European Commission to investigate Royal Mail overhaul

Towards the end of July the European Commission opened an investigation to determine whether the UK government’s planned financial restructuring of Royal Mail breaches EU state aid rules.

The probe will examine whether the Government’s proposals to write off Royal Mail’s debts and take responsibility for its multi-billion pound pension deficit meet EU guidelines for state aid.

According to the European Commission, the Royal Mail has an estimated pension deficit of £8bn and around £1.7bn of debt.

The Commission stated it had ‘doubts that Royal Mail’s restructuring plan foresees adequate measures to mitigate any distortions of competition brought about by the state intervention and to ensure a sufficient own contribution to the cost of restructuring.’

In a statement, the European Commission also said “The UK authorities have not convincingly demonstrated that the submitted restructuring plan would comply with the guidelines.”

It went on to say that while it had previously authorised states helping their postal service with pension deficits, Royal Mail’s problems stem from declines in the stock market, an issue for all UK companies.

On receiving the news, Minister for Postal Affairs Edward Davey said: “State aid approval is the next critical step in our plans to put Royal Mail on a secure footing.  Today’s announcement was expected and is the start of the EU’s state aid procedures.”

“It is only right that the Commission has opened the state aid process to properly investigate the process.  However, we are keen to resolve the case as soon as possible and are seeking a resolution by March 2012.”

The opening of the investigation will also allow third parties – such as Royal Mail’s competitors and European counterparts – to comment on the measures under examination.

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