Protect Royal Mail by giving it away, says Yeo

The former Conservative minister Tim Yeo today calls on the Government to give away Royal Mail as part of a £4bn plan to safeguard the future of the organisation.

Mr Yeo, the Tory MP for South Suffolk and an ex-environment minister in John Major's government, says the proceeds should be reinvested in the business to help motivate its workforce, protect rural post offices from closure and plug the hole in its pension fund.

Under the Yeo plan, Royal Mail's shares would be split into four. A quarter would be given to employees, each of whom would get shares worth an average of £5,000, a quarter would be allotted to Royal Mail's pension fund and a quarter would go into a trust fund set up to prevent branch closures. The remaining quarter would be sold to the public in a flotation, providing a £1bn cash injection to finance future Royal Mail investment.

Mr Yeo's idea is not official Conservative policy but he said he hoped the party leader David Cameron would study it. "My proposal should be welcomed by government and unions alike because every worker and pensioner will gain. It should be welcomed by those local communities whose post office faces the threat of closure. It should be welcomed by management because cash will be available for new investment."

The Royal Mail chairman Allan Leighton has proposed a partial employee buyout whereby 20 per cent of the company would be handed to its workforce. The shares would be held by a special trust so that no outside investors could buy into the business. He hopes to get ministerial approval in principle for the scheme this summer.

The Government has already approved a £3bn bailout for Royal Mail which involves £1.3bn of funding to support the post office network, access to a £900m credit facility to support future investment and the release of £850m of Royal Mail reserves to help reduce its pension deficit.

Mr Leighton is confident of receiving the backing of the Royal Mail workforce despite an overwhelming vote at the recent annual conference of the Communications Workers Union for the Government to retain 100 per cent ownership. However, even if his employee share plan is endorsed by ministers it could take up to two years to pass the primary legislation which would be required to enable the sale to proceed.