Threat to government's Royal Mail help
19 May 06
Assistance package could breach EU competition laws
UK ministers have been threatened with legal action, following the announcement of a £1.75 billion assistance package for Royal Mail.
The package is in two parts - a £900 million loan at commercial rates and permission to draw on £850 million of Royal Mail's government-controlled reserves. The loan is for Royal Mail to invest in services, while the reserves will be used to support the pension scheme.
There were warnings from commercial postal firms and opposition MPs that the decision to help Royal Mail may contravene European Union competition laws, as governments are forbidden from using public money to help state-owned companies because of the disadvantage to commercial rivals.
The European Commission has the power to force governments to withdraw subsidies if it thinks they are unfair.
Other commercial firms were allowed to operate in the UK postal market this year, but Royal Mail still carries 97% of the country's post.
Government officials claimed the money does not count as a public subsidy because it comes from a loan and Royal Mail's own reserves. Trade and Industry Secretary Alistair Darling said the deal would help Royal Mail deal with its pension crisis and successfully compete in the marketplace. The pension fund's deficit grew last year from £4.5 million to £5.6 billion.