DTI: Investment will bring financial returns

Thursday, 18, May 2006 12:00

The government has said its £1.75 billion investment in Royal Mail to lessen the pensions deficit and help the firm modernise its services will benefit the taxpayer.

The package includes the release of £850 million from the company's reserves, a £900 million loan repayable at commercial rates and a promise that the government will meet expenditure for Post Office Ltd for the next two years.

Trade and industry secretary Alistair Darling said this would allow the firm to "successfully compete in a newly liberalised market".

A spokeswoman said the government is releasing Royal Mail reserves to the pension escrow account, under the Postal Services Act 2000.

When the deficit is recovered "it is expected that the escrow fund will be released and surplus cash returned to the government as shareholder", she said.

The company has undrawn borrowing facilities of £844 million, so the £900 million loan is simply an amendment and increase on this, she said.