Government agrees to £1.75bn deal to shore up Royal Mail pensions scheme and fund modernisation

The Royal Mail is to receive a £1.75bn package from the government to help plug its pension fund deficit and pay for modernisation.

About £900m will be in the form of a loan, which must be repaid by 2013. The other £850m comes from existing Royal Mail reserves, which it will be allowed to use to shore up a pensions deficit now totalling £5.6bn.

In addition to the pensions deficit, the Royal Mail needs money to modernise its sorting offices now that the UK postal market has been opened up to competition.

Last year, the company’s bosses said that they would need to invest as much as £2bn to upgrade equipment if the company was to survive.

Trade and industry secretary Alistair Darling said: “This financing framework will give Royal Mail the right basis from which to take forward an ambitious modernisation programme, helping to deliver a world class service.

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