Royal Mail warns of £120m hit from national insurance rise

Royal Mail has warned that its heavily lossmaking business will be hit by a further £120 million of costs from the budget increase in employer national insurance contributions.

With retailers and the hospitality trade already issuing grave warnings on the impact of the rise in tax on companies, Royal Mail said it was going to be hit disproportionately because of the size of its 130,000-strong workforce.

The business, part of the stock market-listed International Distribution Services (IDS), said it would also be writing down the value of Royal Mail by £134 million to £1.91 billion to reflect the increased tax burden.

Royal Mail and IDS remain in limbo. The board of the company has controversially agreed to a £3.6 billion takeover by vehicles controlled by Daniel Kretinsky, a Czech energy tycoon whose interests also extend to a large stake in the Dutch mail monopoly PostNL, and holdings in Sainsbury’s supermarkets and West Ham United Football Club.

The IDS takeover has been called in for a “national interest” review by the Labour government, which pledged in its manifesto that it would wave the deal through only if Kretinsky “maintains a comprehensive universal service” and gives workers “a stronger voice in the governance and strategic direction of the company”.

Royal Mail in the UK remains the weak part of a group that includes the international courier firm GLS, long seen as the jewel in the company.

For the six months to the end of September, IDS reported that Royal Mail had made a loss of £138 million. Although that is an improvement on the £383 million loss it made in the first half of the previous year, it came despite an 11 per cent increase in revenues to £3.92 billion bolstered by an increase in postal activity around the July general election.

The picture is not so good either at GLS, which operates in Europe and North America. Its revenues grew 4 per cent to £2.43 billion but profits slumped by a fifth to £112 million. It blamed that on “macroeconomic pressures” in Germany, its biggest market, and Italy.

The company is forecasting that Royal Mail will return to profitability for the full year at the end of March, although that is not counting the cost of its rolling redundancy programme. It also warned that the “fiscal and regulatory backdrop is adding cost and inflexibility to the business”, repeating its demands that the business can become sustainably profitable only if the government relaxes the obligation to deliver six days a week around the UK on a one-price-goes-anywhere tariff.

In her maiden budget last month, Rachel Reeves chose to raise about £20 billion a year by increasing employers’ national insurance contributions to 15 per cent from next April, while lowering the threshold at which employers have to pay the new rate from £9,100 to £5,000, bringing in more part-time workers for the first time.

Martin Seidenberg, chief executive of the group, promised that whatever the long-term problems of the business it would be a happy Christmas for users of its services. “As we enter our busiest period, we are well prepared to deliver Christmas, with around 4,000 new vehicles being delivered before peak, 16,000 extra people, extended delivery hours until 8pm and our growing network of parcel lockers and parcel shops,” he said.

“We are delivering on the changes we can control but the cost environment is worsening just at the time when we need to invest. As a major employer with around 130,000 permanent employees, the changes to national insurance will disproportionately impact our business relative to competitors. This makes universal service reform even more urgent.”

• The chief executive of John Lewis became the latest retail executive to join the chorus of criticism over the budget, calling it “sort of a two-handed grab”. Nish Kankiwala, who heads the department story chain and Waitrose, said the group faced “tens of millions” in additional costs. He told the Financial Times: “If they could delay the national insurance [changes], but also if they could fundamentally bring forward a radical reshaping of business rates, I think it will make a massive difference. Not just for small and medium enterprises, but I think for retail generally. It’s very important.”