Lattice cuts 2,400 jobs while hinting at higher dividends

The gas pipeline operator Lattice was at the centre of fresh controversy yesterday after announcing 2,400 job losses in its Transco division and a cut in employee pensions while hinting at increased payments to shareholders.

Lattice said the job cuts and changes in pension arrangements were necessary to meet tough new price controls imposed on the business by the energy regulator Ofgem and insisted that safety would not be compromised.

But in later briefings to the City, the company indicated that it could afford to increase its debt levels to fund higher dividend payments to investors. Analysts said Lattice could add up to £2bn of debt to its balance sheet.

Three-quarters of the 2,400 Transco job losses will be among management and back office staff but there will still be a 10 per cent cut in "front-line" staff, taking the industrial workforce down from 6,000 to about 5,400. Lattice also said that new recruits to the company were being put into a defined contribution pension scheme which is less generous than the old scheme guaranteeing staff a pension equal to a fixed percentage of their final salary.

Brian Strutton, the national officer of the GMB union, said the proposed staff cuts would "put employees and the public at risk" and urged Patricia Hewitt, the Secretary of State for Trade and Industry, to intervene. Dave Johnson, the national officer of Unison, said it did not believe Transco could continue to operate safely and warned of industrial action to fight job losses.

But Sir John Parker, the Lattice chairman, said: "The board is not prepared to compromise on safety or standards of service." He also pledged that the job cuts would be implemented "as humanely as possible".

The restructuring will lead to one-off charges of £230m. But Lattice said it would produce savings of £100m a year, enabling the group to meet Ofgem's cost reduction targets within two years.

Sir John said Lattice would be spending £4.5bn over the next five years, including £2bn on its mains replacement programme which would create 3,000 jobs among subcontractors.

Lattice, which is changing its accounting year to 31 March, said pre-tax profits fell to £680m in the year to 31 December, down from a restated £734m.