The company that owns Royal Mail is considering job cuts and price rises on stamps and parcels as it blamed the Labour government’s first budget in 14 years for adding £120m to its costs.
International Distribution Services (IDS) said the government’s decision to raise employers’ national insurance contributions (NICs) compounded challenges for the business as it faces one of the most turbulent periods in the history of its 508-year-old subsidiary, Royal Mail.
The group, which is the subject of a takeover bid, took a £134m writedown on the value of Royal Mail and said the NICs changes would cost the business about £120m a year from 2025-26. Royal Mail is one of the UK’s largest employers, with 130,000 staff.
Martin Seidenberg, the chief executive, said: “We’re seeing quite a massive burden coming our way in terms of the national insurance increase. We are looking at a bunch of measures and it’s just too early to say what we’re going to do exactly.
“I cannot rule out any price increases. But it’s not just about consumer stamps, we are looking at all products … that includes parcels and also business mail.”
Seidenberg said job cuts were also being considered. “We are looking at all options. But anything that does impact our people would be a last resort … we’re working through the details of the impact,” he added.
A rise in the price of stamps would come on top of five increases in first-class stamps in less then three years, including a 30p rise to £1.65 last month.
Seidenberg was speaking as IDS reported half-year results that showed a significant improvement, with overall operating losses of £26m reduced from the £243m deficit recorded at this point last year.
IDS reported a 10% rise in revenues to £6.4bn in the 26 weeks to the end of September. It said it had achieved an adjusted operating profit of £61m when stripping out one-off factors.
“We are delivering on the changes we can control, but the cost environment is worsening just at the time when we need to invest,” said Seidenberg.
The Communication Workers Union (CWU), which has engaged in a series of disputes with the company over pay and conditions, said the results showed that Royal Mail was in good health and did not need to make severe cuts.
“For the overall company to already essentially be at break-even point after years of gross mismanagement is a testament to the work of every postal worker in the UK,” the union said. “It also shows the company can have a brighter future if the focus goes back to properly rewarding its employees and delivering for its customers.”
The company said the impending increase to costs bolstered its case for reform of the universal service obligation (USO), the rules governing when and how often Royal Mail must deliver in the UK.
The company is required to deliver post from Monday to Saturday nationwide under the terms of the USO.
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However, Royal Mail has put forward a plan to reduce second-class deliveries to alternate weekdays.
The CWU has so far opposed cost-cutting plans to pare back services. Industrial action by the union was among the factors contributing to the company plunging to a £1bn loss in the year to March 2023.
Soon after, the company lost its 360-year monopoly on the delivery of parcels from Post Office sites, while it has also faced heavy criticism for failing to deliver 80% of first-class letters on time.
This year, IDS agreed to a £3.6bn takeover offer from the Czech billionaire Daniel Křetínský, prompting the government to examine the potential impact on UK infrastructure from the deal and scrutinise any national security risks.
Křetínský has promised to cut costs at the company and restore it to a sound financial footing, in a takeover saga that started in April.
Křetínský is awaiting the government’s verdict, though IDS bosses said on Thursday that they expected the deal to be complete by March, pending the government review.
The Cabinet Office “called in” the proposed takeover in August. An initial 45-day timeline for the review has passed, indicating that the government extended the period of scrutiny. A Cabinet Office spokesperson declined to comment.