Royal Mail warns of price rises after £120m hit from Reeves’s tax raid

Royal Mail has warned it will have to raise prices after taking a £120m hit from Rachel Reeves’s Budget tax raid.

The postal company said the Chancellor’s decision to raise employer National Insurance contributions (NICs) will have a disproportionate impact on the company given it has 130,000 workers.

Bosses said they would partially offset the increased tax bill through price rises and cost cutting, but admitted that longer-term proposals were also needed to ease pressures.

The NI tax raid prompted parent company International Distribution Services (IDS) to record a £134m writedown on the value of Royal Mail in its latest half-year results on Thursday.

The company narrowed its losses in the first six months of the year to £67m, a sharp reduction from the £319m loss posted the year prior.

Revenues also rose by almost 11pc to £3.9bn, boosted by increased demand for parcels, while letter revenues jumped 13pc thanks to rising stamp prices.

Royal Mail said it was on track to return to profit for the full year once the cost of redundancies is removed from its balance sheet.

However, bosses warned that reform to Royal Mail’s universal service obligations, which include a requirement to deliver letters six days a week, was even more necessary after the tax raid added “cost and inflexibility” to the business.

Martin Seidenberg, chief executive of IDS, 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.”

Overall, IDS swung back into the black in the first half of the year, even as its European parcels business GLS saw its profit hit by economic and regulatory uncertainty.

IDS posted an operating profit of £61m, compared to a loss of £169m last year. Revenues rose by almost £500m to £6.3bn.

It comes as the group gears up for a £3.6bn takeover by Daniel Kretinsky, the billionaire tycoon known as the “Czech sphinx”.

The takeover has come under scrutiny from ministers as the 500-year-old postal service passes into foreign ownership for the first time.

However, Mr Kretinsky’s EP Group has made a number of legally binding undertakings to help ease concerns and ministers are now expected to approve the deal.

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