level of the company. Those individuals who have led the company into this crisis have no right to lead us out of it.

“The company as a whole now have a decision to make – do they reach an agreement with the union or do they continue their relentless and daily assault on postal workers in workplaces across the UK? There is no positive future for Royal Mail without the support of the workforce.”

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