Consignia to cut costs by £1bn and axe up to 20,000

Postal workers warned of industrial action yesterday after Consignia, the parent company of the Royal Mail, said it intended to cut costs by more than £1bn and reduce the workforce by up to 20,000.

A Consignia spokesman said the cost-cutting programme could mean one in 10 people losing their jobs in some areas of the business out of a total workforce of 200,000. "Compulsory redundancies cannot be ruled out," he added.

The Communication Workers Union described the cutbacks – equivalent to 15 per cent of Consignia's £8bn cost base – as a "slash and burn" policy and warned that any attempt to make workers compulsorily redundant or outsource operations would be "vigorously opposed".

Unions are already threatening to strike over plans by Consignia to sell off its vehicle fleet and the latest moves look certain to inflame industrial relations.

Consignia said it had no option but to make the cutbacks if it was to remain profitable in the face of increasing competition and regulatory pressure to improve efficiency levels.

But John Keggie, the deputy general secretary of the CWU, said: "Blaming efficiency levels and the workforce is not on. After all this is the same workforce that made the Post Office a profitable and successful organisation for over two decades."

Peter Carr, chairman of the consumer body Postwatch, praised Consignia for "confronting their problems, accepting the medicine and having the courage to take tough decisions".

The Consignia management, led by its chief executive John Roberts, is due to meet union leaders for talks in the middle of this month. The organisation hopes to phase in the cutbacks over the next 18 months.

The company aims to achieve cost savings in its Royal Mail delivery operations, parcels business and group centre. It is also looking at outsourcing more internal operations and stopping some major investment projects.

Consignia made an operating loss of £3m last year compared with a £385m profit in 1999 to 2000 after its costs mushroomed by £1bn and it was prevented from raising stamp prices. The year was also marked by a sharp drop in the reliability of service and an increase in industrial unrest. The proportion of first-class letters arriving the next day fell to 89 per cent against a target of 92.5 per cent, while days lost due to industrial action rose to 62,000.

Although Consignia recorded a £103m pre-tax profit, this was due to interest payments of £106m on reserves held by the Government which are due to come to an end.