Pensions blow for BT as Ofcom blocks price rises

BT's attempt to raise prices to help it plug a £7.5bn black hole in its pension scheme was blocked by the communications watchdog yesterday.

Ofcom refused to alter how it takes BT's pension costs into account when setting charges for the landlines and broadband services the company sells to rivals. The broadband providers British Sky Broadcasting (BSkyB) and Talk Talk had asked Ofcom to block BT's move to raise its wholesale prices.

The regulator currently takes BT's ongoing pension payouts into account but excludes any payments to reduce the deficit. Yesterday, it said it had "not received compelling evidence" from stakeholders which would justify any change in approach. "Therefore, in this second consultation, Ofcom proposes that the current approach to the treatment of BT's pension costs be maintained," the watchdog added.

One BT insider called the decision "neutral" for the company, adding that a more positive result would have recovered "tens of millions of pounds" but would not have had a material impact on the deficit.

Ofcom has been consulting about the issue since December, when it asked stakeholders if there were good reasons for changing how it accounted for BT's pension payments. Ofcom said it believed its current position provided "consumers with regulated prices that most closely match a fully competitive market". The alternative could lead to fluctuations in BT prices linked to changes in the pensions shortfall, it added, "which would not provide certainty for stakeholders and would, potentially, lead to those prices being set at levels which do not accurately reflect the relevant underlying costs".

BT declined to comment on the financial implications of the decision but said: "It is right that Ofcom has considered this matter, as there is regulatory precedent from other industries for BT to be able to recover some proportion of its total pension costs through regulated charges.

"There are a number of elements of this consultation that we will now review in detail and respond to in due course." Ofcom intends to publish a final statement by the end of the year.

BT pumps £525m a year into the fund to pay down the deficit. However, in February it said it had failed to agree with the Pensions Regulator its plan to plug what was then a £9bn "black hole". At the company's annual meeting on Thursday, the chief executive, Ian Livingston, said the deficit had fallen to £7.5bn as equity markets recovered. Negotiations with the Pensions Regulator are continuing.

Ofcom said that during the consultation it studied three possible areas for change which might bring "regulatory certainty and consistency" to BT's pension costs: the deficit repair payments, the cost of capital (the sum BT is allowed to make from investments) and ongoing service costs (essentially payments made to people drawing pensions). It decided not to change any of the three.

As well as the dispute with the Pensions Regulator, BT is awaiting the results of a review of its "Crown protection guarantee" – the amount of state support the pension fund could expect if BT collapsed. The case was heard at the High Court this month.

Start your day with The Independent, sign up for daily news emails
News
i100
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
health
News
science
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
News
Chuck Norris pictured in 1996
people
ebooks
ebooksA celebration of British elections
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
News
A voter placing a ballot paper in the box at a polling station
i100
News
people
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
Sport
football
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power