Royal Mail has warned that it faces an additional £120 million in costs due to the upcoming increase in employer National Insurance contributions announced in the recent Budget.
The heavily loss-making postal service stated that the rise will disproportionately impact its operations because of its large workforce of around 130,000 employees.
The company, which is part of International Distribution Services (IDS), also announced it would be writing down the value of Royal Mail by £134 million to £1.91 billion to reflect the increased tax burden. This comes at a time when retailers and the hospitality industry are already expressing serious concerns about the impact of higher taxes on businesses.
Royal Mail and IDS are currently in a state of uncertainty. The board has agreed to a £3.6 billion takeover by entities controlled by Daniel Křetínský, a Czech energy tycoon with significant stakes in PostNL, Sainsbury’s, and West Ham United Football Club. However, the Labour government has called for a “national interest” review of the takeover. The government has stated it will approve the deal only if Křetínský “maintains a comprehensive universal service” and provides workers with “a stronger voice in the governance and strategic direction of the company.”
For the six months ending in September, Royal Mail reported a loss of £138 million, an improvement from the £383 million loss in the same period the previous year. This was despite an 11% increase in revenues to £3.92 billion, boosted by increased postal activity around the July general election.
The international courier division, General Logistics Systems (GLS), traditionally seen as the stronger part of the group, reported a 4% increase in revenues to £2.43 billion but saw profits decline by 20% to £112 million, citing “macroeconomic pressures” in key markets like Germany and Italy.
The company forecasts that Royal Mail will return to profitability for the full year ending in March, excluding the costs associated with its ongoing redundancy program. However, it cautioned that the “fiscal and regulatory backdrop is adding cost and inflexibility to the business.” Royal Mail reiterated its call for government reforms to the universal service obligation, which currently requires it to deliver letters six days a week across the UK at a uniform price.
In last month’s Budget, Chancellor Rachel Reeves announced plans to raise approximately £20 billion a year by increasing employers’ National Insurance contributions from 13.8% to 15% starting next April. The threshold at which employers begin paying the higher rate will also be lowered from £9,100 to £5,000, bringing more part-time workers into the scope.
Despite the challenges, Martin Seidenberg, chief executive of IDS, assured customers that Royal Mail is prepared for the busy Christmas period. “As we enter our busiest period, we are well prepared to deliver Christmas, with around 4,000 new vehicles being delivered before peak, 16,000 extra people, extended delivery hours until 8pm, and our growing network of parcel lockers and parcel shops,” he said.
Seidenberg emphasized the company’s commitment to controlling what it can but expressed concern over the rising costs. “We are delivering on the changes we can control, but the cost environment is worsening just at the time when we need to invest. 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,” he added.
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Royal Mail warns of £120 million cost increase due to National Insurance rise
