Post Office's profits top pounds 470m

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The Independent Online

Industrial Correspondent

The Post Office yesterday promised a price freeze on letters until at least next March as profits soared by more than half to a record pounds 472m.

The freeze was immediately attacked by the Mail User's Association which called for a cut of at least 1p a letter. The Post Office said that this would cost millions of pounds a year and ignore the challenge of increased competition and the speed of technological change in the marketplace.

Michael Heron, chairman, said: "We will continue that freeze as long as we can."

The Post Office also repeated earlier warnings that 15,000 jobs could go over the next five years as the result of new technology, from a workforce of 189,000. Bill Cockburn, chief executive, said any jobs would be offset to an extent from expansion into other businesses.

The results - the first to be announced since the Government abandoned plans to privatise the Post Office - show that pre-tax profits jumped from pounds 306m in 1993/94 in spite of continuing losses at Parcelforce. Royal Mail made taxable profits of pounds 449m with 67 million items now handled each day.

The Post Office warned, however that most of the growth comes from bulk mail services for businesses, an area being increasingly targeted by rivals. The volume of pre-sorted mail grew 30 per cent during the year compared with under 1 per cent for pillar-box post.

Mr Heron called on the Government for more commercial freedom to compete in the UK and overseas.

He welcomed recent moves to relax limits on the Post Office's investment and ability to raise money, and to allow partnerships with the private sector. But he added: "It would not be true to say that we are happy with the current situation. There is a lot more to be gained.

"We need to be a plc. We need to be out of the public sector borrowing requirement and we need to allow a spirit of entrepreneurship within the Post Office."

Mr Heron said that commercial freedom rather than ownership was the key to the organisation's success but added that privatisation could not be regarded as "gone forever".

"The future of the Post Office is as vibrant an issue as it ever was. We have made serious headway in relation to more freedom but we have a long way to travel," he said.

Mr Heron said that the Post Office had been driven to short-term decisions by the Treasury's demands for cash and needed to focus on developing the business for the medium and long term. In 1994/95, the organisation's external financing limit - the amount it pays the Government - was pounds 226m in addition to normal corporation tax.

The Post Office exceeded the target with a payment of pounds 235m, bringing total payments to pounds 1.25bn since 1981.

Mr Heron said: "We are not costing taxpayers a penny. Instead, we are reducing the tax bill in one way or another and all this against a background of uncertainty."

The Government plans to ease the Post Office's financial burden in future by setting the EFL at half of forecast post-tax profits rather than an arbitrary sum. Mr Heron said that the result would be an increase in capital investment to about pounds 500m a year from an average pounds 300m at present. This would include a pounds 130m programme to automate the network of post office counters. Companies including IBM, ICL and BT are vying to take part in the modernisation.

Mr Heron said that the post office counters business had been transformed by the Government's decision to allow a wider range of products and services.