The European Commission has approved the Government taking on £37.5bn of Royal Mail’s pension liabilities.
The move will also see £28bn of assets transferred to the Government books and will remove a major obstacle to privatisation of the service. The EC will today announce whether the transfer breaks state aid rules.
This morning, European Commissioner for competition Joaquin Almunia approved the transfer.
He says: “In order to achieve a level playing field in postal markets, it is crucial that incumbent operators neither enjoy undue advantages, nor suffer from structural disadvantages in comparison with competitors. The relief of excessive pension costs and the restructuring aid approved today will help ensure this balance for Royal Mail and its competitors.”
According to the Financial Times the move will be seen as an early victory for newly appointed postal affairs minister and Liberal Democrat MPNorman Lamb who championed privatisation in opposition. The proposed transfer follows an independent review of the Royal Mail by Richard Hooper in December 2008 which suggested the historic liabilities of the scheme should be transferred to the state.
The £28bn of assets will be set against public sector net borrowing. The Treasury says it will “appear very beneficial to the public finances” but insists it will not view the transfer as a “windfall”.
The £37.5bn of liabilities will only show up in Government books over the next 20 or 30 years. Figures released last July by the Treasury show the net public service pension liability already stands at £1.13trn, nearly half of all Government liabilities.
Labour has accused the Government of “accounting trickery” to make the books look better on Budget day. Shadow Treasury chief secretary Rachel Reeves says: “George Osborne seems to be doing everything he can to try and hide from the fact that he is set to borrow an extra £158 billion because of the higher unemployment and slow growth his failed policies have delivered.”
If state aid approval is granted by the European Commission the assets and liabilities of the scheme will be transferred to the Government in April this year.