Royal Mail bosses threaten insolvency as pay negotiations near collapse

The Communication Workers Union and Royal Mail have been in long-running talks. If a deal is not reached, the board of the company may threaten to shut down the loss-making postal services – regulated UK entities that deliver to all addresses in the country – to prevent it from collapsing.

Royal Mail’s board considers declaring the postal service insolvent a politically explosive move, but the matter has already been raised with the union.

Royal Mail spokesperson said, “We are aware that the speculation.” “If we have any additional information to our financial statements, we are required to do so.”

Royal Mail expects to incur operating losses between £350m and PS400m this fiscal year, as its parent International Distributions Systems (IDS), previously stated.

Talks resumed after 18 days of strike in 2022. The union called an end to industrial action and said that the company had made “significant steps” toward a settlement. Brendan Barber (ex-general secretary of the TUC) was appointed as facilitator.

However, hopes of a deal are now dead. The company insists that the two are interdependent and that they have to agree on pay and working practices.

Last week, the official Twitter account of the CWU stated that “This dispute really is at a critical point.” If talks fail, the union’s National Executive will meet in the coming days to discuss further industrial action. This mandate was unanimously secured in February.

Although the Royal Mail and IDS boards still believe that a negotiated solution is the best way out of crisis, a special administration under Section 103 of the Postal Act was explored. This would result in the business being declared insolvent and unable pay its debts. It could also lead to more job loss for its 140,000 employees. The government would need to approve the application.

Only the parts of Royal Mail which operate under the universal delivery obligation, which requires Royal Mail to deliver six times a week to all addresses at the same price, would be affected. Parcelforce and some parts of the parcels operation would not be affected.

A threat of administration could be enough to cause chaos. Royal Mail made operating profits of PS416m thanks to extra demand from the Covid pandemic. This was in the March 2022 financial year.

It is not clear who the government could appoint to manage the postal service. Bulb, an energy supplier that failed, was the last company to be placed into special administration. Octopus Energy bought it at the end last year.

Many City analysts believe Royal Mail has a negative economic impact on the IDS’s stock exchange capitalization of £2.2bn. GLS, an Amsterdam-based international parcels company, is also part of the group. This business has adjusted operating profits in the range of EUR370m to EUR410m.

Keith Williams, IDS chair, mentioned the possibility of a group breakup last year. He said in November that “The board reiterates the fact that in the event there is no significant operational change at Royal Mail, it will consider all options to preserve the group’s value, including the possibility of seperating the two businesses.” IDS shares fell 4% Monday.

A spokesperson for CWU stated that Royal Mail Group is in a difficult financial position. This is due to recklessness and mismanagement at the highest levels of the company. The people who led us into this crisis are not qualified to guide us out.

“The company has a decision to make: do they reach an understanding with the union, or continue their relentless assault on postal workers at workplaces throughout the UK?” Without the support of its workforce, Royal Mail cannot have a positive future.”