Royal Mail owner blames Labour budget for preventing return to profit

The company that owns Royal Mail has blamed a £134m hit from Labour’s first budget in 14 years for preventing a return to profit, as its underlying financial performance improved.

International Distribution Services’ half-year results illustrate the difficulties it is facing during one of the most turbulent periods in the history of its 508-year-old subsidiary, the Royal Mail.

This year, IDS agreed to a £3.6bn takeover offer from the Czech billionaire Daniel Křetínský, prompting the government to examine the potential impact on UK infrastructure from the deal and scrutinise any national security risks.

But on Tuesday, with Křetínský still awaiting the government’s verdict, the company reported a significant improvement under its own steam, with a 10% rise in revenues to £6.4bn. It said it had achieved an operating profit of £61m when stripping out one-off factors.

However, it said it still made an operating loss when including a £134m impairment – a one-off accounting charge related to the value of the Royal Mail brand.

It said this was down to the expectation that the increase in employers’ national insurance contributions, announced by the chancellor, Rachel Reeves, in last month’s budget, would cost it £120m a year from 2025-26. The Royal Mail is one of the UK’s largest employers, with 130,000 staff.

The half-year result still represented a significant turnaround, with overall operating losses of £26m massively reduced from the £243m deficit recorded at this point last year.

But the company said the impending increase to costs bolstered its case for reform of the universal service obligation (USO), the rules governing when and how often Royal Mail must deliver in the UK.

“We are delivering on the changes we can control, but the cost environment is worsening just at the time when we need to invest,” said its chief executive, Martin Seidenberg.

“As a major employer with around 130,000 permanent employees, the changes to national insurance will disproportionately impact our business relative to competitors.

“This makes universal service reform even more urgent.”

Royal Mail is required to deliver post from Monday to Saturday nationwide under the terms of the USO set down by an act of parliament in 2011. Any change to this would require approval from the government.

Amid a long-running series of industrial disputes with the company, the Communication Workers Union has so far opposed cost-cutting plans to pare back it services. However, Royal Mail has put forward a plan to reduce second class delivers to alternate weekdays.

These disputes were among the factors that saw the company plunge to a £1bn loss in the year to March 2023.

Soon after, the company lost its 360-year monopoly on the delivery of parcels from Post Office sites, while it has also faced heavy criticism for failing to deliver 80% of first class letters on time.

Křetínský has vowed to slash costs at the company and restore it to a sound financial footing, in a protracted takeover saga that started in April.