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Royal Mail 'must be sold'

Royal Mail is an unsustainable business that will struggle to survive in its current form unless it gets an injection of private capital, a report into the group's future said yesterday.

Richard Hooper, the former deputy chairman of Ofcom, who was asked by the former Labour Government to review Royal Mail's position in the industry, said yesterday that parts of the business should be sold to trade buyers, or floated.

His latest recommendations were immediately accepted by Business Secretary Vince Cable, who said that without the reforms Royal Mail faced some “potentially lethal challenges”.

A new Postal Services Bill will be introduced in the House of Commons by the end of the year, although Mr Hooper and a spokesman for the Department for Business refused to comment on how much of Royal Mail would be sold. A slice of the company is likely to be offered to employees.

Yesterday's findings, which update an initial report published in December 2008, make grim reading on the situation facing Royal Mail.

The decline in the number of letters being sent is greater than previously forecast, Mr Hooper said, with worldwide falls of between 25% and 40% expected in the next five years. The decline is unlikely to be offset by the continued growth in parcels —a result of internet shopping, he added.

“If all the recommendations in my updated report are implemented without further delay,

and Royal Mail modernises to best-in-class with management, workforce and unions working together, then despite the very real market difficulties the company has a healthy future,” he said.

Mr Hooper added that one of Royal Mail's biggest problems, its burgeoning pension fund deficit, has also deteriorated, and that the £8bn hole that was identified earlier this year “is even more unsustainable than 18 months ago”.

As a sweetener to potential trade buyers, the report recommended that the pension deficit should be taken over by the Government, a proposal that was also accepted by the Business Department yesterday. The private-sector mail groups were guarded in their reaction yesterday, saying that they would need to digest the details of any legislation.

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