Royal Mail plans to shed 40,000 jobs by 2016

Royal Mail is preparing to slash nearly 40,000 jobs over the next five years as it seeks to combat the inexorable decline in postal volumes and privatisation.

The postal operator has already agreed a three-year deal with the Communication Workers Union to cut headcount by 8,000 a year until 2013. But Moya Greene, who became chief executive last July after leaving Canada Post, is expected to drive through a further 15,000 by 2016. Ms Greene is close to agreeing a revised business plan with the Government for a slimmed-down Royal Mail. This will make it more attractive to potential buyers next year after the privatisation process gets the green light.

The Government is set to receive royal assent for the bill to privatise the postal operator this summer.

The Royal Mail has 165,000 staff, which makes it the second-biggest employer in the UK after the NHS.

However, in a world of burgeoning electronic communications for letters, greeting cards and invoices, it has already cut 65,000 jobs since 2002.

Details of the renewed cost-cutting come ahead of the expectation that Royal Mail will say in its annual results that the letters division slumped into the red in 2010.

A spokesman for Royal Mail would not comment on future job loss figures but said: "We have always been clear that Royal Mail would be a smaller and more efficient company over time. This change is naturally a difficult process for our people and we are committed to working closely with unions."

In its most recent results, the Royal Mail's operating profits tumbled by 73 per cent to £52m for the six months to 26 September. Worse still, its cashflow was negative at £229m, which it said was the result of "continuing investment in modernisation".

But the Government plans to pump around an extra £1bn into Royal Mail to help shore up its finances. It has also proposed to take over the firm's pension scheme, which has a £8.4bn deficit.