After the budget: Price of postage may have to rise

The Post Office and British Telecom are among the first companies to hint at the effect the abolition of the tax credit on Advanced Corporation Tax will have on them.

Though the reduction in corporation tax from 33 per cent to 31 per cent has softened the blow, actuaries still calculate that the ending of the tax credit for pension funds will add about 10 per cent to the liabilities of companies operating occupational schemes.

Many local authorities which have already seen their funds severely stretched by government cutbacks, warned that council tax may have to rise, or services cut, as they seek to make up the shortfall in their pension funds.

The Post Office would not rule out an increase in the price of postage stamps yesterday after the Chancellor's removal of pension fund tax relief left the organisation with a bill of around pounds 150m.

Executives from the Post Office were yesterday seeking a meeting with the Department of Trade and Industry to discuss how it could meet the extra cost. The bill is almost the same as the pounds 130m raised last year when postage stamp prices rose by 1p.

The Post Office's two pension funds could see pounds 1bn knocked off their pounds 10bn value. "This missing link is what the DTI will say about our ability to meet Treasury financing limits," said a spokesman.

Though the Post Office this week revealed record profits of pounds 577m for last year year, it had to pay pounds 285m straight back to the Treasury and a further pounds 216m in corporation tax, leaving a buffer of just pounds 76m. This year the sum paid into Treasury coffers will increase to pounds 313m, a source of long-standing concern to Post Office directors who wanted freedom from Exchequer constraints.

The spokesman said the Office would need a detailed review of the fund before it could calculate the precise cost of the measure. "It's just too early to say what the precise impact is. You couldn't say there will be a stamp rise, you couldn't say there won't be a stamp rise."

Though stamp prices have been frozen until at least April 1998, this week the Post Office could not guarantee it would stick to its pledge.

BT also expected to have to put further cash into its pounds 20bn pension fund yesterday. "There obviously will be an effect on us. BT is committed to maintaining the health of the pension fund," said a spokeswoman.

The 119,000 employee members pay contributions of 6 per cent, matched by 9.5 per cent from BT. The fund had a surplus of pounds 800m in 1995.