£28bn pension windfall to reduce deficit

George Osborne will use a £28 billion windfall from the transfer to the state of Royal Mail pensions to reduce the deficit and not to pay for major projects, the Treasury said.

The cash bonanza is expected to become available within weeks - with officials confident the EU will approve the deal in time for the Chancellor to announce it in Wednesday's Budget.

Taking over the pension scheme - which has a near £10 billion deficit - is designed to make the organisation more attractive to investors as the Government seeks to privatise it.

Once completed, Mr Osborne will be able to sell off the billions of pounds worth of shares, bonds and properties that have been accumulated among the fund's assets.

Accounting rules mean however that the £37.5 billion liabilities will be absorbed into the rest of the state pension system and so won't immediately show on the Government books as debt.

The Chancellor was reported to be under pressure from Tory donors and backbenchers to splash the extra money on infrastructure projects such as roads, schools and power stations.

But the Treasury said it would go immediately to cut the UK's record deficit.

News that the transfer could happen within weeks was welcomed by the Communications Workers Union (CWU) which has campaigned for several years for the state to take over the pension.

A spokeswoman said: "This will protect the pensions of postal workers who have faithfully paid contributions for decades.

"We've consistently argued that the Government has a moral obligation to take on the pension deficit, partly as owner of the company and for allowing Royal Mail to take a 13-year contributions holiday.

"They laughed in our face when we suggested it so it's been a long journey getting here."

The union remains opposed however to the privatisation, which is not expected to happen this year.

PA