By Marcus Leach

Government legislation to safeguard the future of Royal Mail and keep the Post Office in public ownership has been agreed by both Houses of Parliament.

“Today marks a significant milestone for Royal Mail. Legislation has now been agreed that will help tackle the huge challenges facing the company," Business Secretary Vince Cable said.

“Royal Mail and the Post Office are important and cherished parts of our society. It was vital we took swift action to put them both on a sustainable footing.

“Passing the legislation, reforming regulation, getting state aid approval, tackling the pension deficit - these are all vital steps that will provide momentum towards a sale of Royal Mail. They will also give the company the security and certainty it needs to press ahead with its essential modernisation programme.”

During the final debate in the House of Commons the Minister for Postal Affairs Edward Davey set out the next two crucial steps that need to be taken to secure the future of Royal Mail: obtaining state aid approval from the European Commission and changing the regulatory regime.

The Minister confirmed that the Government intends to take on Royal Mail’s historic pension deficit with effect from March 2012 as part of the preparations for a sale of the company.

It also intends to restructure the company’s balance sheet in due course. Royal Mail currently has around £1.7billion of debt facilities with the Government. Ministers believe that for Royal Mail to be on a sustainable commercial footing going forward this will need to be restructured and Royal Mail’s level of debt will need to be reduced substantially.

The Government needs approval from the European Commission to provide this financial support and informal discussions have now begun with the Commission. The Government will submit a formal state aid notification in the next few days. It hopes that the process will be completed by March 2012.

At the same time, work to establish a new regulatory framework for postal services is already underway. The Bill provides for the transfer of regulatory responsibility from Postcomm to Ofcom alongside significant reform of the existing regime, ensuring that regulation is proportionate to the needs of the market. Ofcom will launch a consultation in the autumn with a view to establishing the new regulatory framework in spring 2012.

“Today is unquestionably a major step forward in protecting our universal postal service and our Post Office network," Minister for Postal Affairs, Edward Davey, said.

“We have worked extremely hard to ensure the best possible outcomes for the taxpayer and the dedicated employees of Royal Mail and the Post Office up and down the country.

“At least 10 per cent of the shares in Royal Mail will go to its employees as part of the sale process. Royal Mail’s staff will get secure pensions. And the proposed support will ensure that the company is on a sound commercial footing and can operate on a level playing field.”

The Postal Services Bill is expected to receive formal Royal Assent shortly.

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