Unions to spoil Royal Mail's £600m celebration after rejecting pay deal

Profits are at record highs, and a £2bn government cash injection is in the post, but industrial strife looms

The Royal Mail is set to unveil a surge in profits to £600m later this month, but is in danger of being overtaken by a row over pay after unions turned down its latest offer.

The Communication Workers Union has rejected a proposed 2.9 per cent pay increase and is seeking further talks with chief executive Adam Crozier.

The CWU's deputy general secretary, Dave Ward, said wages needed to be brought into line with the national average, which 2.9 per cent would not do. "We know it's not going to happen overnight, but as a starting point it's not enough."

But the state-owned group says it will not up "its very good offer". A Royal Mail spokesman said: "It's clearly above inflation and it comes against a backdrop of increasing competitive pressure on the business. In that context it's a very good offer and a final offer. This is what we can afford."

Royal Mail has confirmed plans to return some of the cash it saves from its latest round of cost-cutting to employees. "This has to be finalised, but we have given an assurance that 40 per cent [of the savings] will be put on top of the 2.9 per cent," said the spokesman.

However, Mr Ward said that one of the reasons the pay talks had stumbled was because the total savings had still not been calculated. "There's money to go into the pot. But they won't give us any indication of what these savings are."

The Royal Mail employs around 195,000 people. Most are likely to receive a £400 one-off payment following the results, due on 18 May, as part of its Share in Success bonus scheme.

The organisation, which includes the Post Office and Parcelforce, last year reported record profits of £537m. It is understood that it has hit its target of around £600m this year, triggering the payment. The growth is less than last year, though, when profits surged from £220m.

Mr Crozier and his chairman, Allan Leighton, have turned the business round in recent years, bringing it into the black by slicing costs. Measures included axing jobs and cutting back on services such as the second post. Stamp prices have also gone up.

But on 1 January, Royal Mail lost its monopoly when the postal service was opened up to competition, and it has requested a cash injection from Government. It wants around £2bn to upgrade outdated equipment and help plug its £4bn pension deficit.

The business plan was submitted to the Department of Trade and Industry last year, and it is understood that it has now been passed to the Treasury for approval. Senior Royal Mail insiders are confident the plan will get the go-ahead, and the Government could approve it at the same time as the results are announced.

However, a green light could result in a further showdown with unions. As part of the plan, Mr Leighton wants to hand over 20 per cent of the business to its employees. Staff would be given the shares for free and would be able to sell them only to fellow workers.

Mr Leighton has written to staff stressing that there are "no plans to privatise this business". But the CWU disagrees and has started a consultative ballot of members, asking them to oppose the issue of shares. The results of the ballot will be revealed at the CWU's annual conference on 23 May.

Mr Ward stressed that the CWU would only consider strike action over the pay offer as a last resort. He said he remained keen to continue negotiations with Royal Mail's management.