U.K. Government Rejects ‘Not for Profit’ Plan for Royal Mail

U.K. business minister Pat McFadden denied the government is planning to turn Royal Mail Plc into a not-for-profit organization to quell a political rebellion.

The proposal, demanded by some activists from Prime Minister Gordon Brown’s Labour Party, would do little to modernize the company or help it fund its pensions, said McFadden, who is in charge of overseeing plans to sell a stake in the postal service. A total of 180 lawmakers, mostly from Labour, want Royal Mail to remain in state hands.

Transforming Royal Mail into a not-for-profit company similar to Network Rail, the company that controls the U.K.’s railroads, is “driven by the politics of finding a solution around a political fix, rather than the transformation that’s needed,” McFadden told BBC Radio 4 today.

Royal Mail, with annual revenue of 8 billion pounds ($12 billion), says the Internet is costing it profit of 500 million pounds a year and corporate rivals another 100 million pounds. It has a 7 billion-pound pension deficit and 200,000 workers, who walked off the job last year protesting reforms that managers say are needed to keep up with rivals.

Britain’s 360-year-old service is struggling to cope with competition from TNT NV of the Netherlands, DHL Worldwide Express of Florida and Business Post Group Plc as European Union rules phase in competition for deliveries between 2011 and 2013. Business Secretary Peter Mandelson in December proposed selling a stake in the postal service to TNT.

Compass, a pressure group that aims to influence Labour policy, is calling for the not-for-profit model to be applied to Royal Mail. The plan would keep the mail operator in public hands and would be funded by the government and private investors. It would be run by managers at arm’s length from the government.

‘Inexplicable’

“The not-for-profit option offered the prime minister a get out of jail free card and it is inexplicable that he has turned his back on it,” Mike Weir, a Scottish National Party lawmaker, said in a statement today. “He is now on a kamikaze collision course with his own party.”

Labour lawmaker Geraldine Smith in January proposed a parliamentary motion calling on ministers to back a “wholly publicly owned” postal service and to abandon plans to sell a minority share in the business, which “would risk fracturing one of Britain’s greatest public services.”

Just 32 of the 180 lawmakers signing the motion could block legislation to sell the stake if they chose to vote against the government. Brown commands a majority of 63 seats in the House of Commons and would have to rely on support from David Cameron’s Conservatives to get new rules passed.

“I understand this is difficult for some colleagues,” McFadden said. “We did not set out to pick a fight with backbenchers or trade unions, but we have a responsibility.”

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net; Kitty Donaldson in London at kdonaldson1@bloomberg.net.

To contact the editor responsible for this story: James Hertling in Paris at jhertling@bloomberg.net

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